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StreetScooby

Wall Street's Gullible Occupiers

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Very good article in WSJ today:

http://online.wsj.com/article/SB10001424052970203633104576623083437396142.html?mod=WSJ_Opinion_LEADTop

Note that 50% of US mortgages in 2007 were basically crappy bonds, due to Barnie Frank's insistence that everyone should own a home.

Wall Street's Gullible Occupiers

The protesters have been sold a bill of goods. Reckless government policies, not private greed, brought about the housing bubble and resulting financial crisis.

By PETER J. WALLISON

There is no mystery where the Occupy Wall Street movement came from: It is an offspring of the same false narrative about the causes of the financial crisis that exculpated the government and brought us the Dodd-Frank Act. According to this story, the financial crisis and ensuing deep recession was caused by a reckless private sector driven by greed and insufficiently regulated. It is no wonder that people who hear this tale repeated endlessly in the media turn on Wall Street to express their frustration with the current conditions in the economy.

Their anger should be directed at those who developed and supported the federal government's housing policies that were responsible for the financial crisis.


Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.

Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.

Research by Edward Pinto, a former chief credit officer of Fannie Mae (now a colleague of mine at the American Enterprise Institute) has shown that 27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.

Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.

The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.

As housing bubbles grow, rising prices suppress delinquencies and defaults. People who could not meet their mortgage obligations could refinance or sell, because their houses were now worth more.

Accordingly, by the mid-2000s, investors had begun to notice that securities based on subprime mortgages were producing the high yields, but not showing the large number of defaults, that are usually associated with subprime loans. This triggered strong investor demand for these securities, causing the growth of the first significant private market for MBS based on subprime and other risky mortgages.

By 2008, Mr. Pinto has shown, this market consisted of about 7.8 million subprime loans, somewhat less than one-third of the 27 million that were then outstanding. The private financial sector must certainly share some blame for the financial crisis, but it cannot fairly be accused of causing that crisis when only a small minority of subprime and other risky mortgages outstanding in 2008 were the result of that private activity.

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default, driving down housing prices throughout the U.S. and throwing Fannie and Freddie into insolvency. Seeing these sudden losses, investors fled from the market for privately issued MBS, and mark-to-market accounting required banks and others to write down the value of their mortgage-backed assets to the distress levels in a market that now had few buyers. This raised questions about the solvency and liquidity of the largest financial institutions and began a period of great investor anxiety.

The government's rescue of Bear Stearns in March 2008 temporarily calmed the market. But it created significant moral hazard: Market participants were led to believe that the government would rescue all large financial institutions. When Lehman Brothers was allowed to fail in September, investors panicked. They withdrew their funds from the institutions that held large amounts of privately issued MBS, causing banks and others—such as investment banks, finance companies and insurers—to hoard cash against the risk of further withdrawals. Their refusal to lend to one another in these conditions froze credit markets, bringing on what we now call the financial crisis.

The narrative that came out of these events—largely propagated by government officials and accepted by a credulous media—was that the private sector's greed and risk-taking caused the financial crisis and the government's policies were not responsible. This narrative stimulated the punitive Dodd-Frank Act—fittingly named after Congress's two key supporters of the government's destructive housing policies. It also gave us the occupiers of Wall Street.

Mr. Wallison is a senior fellow at the American Enterprise Institute. He was a member Financial Crisis Inquiry Commission and dissented from the majority's report.
We are all engines of karma

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I get why people are mad at banks. everyone has been told the industry is soley responsible for the mess. its easy to blame them and few defend them. I'm not saying its wholly untrue but i do understand it.

here is what i dont get. so many of these kids are mad about their student loans. Why are they mad at the people who loaned them the money? shouldnt they be mad at the people who charged them for the education? at least partly upset at them?

the gov't will loan you as much as you want for school. schools raise tuition far faster than the cost of living. students get more money no questions asked in loans. Gee, who would guess that the price would go up?? at some point shouldnt they feel they over paid for the education?
"The point is, I'm weird, but I never felt weird."
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shouldnt they be mad at the people who charged them for the education?



I guess "Occupy Harvard" or "Occupy Yale" doesn't sound quite as catchy... :D:D



Why blame those responsible when you can blame the guys with the deeper pockets.



im not looking to blame anyone. i dont even think the schools did anything wrong. raise your prices to what the market will pay. i just dont understand how the kids cannot direct some of their animosity at the schools. at some point they have to feel they paid to much.
"The point is, I'm weird, but I never felt weird."
John Frusciante

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His was, however, the MINORITY opinion on the cause of the crash.



And Pinto has blasted the intellectual genius Krugman. Or, rather more acutely, called out Krugman on factual dishonesty that Krugman has put forth in his political statements.

http://www.scribd.com/doc/22327819/Pinto-How-Did-Paul-Krugman-Get-It-So-Wrong-11-9-09


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shouldnt they be mad at the people who charged them for the education?



I guess "Occupy Harvard" or "Occupy Yale" doesn't sound quite as catchy... :D:D



Why blame those responsible when you can blame the guys with the deeper pockets.



im not looking to blame anyone. i dont even think the schools did anything wrong. raise your prices to what the market will pay. i just dont understand how the kids cannot direct some of their animosity at the schools. at some point they have to feel they paid to much.



Why not blame the schools? Because they have been given everything without earning anything, and told who to blame for not getting it by the teachers and parents.

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Bill is right. There's plenty of blame to go around for everybody.



Yes you correct but why sit on wall street when you are mad about college tuition? Why sit on wall street when the Obama administration is the one that is actually causing business to hold the money because of EPA regulations and possible tax hikes they are trying to push through?

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I
here is what i dont get. so many of these kids are mad about their student loans. Why are they mad at the people who loaned them the money? shouldnt they be mad at the people who charged them for the education? at least partly upset at them?



They should be mad at themselves and themselves only because they took out 10's of thousands of dollars in public and private school loans without considering how they would pay them back.

I have about 40K in school loans myself, didn't get a dime of our federal hand outs, and you don't see my crying.

Of course I wasn't an idiot who decided to spend 60K on a BA in Sociology, I picked a field that had good job growth and a entry salary that would allow me to pay my school loans without living in a cardboard box.

Fuck every one of those idiots, I would gather that a large percentage of them got lots of government grants and hand outs, and now they want to cry about the little bit left over that they did have to pay.
"The restraining order says you're only allowed to touch me in freefall"
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His was, however, the MINORITY opinion on the cause of the crash.



And Pinto has blasted the intellectual genius Krugman. Or, rather more acutely, called out Krugman on factual dishonesty that Krugman has put forth in his political statements.

http://www.scribd.com/doc/22327819/Pinto-How-Did-Paul-Krugman-Get-It-So-Wrong-11-9-09



"by Edward Pinto, consultant to mortgage-finance industry."

That gives him a lot of credibility.
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The only sure way to survive a canopy collision is not to have one.

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There are a lot of problems in our ever changing globalized world. People from both sides of the fence have made a mess of things. What makes matters worse is that our problems will continue to persist as more and more jobs are permanently lost in North America and Europe.

But these protestors are fools. First off they are not even on Wall Street. Most of the protestors (and it is now spreading to many different cities across North America) are really calling for the end of the existing corporate system he have which is far from perfect. But what is the alternative? To have Big Government entities take over. If these protestors think they will get a free ride through life if all corporations were suddenly terminated and government controlled entities took over in their place, they are in for a rude awakening.

Whoever told you life would be easy was clearly lying to you.


Try not to worry about the things you have no control over

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The Wall Street Journal is owned by Rupert Murdoch these days.

Anything published in the WSJ must be fact checked quite carefully. Just like Faux News, they do not subscribe to any form of journalistic ethics nowadays. None.

This is a fact - there has been no effort to investigate, indict, prosecute, and jail the criminals that put the US economy over a cliff.

Every single US citizen has had $50,000.00 borrowed and handed over to the banks that are "too big to fail", so as to prevent the collapse of the world economy. Now that we, the people, are finally getting it together to force the issues, the weasels are starting to feel the heat.

The corporatocracy is going to have to adapt to the fact that you can't fool all of the people all of the time. Thirty years of the government being of, by and for the corporations is long enough.

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The 'occupiers' are mad about something but they just aren't sure what it is. They have now been co-opted by the unions and moveon.org (who are good at organizing). The whole point is to blame the rich so that the current administration can vilify the 'rich' in order to raise taxes.

I don't buy it. If we are going to raise taxes just to continue to fund Obama's spending debacle, then it doesn't solve anything. I'm ready and willing to pay more taxes, but I'm sick and tired of them being used to continue this crazy spending. Show me the spending cut FIRST, then I'll believe you are serious about lowering the debt and will be more willing to accept a reasonable tax increase.
Keith Abner
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"Those who do, can't explain; those who don't, can't understand"

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His was, however, the MINORITY opinion on the cause of the crash.



And Pinto has blasted the intellectual genius Krugman. Or, rather more acutely, called out Krugman on factual dishonesty that Krugman has put forth in his political statements.

http://www.scribd.com/doc/22327819/Pinto-How-Did-Paul-Krugman-Get-It-So-Wrong-11-9-09



"by Edward Pinto, consultant to mortgage-finance industry."

That gives him a lot of credibility.



Just as much as Krugman.
Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

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>Yes you correct but why sit on wall street when you are mad about college tuition?

Same reason you would go to a Tea Party rally in a public park to protest spending money on things like . . . public parks.

>Why sit on wall street when the Obama administration . . . .

Like I said, it's easier to blame someone you hate (like Obama or Wall Street) than yourself; thanks for that example.

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His was, however, the MINORITY opinion on the cause of the crash.



And Pinto has blasted the intellectual genius Krugman. Or, rather more acutely, called out Krugman on factual dishonesty that Krugman has put forth in his political statements.

http://www.scribd.com/doc/22327819/Pinto-How-Did-Paul-Krugman-Get-It-So-Wrong-11-9-09



"by Edward Pinto, consultant to mortgage-finance industry."

That gives him a lot of credibility.



Just as much as Krugman.



So Pinto also has a Nobel Prize. Didn't know that.
...

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His was, however, the MINORITY opinion on the cause of the crash.



And Pinto has blasted the intellectual genius Krugman. Or, rather more acutely, called out Krugman on factual dishonesty that Krugman has put forth in his political statements.

http://www.scribd.com/doc/22327819/Pinto-How-Did-Paul-Krugman-Get-It-So-Wrong-11-9-09



"by Edward Pinto, consultant to mortgage-finance industry."

That gives him a lot of credibility.



Just as much as Krugman.



So Pinto also has a Nobel Prize. Didn't know that.



Krugman was a consultant to Enron...memory problems AGAIN?
Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

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"by Edward Pinto, consultant to mortgage-finance industry."

That gives him a lot of credibility.



Just yesterday it didn't matter to you that Krugman was a consultant to Enron. What gives?

Edited to add: And I'll be a picky guy. There's not such thing as a "Nobel Prize" in economics. It's not the Nobel committee.

But again, Friedman also received the Prize. And Krugman spins Friedman as a lefty...


My wife is hotter than your wife.

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His was, however, the MINORITY opinion on the cause of the crash.



And Pinto has blasted the intellectual genius Krugman. Or, rather more acutely, called out Krugman on factual dishonesty that Krugman has put forth in his political statements.

http://www.scribd.com/doc/22327819/Pinto-How-Did-Paul-Krugman-Get-It-So-Wrong-11-9-09



"by Edward Pinto, consultant to mortgage-finance industry."

That gives him a lot of credibility.



Just as much as Krugman.



So Pinto also has a Nobel Prize. Didn't know that.



Obama does
So that pretty much puts your point in the crapper
"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

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His was, however, the MINORITY opinion on the cause of the crash.



And Pinto has blasted the intellectual genius Krugman. Or, rather more acutely, called out Krugman on factual dishonesty that Krugman has put forth in his political statements.

http://www.scribd.com/doc/22327819/Pinto-How-Did-Paul-Krugman-Get-It-So-Wrong-11-9-09



"by Edward Pinto, consultant to mortgage-finance industry."

That gives him a lot of credibility.



Just as much as Krugman.



So Pinto also has a Nobel Prize. Didn't know that.



Obama does
So that pretty much puts your point in the crapper



Friedman too.:P
...

The only sure way to survive a canopy collision is not to have one.

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