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Your Stupid Mortgage Brought Down the Economy

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October 09, 2009 – Comments (15)

Okay, maybe your particular 3-year interest-only adjustable rate mortgage didn’t trigger a near total collapse of the financial system. But the financial institutions that peddled risky loans, crummy credit card terms, over-the-counter derivatives and those pesky credit default swaps aren’t getting off the hook so easily.

The entire financial services industry got a regulatory Nasty-Gram from the Administration today. After accepting his Nobel Peace Prize President Obama unveiled his proposal for financial regulatory reform legislation. Then he saved a baby from a burning building, swam the English Channel and chewed gum, patted his head and rubbed his belly -- in tandem!

For your weekend leisure reading, here’s the entire 89-page .pdf of the Financial Regulatory Reform white paper that was written in June. For those who prefer their legislative proposals in bite-sized bits, the Wall Street Journal did a nice job of converting it to Cliff’s Notes

This really is about YOU

The Motley Fool has been selected by the White House on Tuesday to speak about the proposal with a member of the President’s council of economic advisors. 

Awww, shucks. Why us? Easy: The folks in Washington know that we have the most engaged, intelligent and informed investing community there is – and that we will tell it like it is. They know that we all will play an important role in whether or not this legislation makes sense and ultimately gets written into law.

On Tuesday we’re going to the White House to represent YOU. So we need you to weigh in on this topic (in the comments section below or on the main article on this topic we’re about to post on the main page of Fool.com). Pipe up, Fools! We’re all heading to the White House!

-Dayana Yochim (TMF School)

15 Comments – Post Your Own

#1) On October 09, 2009 at 5:51 PM, topsecret09 (36.77) wrote:

  If you actually have their ear, THIS NEEDS TO BE SAID.... TS

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#2) On October 09, 2009 at 6:32 PM, MikeMark (29.43) wrote:

Financial Regulatory Reformation is not the answer. It's the same as closing the gate after the horses have left the arena. The substance of the reformation doesn't even matter. The next debacle will be different, yet still destructive. Instead a return to free markets is the correct answer.

We really ask very little of government. First, it must protect. Protect contracts and agreements. Protect from fraud especially in government. Protect from government. Second, we must recognize that when someone makes a mistake of any kind, we don't protect them from the mistake. If a person, business, government entity or any other entity makes a mistake, they must suffer the consequences of the mistake. That strengthens everyone which makes the economy stronger. Any other position leads into a downward spiral where mistakes are continually made and "bailed out" at the cost of those who cannot afford it and have no say in the matter. Third, get out of the way. The nature of government is a road block to freedom, not the answer to it.

Solving these problems is really relatively easy. However, from a political, governmental point of view it is unpalatable. The "to do" list is as follows:

Cut the pay of all government officials. Remove any government programs that affect the economy in any way. No more minimum wage or maximum commodity prices, no price controls of any kind. Get rid of all government pork. No entitlements. No more pensions or social security. Encourage saving. Repeal all income tax. The government existed and thrived without income tax for 100 years. Remove the Fed's ability to set any interest rate. Use an interbank rate set by 100 top and 100 private banks. Protect the deposits of the people, not the exectuves and shareholders of the company. Allow the natural course to take place.

Protect the people, their assets and contracts. Assets that the people have placed at risk in the form of shareholdings should shoulder that risk. People who own a form of hard asset should not be punished through a hidden tax such as printing currency. Make the US$ a hard currency again.

Give the (economic) vote back to the people.

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#3) On October 09, 2009 at 6:49 PM, devoish (98.65) wrote:

No, no. It was my adjustable three year mortgage that brought down the economy. I'm sorry. I won't do it again.

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#4) On October 09, 2009 at 7:50 PM, truthisntstupid (82.69) wrote:

Waitaminnit!!!  Your damn economy screwed up my mortgage!  Actually I have no mortgage but it sounded funny...

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#5) On October 09, 2009 at 7:59 PM, topsecret09 (36.77) wrote:

  Financial Bust Connected to Illegal Alien Mortgages

October 5, 2009 by lornakismet

by  William Campenni / Human Events /   10/05/2009
Hat Tip to Bluegrass Pundit In actuality, those subprime mortgages issued in the last several years that went into foreclosure went mostly to illegal aliens, the exploiting landlords who rented to illegal aliens, and other citizen minorities who lost jobs to illegal aliens, especially displaced African-Americans in the agricultural, trades and services industries.In the Medieval era — when the periodic table of the elements was comprised of only Fire, Earth, Air, and Water — alchemists posited the existence of a fifth magical substance, Quintessence, which when mixed in combinations of the other four would create every other form of matter. They searched in vain for this ethereal substance in their pursuit of a means of changing base metals into gold.

Their quest went unrealized, but this magical quintessence was subsequently discovered five centuries later by the new alchemists: mortgage bankers and investors.  They found a way to turn worthless mortgages into hordes of gold.  Or at least they thought they had.

There were other factors that contributed to the collapse of the credit markets. Low interest rates by the Federal Reserve, lowered standards by FannieMae and FreddyMac, securitized mortgages (derivatives and collateralized debt obligations — a real alchemic brew), the machinations of Barney Frank and Chris Dodd, the Community Reinvestment Act, Alan Greenspan, and so forth. etc. But of themselves, and even in concert, they could not have brought about a collapse of the magnitude that ensued.

So what supplied this quintessential element? It was the opportunity to exploit the sudden and coincidental housing needs of millions of illegal aliens with subprime mortgages.  The grand schemes and diabolical financial instruments would otherwise lie fallow without a huge base of mortgages to hold up the Ponzi pyramid, and the new market of the 12 — more likely 20 — million housing-starved illegal alien populace was the ripe, low hanging fruit.

Now a little math here. Even at ten to a house, that would require one or two million dwellings. Did anyone think that banks and lenders would not see that huge market and not lust for a share of it?  Or that they would not come up with ways to bring it about when the elites in business, politics and media were putting out the welcome mat for cheap workers and future voters?

With deceptive media and obfuscating punditry, a false picture was painted that the people who got these subprime loans were poor folks or house flippers, or greedy boomers who re-financed to buy their new Volvo and swimming pool.  Nope. Wrong!  Those cases were few.  In actuality, those subprime mortgages issued in the last several years that went into foreclosure went mostly to illegal aliens, the exploiting landlords who rented to illegal aliens, and other citizen minorities who lost jobs to illegal aliens, especially displaced African-Americans in the agricultural, trades and services industries.

It doesn’t take the research resources of the Federal Reserve or Fannie Mae or the Wall Street Journal to discover this linkage of the subprime mortgages to the illegal alien customer base. A few hours on Google will bring it out with startling clarity. The distribution of subprimes going into foreclosure in the 2005-2007 period that commenced the current collapse closely matches the concentrations of illegal aliens — Southern and Central Valley of California, Nevada, Texas, the southwest border states, North Carolina, Georgia, and Florida, and metro areas like Denver, Chicago, and Cleveland, and the Washington suburbs.  The matches correlate to the ZIP code, or even more accurately, to the neighborhood.

To glimpse just an overview of this illegal alien/subprime correlation, one can go to two websites; one that provides maps of the subprime foreclosures (www.realtytrac.com), and another that reveals the concentration of illegal alien populations (pewhispanic.org). After 2008, the spread of the housing collapse fanned out into other neighborhoods as the effects of the collapse and the following recession spread beyond the illegal alien concentrations. But these later upscale neighborhood foreclosures are effects, not causes. They flow from the collapsing economy precipitated by the failed subprimes to illegals.

For further validation, investigation would show that many of these failed mortgages were granted to unsophisticated buyers with no Social Security number, or a stolen number, or more commonly in recent years, an Individual Taxpayer Identification Number (ITIN).   Who is that group?  Not blacks.  Not boomers. Not even speculators. They have valid SS numbers.  Who’s left? You figure.  There are reliable data that in the Southern California market alone 40% of the loans went to historically unqualified illegal aliens or the citizen landlords running illegal alien crash pads.  A study at the start (2004) of the subprime lending fiasco by the Greenlining Institute in California backs up this finding.  It is reinforced by other studies, including a 2007 analysis by the Center for Responsible Lending.  Even in the shadow of the Capitol dome, the foreclosed homes are compacted in the neighborhoods where illegal aliens settled.

The actual percentages are probably much higher, because the fraudulent paperwork that facilitated many of these “liar loans” hides the illegal status of the borrowers and does not address the status of the renters.

The correlation of subprimes going into foreclosure with the illegal alien demographics was traceable as early as 2006, but never warranted any investigative journalism by the major media.  Those living in towns and neighborhoods where the scenario was rapidly unfolding (like me in suburban Northern Virginia) were well aware of the phony financing schemes that were propping up the subprime housing purchases for patently unqualified illegal alien newcomers.  However, the only published acknowledgment of the correlation was by an unheralded blogger using the nom-de-web “The Undocumented Blogger” in 2007.

The rest of the story is now well known.  Even outlets like the Washington Post and Wall Street Journal are starting to post articles that ever so subtly admit that the subprime mess was concentrated in the illegal communities.  They report how collaborative realtors made their commissions.  The brokers and lenders made their profits then sold the paper.  So did the investors and funds managers. Then the big moneyed hedge funds got in on the bonanza.  The gap between lenders and borrowers went out of sight.  Every transaction along the way made somebody big bucks.  Even the landlords did well on rents and house appreciation.  Until the collapse of the Immigration Reform (i.e., amnesty) bill  in 2007, the housing future for illegal aliens looked like it would be secured by the full faith and credit of the United States government and championed by the media and government elites.

The housing bubble has burst. The illegal renters lost jobs and were evicted. The landlords couldn’t service the mortgage without their numerous roomers.  The balloons that are a feature of nearly all these subprimes came due and the owners could not meet the huge increases in monthly payments.  With lowering home values, more mortgages went upside-down and refinancing became impossible.  It was easier to walk away and be foreclosed.

The full story on the subprime mortgage collapse is yet to be written.  The blame is widespread — lenders, appraisers, realtors, politicians, protective media, and the borrowers themselves.  Besides the ethical violations, the underlying criminal activity — fraud, misrepresentations, kickbacks, tax evasion, outright theft — would overpopulate many a jail.  But in the end the innocent taxpayer, who pays his bills and lives up to his contracts, will pay for the damages of those who didn’t, with higher taxes, higher mortgage rates, higher welfare costs, and lowered home values.

There is a moral for our ruling elites in this subprime story.  Your actions in recklessly approving and facilitating bad policies will have many other unforeseen consequences far afield from the original intent.  Your support for unqualified home buyers resulted in the mess we are in today.  Yet you foolishly are repeating this folly with bizarre energy and health care programs which lead into similar terrae incognitae.

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#6) On October 09, 2009 at 9:39 PM, Teacherman1 (57.23) wrote:

Apparently no one has much of any value to say. Maybe over the weekend, when people have more time, you will get some meaningful input.

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#7) On October 09, 2009 at 10:04 PM, topsecret09 (36.77) wrote:

#6) On October 09, 2009 at 9:39 PM, Teacherman1 (93.09) wrote:     Apparently no one has much of any value to say....  We are waiting for you to add "value" to the conversation. Obviosly certain "FACTS" do not sem to matter to you or others on caps.... Lets just continue with all of the LIES that come from the media via Washington D.C....  TS 

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#8) On October 09, 2009 at 10:06 PM, topsecret09 (36.77) wrote:

Sorry about the misspells,computer keys work most of the time anyway... 

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#9) On October 09, 2009 at 10:22 PM, G8BigBoom (69.11) wrote:

Im with mikemark on this one. You will all have to learn AGAIN why it's bad to have the gov involved in even the simplest task. I can't wait to see these new financial regulations when they are ready to be signed into law.

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#10) On October 10, 2009 at 11:11 AM, Option1307 (29.69) wrote:

I need to dig into this more and read the actual propoal not just the cliff notes version, but there are a few things that jump out at me right off the bat:

1)

Ensures that any financial firm big enough to pose a risk to the financial system would be heavily regulated by the Federal Reserve, including regular stress tests.

Says the Fed will have to “fundamentally adjust” its current supervision to more closely watch for systemic risks.

Allows the Fed to collect reports from all U.S. financial firms that meet “certain minimum size thresholds.”

Gives the Fed oversight over parent companies and all subsidiaries, including unregulated units and those based overseas.

It seems as though we are giving the Fedeal Reserve more control and power over our financial system. Why? Isn't it logical to ask what advantage this would actually bring to us? I mean the handling of the current crisis has not exactly been stellar and pleasing to most Americans. IMO most Americans are going to be for something that brings about transparancy, not giving more power to the mysterious black hole "no questions asked" Federal Reserve. I doubt it will ever happen b/c it seems like political suicide, but I would like to see an audit of the Fed (HR1207 & S604) become reality in any sort of financial reform.

2) including regular stress tests.

Umm, you're kidding right? Let me get this straight. Nobody believed the validity of the stress tests this past yr. but yet we want to implement more of them in order to ensure the stability of large instituitons? Are they serious with this one? Whether or not the stress tests actually do a good job of assessing the financial stability of institutions is irrelevant IMO at this point in time. To the general public they are a joke and thus they wont promote much trust within the generla population. Essentially, they weren't believeable the first round, why implement more of them?

3)

Urges the SEC to strengthen its regulation of credit-rating firms, including disclosing conflicts of interest, better differentiating between structured and unstructured debt and more clearly stating the risks of financial products.

Tells regulators to reduce their reliance on credit-rating firms.

This is a step in the right direction. IMO the credit agencies are partially to blame for this mess because 1) They (3x) have a monopoly. 2) there are huge conflict nof interest issues. They get paid by companies to issue ratings on those same companies. Hmm, sketcy a best.

4) Amends the Fed’s emergency lending powers to require prior written approval by the Treasury Secretary.

Again, another step in the right direction although I need to read the details before I get to excited about this.

5) The Glass Steagall act

Why is this not addressed? I would like to see the Gramm Leach Biley act repealed as I fele this cretes a huge conflict on interest and ultimately played a significant role in the crisis. Can we at least talk about this people? I think this is a huge issue for a lot of people, but this reform, from what I've read so far, doesn't really address this too much.

Overall, I give Obama credit for trying to do something. At least he is getting the ball rolling anyways. However, there isn't much to like about this so called reform. It seems pretty superficial and just more of the same. Give more power to the Fed, rely on ratings agencies, allow banks to continue shady practices, and allow "to big to fail" institutions to remain "to big to fail". Wtf, where is the reform in that? This does very little do address the needs and desires of average Americans and therefore I don't thing many people are going to be too excited about it.

Admittedly I have only read the WSJ version so I need to dig into the details later. Maybe I'll be surprised, but I'm not holding my breath.

Thanks for the forum, good luck with the Tuesday meeting!

 

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#11) On October 10, 2009 at 4:04 PM, Teacherman1 (57.23) wrote:

Hey TOPSECRET, did I put a burr under your saddle?

My comment was made only to address the fact that the BLOG called for comments on what could or should be done in the reform. The posts that proceeded mine were either general complaints about all that was done wrong, or jokes.

I simply meant that when the weekend came and people had more time to think about it, then perhaps they would make positive, meaningful suggestions on what should or should not be included in the reforms.

If that offended you, I apologize. I just did not see posts that were responding to the question.

Now, I will go mow my yard and feed the dog.

Have a nice day.  

 

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#12) On October 10, 2009 at 4:36 PM, topsecret09 (36.77) wrote:

#11) On October 10, 2009 at 4:04 PM, Teacherman1 (93.09) wrote:

If that offended you, I apologize. I just did not see posts that were responding to the question.     Thank You for the clarification,I appreciate that........  TS

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#13) On October 11, 2009 at 10:08 AM, devandev (< 20) wrote:

I have to admit, I got a bit lost even reading the Cliff notes, but I would like to see a couple of simple reforms that seem common sense to me:

 Every bank that writes a mortgage should own it for its entire lifespan.  No selling it to someone else.

 No bank may invest its depositors' money into the stock market or anything else that can depreciate in value.  Use those deposits to make loans; you know, the way banks used to make money.

Reinstate the line between commercial and investment banking.

 Will these measures cut bank profits in the future?  I'm sure they will.  Do I care?  Not even slightly.

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#14) On October 12, 2009 at 10:55 AM, Hetepheres (84.83) wrote:

I agree with Option1307 in many items here, in particular the issues with the Fed, Glass Steagall and that Gramm Leach Biley should be repealed. 

And a regulatory agency should be a Gov. agency with full force and power of the government behind it.

"5) The Glass Steagall act

Why is this not addressed? I would like to see the Gramm Leach Biley act repealed as I fele this cretes a huge conflict on interest and ultimately played a significant role in the crisis. Can we at least talk about this people? I think this is a huge issue for a lot of people, but this reform, from what I've read so far, doesn't really address this too much."

I also don't see why the Glass Steagall Act was not mentioned.

Devandev was right on also with the aspects of Banking and commercial investing.

"Every bank that writes a mortgage should own it for its entire lifespan.  No selling it to someone else." Emphasis mine.

Responsibility comes with ownership. They'll be sure the loans are ok if it is absolutely the thing that they, THEMSELVES,  will eat the loss if it fails.

"No bank may invest its depositors' money into the stock market or anything else that can depreciate in value.  Use those deposits to make loans; you know, the way banks used to make money.

Reinstate the line between commercial and investment banking."  YUP.  Again: Reinstate Glass Steagall and Gramm Leach Biley should be repealed. 

"Will these measures cut bank profits in the future?  I'm sure they will.  Do I care?  Not even slightly."

I don't care about their profits either. They can learn to make do on a bit less in exchange for staying in business so the rest of the nation/world can stay in business without these bubble popping things happening.

 How many depressions do we have to go through before we get it that when market folks get unruly, the rest of us will SUFFER?

 Greed will always be a part of banking, maybe not all parts, but it is there and must be addressed. This is why the banking industry, in all it's aspects, needs to be HEAVILY regulated.

 

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#15) On October 16, 2009 at 3:56 PM, Zest1082 (< 20) wrote:

Sooo they are still planning on Leaving Barney Frank in charge of the Finance committee?  Gosh then I guess it doesn't matter what new regs they come up with.

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