What Just Happened? (Bailout)

Big-government fingerprints on murder weapon - by: former OK Congressman, Ernest Istook

http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=78124

Big-government fingerprints on murder weapon
Posted: October 16, 2008
1:00 am Eastern

© 2008

Whose fingerprints are on the weapon that murdered the U.S. economy?

Multiple culprits deserve blame, but the Clinton administration stands out as a ringleader for diverting billions of dollars into junk sub-prime mortgages. Those loans have fouled the economy and siphoned away the capital needed by businesses and families today.

Government created a quota system that required lending to people who lacked the ability to repay.

Clinton's HUD (Department of Housing and Urban Development) decreed that big chunks of mortgages must be issued to borrowers with poor finances. It started at 12 percent of all Fannie Mae and Freddie Mac mortgages in 1996. By 2008, that proportion had more than doubled, to 28 percent.

Because Fannie and Freddie dominated the mortgage market, holding about $5 trillion in mortgages, they effectively dictated mortgage standards. The result: Their misguided practices rippled through lenders across the country. If banks made a sub-prime loan, they could re-sell it to Fannie and Freddie. And unless banks made those loans, there was a limit to other loans that would be bought.

As HUD wrote in a 2004 report, explaining its post-1996 quotas:

HUD's ... Regulation imposes no requirement for the total number of home purchase mortgages that a GSE [Government-Sponsored Enterprise] must buy. Rather, the rule provides that, however many home purchase loans in metropolitan areas the GSEs buy, a certain percentage must be in each goal category. For example, if a GSE buys 1 million home purchase mortgages in metropolitan areas in 2005, then 450,000 of these mortgages would need to be for low- and moderate-income families.

Under that scenario, for each million loans made in 2005 (when the "very low-income" goal was 22 percent), then 220,000 of those mortgages were required by federal regulation to be among the "special affordable" sub-prime group. Since Fannie and Freddie bought hundreds of billions in mortgages each year, this 22 percent quickly became a huge mandate to make poor-quality loans.

Lenders complied by creating the infamous zero-down loans and other loans that proved to be junk. This wasn't a failure to regulate. It was a failure by regulating too much!

Many motives were commendable, of course. The American dream of home ownership is common to all races, classes and income levels. But so, too, is the ability to get in over your head.

So how low was low-income to our government? "Very low-income," also called "special affordable loans," was defined as having less than 60 percent of an area's median income. Just being below the median alone put a household in the bottom half of income. Being in the bottom third of the bottom half was scraping along compared to most folks.

Local medians vary. Census numbers show a median range from $44,000 for a family of three in Arkansas to $81,000 for a family of three in Maryland. (These are 2008 dollars). Living on 60 percent of that would be $26,400 to $48,600, with all sorts of levels in-between, depending on locality.

Fannie and Freddie complied with HUD's requirements, increasing their sub-prime loans year after year. They didn't mind. Indeed, they and their congressional supporters bragged about it.

Protected by their political friends, especially in Congress, Fannie and Freddie not only met their quotas for backing home loans to people who couldn't afford houses, they surpassed them. In 2004, 24.2 percent of their mortgages went to very low-income families, beating the goal of 20 percent. The following year they bested the 22 percent goal, hitting 24.5 percent. In 2006 they smashed the 23 percent goal with 26.46 percent. A year later they slipped, but still exceeded the 25 percent goal with 25.65 percent.

Helping out was the controversial group ACORN, which joined other community organizations in channeling potential borrowers to banks that would make these special loans. Of course, ACORN and the other enablers received handsome fees for this effort.

But it wasn't a kindness to help poor people get into a house, only to be evicted because they couldn't pay. It was a setback to them.

So, what if Fannie and Freddie had balked, rather than happily complied? Ultimately, the law created penalties that could reach $25,000 each day if they were not aggressive enough in marketing mortgages to those who had limited ability to pay.

This quota system for mortgage loans began when Congress in 1992 created the requirement that Fannie and Freddie must back loans to very low-income persons. However, the legislation specified only that this goal must be "not less than 1 percent." Starting at 12 percent and scaling up to 28 percent, the Clinton administration went above and beyond this. And the Bush administration did not reverse that course.

The left is aggressively working to convince America that a "failure to regulate" made lenders go crazy and wreck our economy through greed. The truth is that our economy was legislated and regulated into this mess. Even if our economy isn't already regulated to death, it's still attempted murder.

Ernest Istook is recovering from serving 14 years in Congress and is now a distinguished fellow at The Heritage Foundation.

Mike Huckabee, Dennis Kucinich, Jim Inhofe, Andrew Rice, and a Couple of Oklahoma Liberal Bloggers AGREE: Oppose Bailout

http://www.okiefunk.com/node/448

This is an interesting post from an Oklahoma Liberal Blog, OkieFunk, (by: Dr. Kurt Hochenauer - Professor at University of Central Oklahoma) and shows that many liberal Democrats are in agreement with many conservative Republicans in opposing the bailout plan.

Democrats Should Oppose Bailout
Submitted by dochoc on Mon, 2008-09-29 18:01.

House Democrats should unite and defeat the massive $700 billion financial bailout of Wall Street.
Not only does it make sense to refocus the bailout on middle-class taxpayers it would also ensure sweeping Democratic wins in the November elections.
President George Bush and the members of his ruling junta, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, are proposing taxpayers put their money on the line for Wall Street investment firms and banks. This committed money will mean fewer programs for the middle-class in the future. It will almost certainly jeopardize the government programs Social Security and Medicare.
It will also affect state government budgets, as well, because the federal government will have to slash funding to state programs that help the vast majority of Americans.
Those who support the measure, and this includes many leading Democrats, say the measure has safeguards, that Americans are actually buying a stake of these financially insolvent companies. If the companies rebound, then taxpayers could benefit, they argue. Do you actually believe this?
But the bottom line is the people who were wrong about the subprime mortgage crisis and housing bubble are the ones now pushing this radical solution. Why do it so quickly? What are the political bigwigs and investment bankers trying to hide from the public? How will this bailout affect you in years to come? No one can answer that.
Here are some issues and questions raised by Ohio's U.S. Rep. Dennis Kucinich about the bailout:
The $700 billion bailout for Wall Street, is driven by fear not fact. This is too much money in too a short a time going to too few people while too many questions remain unanswered. Why aren't we having hearings on the plan we have just received? Why aren't we questioning the underlying premise of the need for a bailout with taxpayers' money? Why have we not considered any alternatives other than to give $700 billion to Wall Street? Why aren't we asking Wall Street to clean up its own mess? Why aren't we passing new laws to stop the speculation, which triggered this? Why aren't we putting up new regulatory structures to protect investors? How do we even value the $700 billion in toxic assets?
Why aren't we helping homeowners directly with their debt burden? Why aren't we helping American families faced with bankruptcy. Why aren't we reducing debt for Main Street instead of Wall Street? Isn't it time for fundamental change in our debt based monetary system, so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the United States Congress or the board of directors of Goldman Sachs? Wall Street is a place of bears and bulls. It is not smart to force taxpayers to dance with bears or to follow closely behind the bulls.
In a press release today, state Sen. Andrew Rice, a Democrat running against U.S. Sen. Jim Inhofe in Oklahoma this year, said, "This bill gives too much away to the people who created these problems without guaranteeing that it won't happen again. Any bill would need to require much tougher consequences for Wall Street in order to earn my support."
That is a good stance for Democrats, though I would go further and suggest party leaders completely shred the Bush plan and start over. First, we should implement a bailout for the middle class, then we can worry about Wall Street. We should work from the bottom up, not the top down.
The House is supposed to vote on the measure today. Watch as leading national Democrats capitulate one-by-one to Bush’s last bit of thievery and then actually try to take credit for it.
Public opinion is against the bailout. Democrats should seize the day and create a bailout plan that forces many Wall Street investment firms to face the consequences of their own reckless decisions and greed as it helps ordinary Americans keep their homes. Democrats are risking the viability of their party if they go along with the Bush plan.

2004 Video Going Around of Fannie Mae and Freddie Mac Comments Made by Our Elected Representatives