A song to Jesus from his bride the church!
A song to Jesus from his bride the church!
Colbie Caillat- Realize Jesus is the one you should realize. He did spell it out, but he’s waiting for you to realize and give him your heart in obedient faith. Judgement Day is coming! We must all stand before the judgement seat of Christ to give account for every deed done in the body whether good or evil. If the blood of Jesus covers us we will stand clean, pure and redemed before the Father. Repent and put on Jesus as Lord by being baptised into Him for the forgiveness of your sins.
I have a simple question. How is that the market did not send out a
signal for the risk in bad bets?
I guess if you making an investment in a bond, you would look at
default rates. If the default rates are low and returns are high, you
will make investments.
Why were the default rates low? Turns out that Fannie Mae and Freddie
Mac were buying up these securities due to their mandates. They got
dumb money from overseas to help them.
Phil Gramm wrote an interesting article in WSJ debunking this
dangerous viral nonsense.
OPINION FEBRUARY 20, 2009
Deregulation and the Financial Panic
Loose money and politicized mortgages are the real villains.
By PHIL GRAMM
The debate about the cause of the current crisis in our financial
markets is important because the reforms implemented by Congress will
be profoundly affected by what people believe caused the crisis.
If the cause was an unsustainable boom in house prices and
irresponsible mortgage lending that corrupted the balance sheets of
the world’s financial institutions, reforming the housing credit
system and correcting attendant problems in the financial system are
called for. But if the fundamental structure of the financial system
is flawed, a more profound restructuring is required.
I believe that a strong case can be made that the financial crisis
stemmed from a confluence of two factors. The first was the
unintended consequences of a monetary policy, developed to combat
inventory cycle recessions in the last half of the 20th century, that
was not well suited to the speculative bubble recession of 2001. The
second was the politicization of mortgage lending.
The 2001 recession was brought on when a speculative bubble in the
equity market burst, causing investment to collapse. But unlike
previous postwar recessions, consumption and the housing industry
remained strong at the trough of the recession. Critics of Federal
Reserve Chairman Alan Greenspan say he held interest rates too low
for too long, and in the process overstimulated the economy. That
criticism does not capture what went wrong, however. The consequences
of the Fed’s monetary policy lay elsewhere.
In the inventory-cycle recessions experienced in the last half of the
20th century, involuntary build up of inventories produced
retrenchment in the production chain. Workers were laid off and
investment and consumption, including the housing sector, slumped.
In the 2001 recession, however, consumption and home building
remained strong as investment collapsed. The Fed’s sharp, prolonged
reduction in interest rates stimulated a housing market that was
already booming — triggering six years of double-digit increases in
housing prices during a period when the general inflation rate was
Buyers bought houses they couldn’t afford, believing they could
refinance in the future and benefit from the ongoing appreciation.
Lenders assumed that even if everything else went wrong, properties
could still be sold for more than they cost and the loan could be
repaid. This mentality permeated the market from the originator to
the holder of securitized mortgages, from the rating agency to the
Meanwhile, mortgage lending was becoming increasingly politicized.
Community Reinvestment Act (CRA) requirements led regulators to
foster looser underwriting and encouraged the making of more and more
marginal loans. Looser underwriting standards spread beyond subprime
to the whole housing market.
As Mr. Greenspan testified last October at a hearing of the House
Committee on Oversight and Government Reform, "It’s instructive to go
back to the early stages of the subprime market, which has
essentially emerged out of CRA." It was not just that CRA and federal
housing policy pressured lenders to make risky loans — but that they
gave lenders the excuse and the regulatory cover.
Countrywide Financial Corp. cloaked itself in righteousness and
silenced any troubled regulator by being the first mortgage lender to
sign a HUD "Declaration of Fair Lending Principles and Practices."
Given privileged status by Fannie Mae as a reward for "the most
flexible underwriting criteria," it became the world’s largest
mortgage lender — until it became the first major casualty of the
The 1992 Housing Bill set quotas or "targets" that Fannie and Freddie
were to achieve in meeting the housing needs of low- and moderate-
income Americans. In 1995 HUD raised the primary quota for low- and
moderate-income housing loans from the 30% set by Congress in 1992 to
40% in 1996 and to 42% in 1997.
By the time the housing market collapsed, Fannie and Freddie faced
three quotas. The first was for mortgages to individuals with below-
average income, set at 56% of their overall mortgage holdings. The
second targeted families with incomes at or below 60% of area median
income, set at 27% of their holdings. The third targeted geographic
areas deemed to be underserved, set at 35%.
The results? In 1994, 4.5% of the mortgage market was subprime and
31% of those subprime loans were securitized. By 2006, 20.1% of the
entire mortgage market was subprime and 81% of those loans were
securitized. The Congressional Budget Office now estimates that GSE
losses will cost $240 billion in fiscal year 2009. If this crisis
proves nothing else, it proves you cannot help people by lending them
more money than they can pay back.
Blinded by the experience of the postwar period, where aggregate
housing prices had never declined on an annual basis, and using the
last 20 years as a measure of the norm, rating agencies and
regulators viewed securitized mortgages, even subprime and
undocumented Alt-A mortgages, as embodying little risk. It was not
that regulators were not empowered; it was that they were not alarmed.
With near universal approval of regulators world-wide, these
securities were injected into the arteries of the world’s financial
system. When the bubble burst, the financial system lost the
indispensable ingredients of confidence and trust. We all know the
rest of the story.
The principal alternative to the politicization of mortgage lending
and bad monetary policy as causes of the financial crisis is
deregulation. How deregulation caused the crisis has never been
specifically explained. Nevertheless, two laws are most often blamed:
the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures
Modernization Act of 2000.
GLB repealed part of the Great Depression era Glass-Steagall Act, and
allowed banks, securities companies and insurance companies to
affiliate under a Financial Services Holding Company. It seems clear
that if GLB was the problem, the crisis would have been expected to
have originated in Europe where they never had Glass-Steagall
requirements to begin with. Also, the financial firms that failed in
this crisis, like Lehman, were the least diversified and the ones
that survived, like J.P. Morgan, were the most diversified.
Moreover, GLB didn’t deregulate anything. It established the Federal
Reserve as a superregulator, overseeing all Financial Services
Holding Companies. All activities of financial institutions continued
to be regulated on a functional basis by the regulators that had
regulated those activities prior to GLB.
When no evidence was ever presented to link GLB to the financial
crisis — and when former President Bill Clinton gave a spirited
defense of this law, which he signed — proponents of the
deregulation thesis turned to the Commodity Futures Modernization Act
(CFMA), and specifically to credit default swaps.
Yet it is amazing how well the market for credit default swaps has
functioned during the financial crisis. That market has never lost
liquidity and the default rate has been low, given the general state
of the underlying assets. In any case, the CFMA did not deregulate
credit default swaps. All swaps were given legal certainty by
clarifying that swaps were not futures, but remained subject to
regulation just as before based on who issued the swap and the nature
of the underlying contracts.
In reality the financial "deregulation" of the last two decades has
been greatly exaggerated. As the housing crisis mounted, financial
regulators had more power, larger budgets and more personnel than
ever. And yet, with the notable exception of Mr. Greenspan’s warning
about the risk posed by the massive mortgage holdings of Fannie and
Freddie, regulators seemed unalarmed as the crisis grew. There is
absolutely no evidence that if financial regulators had had more
resources or more authority that anything would have been different.
Since politicization of the mortgage market was a primary cause of
this crisis, we should be especially careful to prevent the
politicization of the banks that have been given taxpayer assistance.
Did Citi really change its view on mortgage cram-downs or was it
pressured? How much pressure was really applied to force Bank of
America to go through with the Merrill acquisition?
Restrictions on executive compensation are good fun for politicians,
but they are just one step removed from politicians telling banks who
to lend to and for what. We have been down that road before, and we
know where it leads.
Finally, it should give us pause in responding to the financial
crisis of today to realize that this crisis itself was in part an
unintended consequence of the monetary policy we employed to deal
with the previous recession. Surely, unintended consequences are a
real danger when the monetary base has been bloated by a doubling of
the Federal Reserve’s balance sheet, and the federal deficit seems
destined to exceed $1.7 trillion.
Mr. Gramm, a former U.S. Senator from Texas, is vice chairman of UBS
Investment Bank. UBS. This op-ed is adapted from a recent paper he
delivered at the American Enterprise Institute.