by ilene - July 7th, 2011 1:47 am
By Brett Arends
The last financial crisis isn’t over, but we might as well start getting ready for the next one.
Sorry to be gloomy, but there it is.
Why? Here are 10 reasons.
1. We are learning the wrong lessons from the last one. Was the housing bubble really caused by Fannie Mae, Freddie Mac, the Community Reinvestment Act, Barney Frank, Bill Clinton, "liberals" and so on? That’s what a growing army of people now claim. There’s just one problem. If so, then how come there was a gigantic housing bubble in Spain as well? Did Barney Frank cause that, too (and while in the minority in Congress, no less!)? If so, how? And what about the giant housing bubbles in Ireland, the U.K. and Australia? All Barney Frank? And the ones across Eastern Europe, and elsewhere? I’d laugh, but tens of millions are being suckered into this piece of spin, which is being pushed in order to provide cover so the real culprits can get away. And it’s working.
2. No one has been punished. Executives like Dick Fuld at Lehman Brothers and Angelo Mozilo at Countrywide , along with many others, cashed out hundreds of millions of dollars before the ship crashed into the rocks. Predatory lenders and crooked mortgage lenders walked away with millions in ill-gotten gains. But they aren’t in jail. They aren’t even under criminal prosecution. They got away scot-free. As a general rule, the worse you behaved from 2000 to 2008, the better you’ve been treated. And so the next crowd will do it again. Guaranteed.
Read the rest here: The Next Financial Crisis Will Be Even Worse – SmartMoney.com.
Tags: Angelo Mozilo, Countrywide, credit, debt bubble, Dick Fuld, Fannie Mae, Financial Crisis, Fraud, Freddie Mack, housing bubble, jail, Lehman, next financial crisis
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by ilene - September 3rd, 2010 5:04 pm
Courtesy of MICHAEL HUDSON, writing at CounterPunch
What is the difference between today’s economy and Lehman Brothers just before it collapsed in September 2008? Should Lehman, the economy, Wall Street – or none of the above – be bailed out of bad mortgage debt? How did the Fed and Treasury decide which Wall Street firms to save – and how do they decide whether or not to save U.S. companies, personal mortgage debtors, states and cities from bankruptcy and insolvency today? Why did it start by saving the richest financial institutions, leaving the “real” economy locked in debt deflation?
Stated another way, why was Lehman the only Wall Street firm permitted to go under? How does the logic that Washington used in its case compare to how it is treating the economy at large? Why bail out Wall Street – whose managers are rich enough not to need to spend their gains – and not the quarter of U.S. homeowners unfortunate enough also to suffer “negative equity” but not qualify for the help that the officials they elect gave to Wall Street’s winners by enabling Bear Stearns, A.I.G., Countrywide Financial and other gamblers to pay their bad debts?
There was disagreement last Wednesday at the Financial Crisis Inquiry Commission now plodding along through its post mortem hearings on the causes of Wall Street’s autumn 2008 collapse and ensuing bailout. Federal Reserve economists argue that the economy – and Wall Street firms apart from Lehman – merely had a liquidity problem, a temporary failure to find buyers for its junk mortgages. By contrast, Lehman had a more deep-seated “balance sheet” problem: negative equity. A taxpayer bailout would have been an utter waste, not recoverable.
Lehman CEO Dick Fuld is bitter. He claims that Lehman was unfairly singled out. After all, the Fed lent $29 billion to help JPMorgan Chase buy out Bear Stearns the preceding spring. In the wake of Lehman’s failure it seemed to gain the courage to say, “Never again,” and avoided new collapses by bailing out A.I.G. – saving all its counterparties from having to take a loss.
Was this not a giveaway? Fuld implied. Why couldn’t the Fed and Treasury do for Lehman what they did with other Wall Street investment firms and stock brokers: let it reclassify itself as a bank so it could pawn off…
Tags: AIG, Bailout, balance sheet problem, Countrywide, Dick Fuld, Economy, Fannie Mae, Fraud, Lehman Brothers, Michael Hudson, Wall Street
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by ilene - August 27th, 2009 1:23 am
Courtesy of Jesse’s Café Américain
Welfare for Wall Street is just another phase of the ‘trickle down’ approach that seems to be so popular with the financerati.
If "Cash for Clunkers" had involved subsidized loans for cars administered by the banks it would have been touted as the greatest thing since sliced bread by the coporate media and mainstream infomercials, instead of being slammed on a daily basis as a troubled, pointless giveaway program.
So now we have a new "Cash for Criminals" program from the finance friendly folks at the tarnished Treasury and finagling Fed as outlined in the story below, this time for those overpriced housing loans sold to underpaid, over-indebted consumers.
The housing market needs to clear, the losses need to be realized, and the debt must be written down or taken into default by the banks.
The banks do not wish to foreclose because this will force them to start marking down the toxic assets they still hold on their books.
The Obama Administration is doing a fairly good imitation of Japan Inc.
Washington Post
Subprime Lenders Getting U.S. Subsidies, Report Says
By Renae Merle
Wednesday, August 26, 2009
Many of the lenders eligible to receive billions of dollars from the government’s massive foreclosure prevention program helped fuel the housing crisis by issuing risky subprime loans, according to a report to be issued Wednesday by the Center for Public Integrity.
Under the $75 billion program, called Making Home Affordable, lenders are eligible for taxpayer subsidies to lower the mortgage payments of distressed borrowers. Of the top 25 participants in the program, at least 21 specialized in servicing or originating subprime loans, according to the center, a nonprofit investigative reporting group funded largely by charitable foundations.
Much "of this money is going directly to the same financial institutions that helped create the sub-prime mortgage mess in the first place," Bill Buzenberg, executive director of the center, said in a statement.
For example, J.P. Morgan Chase, Wells Fargo and Countrywide, which has been bought by Bank of America, are eligible to receive billions of dollars under the program,…
The report comes as the Obama administration is prodding lenders to do more to help borrowers. Less than 10 percent of delinquent borrowers eligible for assistance through Make Home Affordable have received…
Tags: Cash for Criminals, Countrywide, foreclosure prevention programs, JP Morgan Chase, Making Home Affordable, Mortgage lenders, Obama, subprime debacle, Wells Fargo
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by ilene - June 9th, 2009 8:59 pm
[Free subscription to PSW, just click here - Ilene]
Courtesy of Tom Lindman of But Then What?
Well, this is interesting. If you’ve read the SEC complaint against Countrywide’s Angelo Mozillo and other executives you probably noticed the name John P. McMurray popping up several times. He was the chief risk 
manager at Countrywide who saw the problems coming, alerted management and was promptly ignored.
It turns out that Countrywide wasn’t the only concern that had the benefit of his analysis and chose to believe in the tooth fairy instead. In 2006 he offered some of the same advice to the Fed.
From Reuters:
At a time when many in the U.S. home loan industry were offering money to almost anyone who walked in the door, John P. McMurray publicly warned about the risks of such lax lending.
McMurray pointed out the risks at the Federal Reserve Bank of Chicago’s annual conference on bank structure and competition on May 18, 2006 — less than a year before the housing sector and mortgage lending industry began collapsing, leading to a credit crunch that spread around the world.
Such lending practices also eventually collapsed Countrywide into a fire sale takeover and led to charges of fraud and insider trading being brought against company co-founder Angelo Mozilo.
McMurray’s presentation on the home lending boom contrasted with comments Federal Reserve Chairman Bernanke had made in the event’s keynote address about 90 minutes earlier.
Bernanke said home finance innovation did carry risk but provided significant net benefits…
At the Fed conference, McMurray gave an almost academic presentation that included 29 slides packed with graphics and charts on the risks and causes of mortgage delinquency.
He explained how larger loans, lower credit scores, higher loan-to-value ratios, and less required documentation from loan applicants were coinciding with greater delinquency, wrote Cabray Haines, who summarized the conference for the Chicago Fed Letter.
“McMurray pointed out that this finding is particularly worrisome, given the recent popularity of loans that require little to no documentation of borrowers’ income and credit history,” Haines wrote…
There is a little bit of “gotcha” in the article which is unfair. It’s always easier to see the error in battle plans after the fight than it is in the middle of it, but that doesn’t alter the
…
Tags: Angelo Mozillo, Countrywide, John P. McMurray
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by ilene - June 4th, 2009 9:43 pm
Courtesy of Tom Lindmark at BUT THEN WHAT
You are probably aware that the SEC has accused former Countrywide CEO, Angelo Mozillo, and two of his chief lieutenants with fraud. The
SEC complaint document makes for fascinating reading. It demonstrates that Mozillo and others were acutely aware and concerned with the risks they were running while steadfastly
painting a different picture to investors and regulators.
Here are a few of the passages that I found captivating:
On 100% subprime loans:
Mozilo further stated that the 100% loan-to value (also known as 80/20) subprime product is “the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the circumstances.”
Then, in an April 13, 2006 email, Mozilo informed Sambol, Sieracki, and others that there were numerous issues that they must address relating to the 100% subprime second business in light of the losses associated with the HSBC buyback. One issue in particular that Mozilo identified was the fact that the loans had been originated “through our channels with disregard for process [and] compliance with guidelines.” Mozilo went on to write that he had “personally observed a serious lack of compliance within our origination system as it relates to documentation and generally a deterioration in the quality of loans originated versus the pricing of those loan [sic].” Mozilo noted that, “[i]n my conversations with Sambol he calls the 100% sub prime seconds as the ‘milk’ of the business. Frankly, I consider that product line to be the poison of ours.”
On Option ARMs:
[w]e have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. The only history we can look to is that of World Savings however their portfolio was fundamentally different than ours in that their focus was equity and our focus is fico. In my judgement, as a long time lender, I would always trade off fico for equity. The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales. (emphasis added)
Finally, on November 4, 2007, Mozi
…
Tags: Countrywide, Fraud, Mozillo, SEC
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.