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  • The Sad Story of Our Economic Decline

    by Founder on December 24, 2008

    in Voice of the People

    This is a short synopsis of the time line that led to our current economic decline – in snipits. Also included are most of the names of those to hold responsible for the incredible corruption and greed that underlies our current situation. Names like Chuck Schumer, Chris Dodd, Barney Frank, Henry Paulson, Franklin Raines, George Bush, Harry Reid and Nancy Pelosi. It is our belief that these people should be held 100% responsible for their treasonist activities, be jailed for these crimes and be stripped of the assets they accumulated while in their position of public trust.

    • A mortgage used to stay on the books of the issuing bank until it was paid off – usually 20 or 30 years later. This greatly limited the number of mortgages they could issue.
    • In 1938, as part of FDR’s New Deal the government started the Federal National Mortgage Association – Fannie Mae – to help provide liquidity to the mortgage markets
    • Fannie Mae either purchased loans from banks and held them in its own portfolio or packaged them as securities to sell to investors
    • By taking these mortgages off the banks books – this allowed the banks to issue more mortgages.
    • The number of Americans owning homes rose sharply. 15% in the 30′s to 70% in the 80′s.
    • 70% was about as high as home ownership should be. There was always to be that other 30% who just couldn’t own a home because of the following:

    Young people were not ready to buy a home. Many older people prefer to rent. Many families tend to move a lot so owning a home isn’t the best idea for them. Some families lack the proper credit for a bank to lend them money. For many their incomes and net worth were lower than bank requirements. Or perhaps they lacked the ability to make the required downpayment.  (Down payments protect the bank in periods of economic downturn)

    • There was also a class of people, mostly American blacks, in which home ownership was simply out of reach.
    • In 1935, the Federal Housing Administration – who insures mortgages – asked the Homeowners Loan Corporation (another New Deal program to prevent foreclosures) to draw up maps of areas that were “high risk” – with the least desirable areas marked in red. This was later referred to as “redlining”
    • The FHA used the maps to determine whether they wanted to insure the mortgage or not in those areas – which caused banks to avoid these “red lined” neighborhoods that tended to be in the inner city and comprised mostly of black communities. The banks were not going to write a mortgage if it wasn’t going to be insured.
    • In 1968, President Johnson wanted to “adjust” the federal books by taking Fannie Mae completely off the books! And established it as a Government Sponsored Enterprise (GSE)
    • As a GSE they now did not have to follow the strict rules with regards to capitalization and oversight that other financial institutions had to follow
    • In 1970, another institution was created – Freddie Mac – to further expand the secondary market for mortgages
    • These GSE’s were now permitted to invest 40 times their capital in mortgages! – banks were limited to 10 times their capital – a far more reasonable number.
    • Therefore the government allowed them to become very under capitalized.
    • Fannie and Freddie are based in Washington and are staffed not with businessmen - but with politicians and they are therefore VERY political oriented – and some were/are corrupt (a shocker)
    • In 1977, the Community Reinvestment Act was passed to wipe out the “redlining” practice. Requiring banks to offer credit throughout their geographical areas regardless of income or credit history.
    • In 1995 President Clinton then expanded this whole concept.
    • New Clinton regulations now forced banks to seek out these “potential” customers.
    • The updated laws now established quotas for loans to specific neighborhoods, income classes and races – regardless of income or credit history.
    • The new laws encouraged community groups to monitor compliance and allowed them to collect fees for selling loans to these specific groups

    And so began the problems:

    • The management of Fannie Mae deceitfully manipulated the books in order to obtain  executive bonuses of tens of millions of dollars.
    • Freddie Mac was found in 2003 to have understated earnings by almost $5 Billion – total corruption.
    • Both companies continually made huge political contributions to members of Congress who sat on their oversight committees. And so began massive payoffs to Congress to “look the other way”
    • Most of these contributions were illegal and unconstitutional. In 2006 Freddie Mac was fined $3.8 Million – for improper election activity. Clearly a bone thrown to the public to show Congress was “doing something” about this “corruption”
    • By 2007 Fannie and Freddie owned half of the outstanding $12 Trillion in mortgages – most of this debt was in sub-prime mortgages (mortgages given to people of questionable credit and income)
    • But since the banks could sell these loans to the “government backed Fannie Mae” – the banks didn’t care about the “strength” of the loan. They were getting paid to write anybody and everybody – making their commissions the whole time. It was like hitting the lottery for the banks.
    • Out of greed many Banks and Insurance companies purchased these packaged “Mortgage Backed Securities” from Fannie and Freddie – without any fear -Â knowing they were “backed by the government”
    • By mid 2007, many of these mortgages on the books at Fannie and Freddie were backed by real estate that was now worth less than the value of the loan
    • Companies heavily invested in these sub prime mortgages saw their stock prices and net woth drop significantly
    • This caused other financial companies to avoid lending them money – and credit markets began to tighten sharply as greed was replaced by fear

    Then the problems really began to mount:

    • Bear Stearns was forced into a merger with JP Morgan Chase
    • Fannie and Freddie were taken over by the federal government
    • Merrill Lynch was sold to bank of America
    • AIG had to be bailed out for $85 Billion
    • Washington Mutual was the biggest bank failure in our history
    • Wachovia was taken over by Wells Fargo

    So how does our government respond? It seems to have become “clear” to our politicians that only drastic government intervention could save the economy and allow credit markets to function properly again. In their minds it made no sense to let the free markets settle everything.

    It all turned into a blame game. Ridiculous child’s play – in fact, as a country, embarrassing. The same politicians who were loudly blaming the deregulation of Fannie and Freddie for the economic downturn – are the same ones who fought to prevent more regulation of these entities. Why would they fight for “no regulation?” Â – because it was their source of enormous amounts of corrupt political money and paybacks – asking for more regulation would have been like them requesting pay cuts.

    The same politicians who screwed everything up with their greed and corruption – now wanted to guide us out of the problem – and how do they want to do it? By printing trillions of dollars and spending their way out of the mess. As the future will show – this method will only sink the economy further into the abyss it’s headed for.

    • Jamie Gorelick – Vice Chairman of Fannie from 1997-2003. The accounting scheme was made public in 2004 just after she left. She benefited greatly from inflated bonuses based on accounting fraud.
    • Fannie Mae profits were regularly reported in a way to maximize executive bonuses.
    • Based on their corruption, declining support in the public’s eye and skepticism of Congress – it was now time for this political machine to start kissing the butt of Congress – and that’s just what they did, in the form of MONEY!
    • They now sought and requested substantial increases in the support of Affordable Housing – something the liberal politicians in Congress greatly desired more of.
    • They sold out the taxpayers by taking huge risks on these sub-prime mortgages which eventually led the United States to the economic position we are now in.
    • For the last 10 years Fannie and Freddie have spent $174 Million on “lobbying” Congress – in other words payoffs. Where did this money go?
    • This money kept Congress off their backs and allowed the corruption and deception to continue. The only suckers were the American people
    • The GSE’s also made billions of dollars available to Congress for spending on whatever projects they wanted.
    • This represented an unconstitutional method for Congress to dispense funds that should have flowed through the proper appropriations process as outlined in the Constitution.
    • Charles Schumer is very much to blame. He was one of the strongest supporters of Fannie and Freddie in Congress
    • As a member of the powerful Senate Banking Committee he convinced these entities to make huge financial commitments – solely for his personal political interests – but as it has turned out – the American tax payer is the one who is ultimately responsible.
    • In 2004 Franklin Raines, the Fannie Mae CEO and Timothy Howard another executive – resigned under the accounting scandal – more for public image – Â in the eyes of Congress.
    • In 2005, the Senate Banking Committee, headed by Republicans wanted much more stringent regulations put on Fannie and Freddie but the Democrats opposition to the bill doomed it – and it was never brought up for a vote – this was a very important crossroads in American history.
    • If passed the bill would have prohibited the GSE’s from holding portfolios of mortgages and mortgage backed securities
    • In looking back, if passed, this measure would have prevented the disastrous investment activities that have come about in the years to follow, leading us to a current world wide financial meltdown.
    • To shore up their bad standing with many in Congress, Fannie and Freddie now solely concentrated on what Congress wanted – which was more Affordable Housing
    • This “pushing of easy mortgages” provided Fannie and Freddie with continued growth and enormous short term profits
    • These profits were transferred to stockholders through huge dividend payments over the past few years and to executives with huge salaries and bonuses
    • Senator Chris Dodd was another who greatly benefited financially from Fannie and Freddie and was an ardent supporter in Congress – along with Barney Frank – who all along told the American people not to worry – that “all is well with Fannie and Freddie”
    • Barney Frank even admitted what the arrangement was between Congress and Fannie – If the GSE’s focus on Affordable Housing – their position in Congress is secure. This represents total corruption and insider deal making at the expense of the American tax payer

    So what is the fallout from all of these disastrous financial decisions?

    In 1998 Fannie announced a 97% loan to value loan and in 2001 it offered mortgages with no money down – another brick in the wall of America’s financial ruin

    • In their new quest to satisfy the greed in Congress, the GSE’s started accepting tremendous amounts of these “sub-prime” loans. Their portfolio of these loans grew from 8% in ’03 to 18% in ’04 to a whopping 22% in 06! The banks loved to push these loans because they didn’t have to keep them – they we’re backed by the American people!
    • Fannie reported that mortgages of all types originated in 2005-2007 accounted for 49% of its overall book of business!
    • But the percentage of mortgages with sub-prime conditions exceeded this 49% showing that Fannie was mostly relying on junk loans for its portfolio – approximately $620 Billion in junk loans.
    • Freddie Mac shows that of the loans added between 2005-2007 – 97% were interest only! 67% were for applicants with credit scores lower than 620. And 68% had original loan to value ratios greater than 90%! Ouch!

    So why would Barney Frank and Chis Dodd and the other corrupt politicians in Congress push the GSE’s into this incredibly risky business of sub-prime mortgages? According to a recent Wall Street Journal article – Barney Frank “pushed through” an “affordable housing” trust fund for Congress. A fund that “siphons off” as much as “$500 Million a year each” from Fannie and Freddie profits -Â to another “fund” – “that politicians can disperse to their favorite special interests”. So where has all this tax payer money gone? Right in their pockets and those of their “associates”.

    Top four recipients of this money?

    1. #1 Senator Chris Dodd – Chairman of the Banking, Housing and Urban Affairs Committee.
    2. #2 Senator Barack Obama – Federal Financial Management Committee – And now the new President elect. (scary)
    3. #3 Senator Chuck Schumer – Chairman of the Finance Committee
    4. #4 Barney Frank – Chairman of the House Financial Services Committee

    So there is the sad story of corruption, deceit and fraud that has perpetuated this nation’s and the world’s financial meltdown. These people involved and responsible should be tried buy a Peoples Tribunal and charged with their treasonist acts. Why should they be immune to prosecution? Why should they be void of accountability.

    Tax paying, ladies and gentlemen of our great country we must rise up and have our voices heard.

    If we do nothing this type of government and non existent leadership will bring our Democracy crashing down and instead replace it with rampant Socialism. Is this what you want? Is this what you want for your children? Stand with me today and voice your opinion – it’s not too late. God bless America.

    www.AmericansForTheConstitution.com

    { 1 comment… read it below or add one }

    barrell October 4, 2011

    Thank you for the research and time invested to make this information clear to the American public. It is a sad and sorry tale of greed and corruption and future history books will tell the story (if free speech remains). I support your call for Peoples Tribunals to punish those who dare to bring down our great country.

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