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Sunday, August 3, 2008

Villains of the Aftermath of the Mortgage Crisis

I sensed back as far as October of last year that the worst was yet to come of the mortgage crisis. Whatever problems were caused by the crisis itself, I felt the solutions would be worse, much worse. So far, the jury is still out on that assertion but I believe soon enough I will be proven right. That said, as I have watched this crisis unfold, I have seen one pseudo expert after another step in to offer their opinion or solution, one worse than the other. So, I think its time to identify all the villains that have used this crisis for their own agenda, gain, or imcompetence all the while hurting our country.

1) Chris Dodd and anyone that supported the corrupt Dodd/Frank bill. I predict that this bill will wind up sharing historical space along with Smoot/Hawley as among the most misguided and counter productived laws in history. Only Smoot Hawley was simply misguided whereas Dodd/Frank is simply corrupt. This bill will, in my opinion, bankrupt FHA and force yet another bailout. (for the full analysis go to the corrupt link) Once that happens we will likely see this country go into a full depression. We will have a total economic meltdown because one corrupt politician, Chris Dodd, entered into a quid pro quo with two corrupt banks, Bank of America and Countrywide, and he got a couple of nice loans and some campaign cash while the two banks got rid of billions of bad loans. For all of this, the country is about to run head first into an economic nightmare. I hope that history will expose Dodd for the villain that he is much better than anyone in the media has tried.

The result is a bill that will reward irresponsible borrowers with loans they would never get in the market. Furthermore, it allows irresponsible banks to unload bad loans at well above what the market would pay. What will result is FHA holding onto far too many loans that are far too risky for what FHA should be holding. Ultimately, there will be far too many defaults and thus FHA will go bankrupt unless it is bailed out. All of this will occur in order to satisfy a sophisticated quid pro quo.


While they have stayed largely silent about the corrupt practices of Chris Dodd, the MSM was quite vocal about who was at fault in this crisis, mortgage brokers and banks. At the same time, the MSM also presents a narrative of borrowers being helpless victims being taken advantage of by predatory professionals. The truth is of course significantly more complicated but I doubt very much that most folks within the confines of the MSM cared much about the truth. Much more likely, the saw an opportunity to present a pre determined ideological narrative. As such, the public saw heroes and villains in this mess and saw one side needing punishment and the other side needing help. As such, this created an atmosphere for this corrupt bill to pass.

3) The Conservative media mostly Michelle Malkin

Just like those in the MSM wanted to present one side of this issue, Michelle Malkin was just as determined to present one side. Only her side was that it was all the borrower's fault. Story after story about irresponsible borrowers could be found on Michelle's site. If the only news one got they got from Michelle and the right blogosphere, they would come out with the equally unfair impression that this was all the borrower's fault. Just as it is terribly unfair and misleading to blame everything on the mortgage professional, it is equally unfair to blame it all on the borrower. Furthermore, Michelle painted everything as a bailout. It all came to a head when Michelle published this piece about the Fannie Mae bailout.

Oh, triple-crikey. God save us from bipartisanship again. Washington is in a tizzy over the Fannie Mae/Freddie Mac financial crisis. The stocks plunged yesterday and a former Fed governor declared them “insolvent.” Keep an eye on the markets this morning for more freefall. Panicked Republicans and Democrats have joined clammy hands to declare their fealty to these behemoth government-sponsored enterprises because they are “too big to fail.” The Drudge headline and descriptions in the MSM of a “takeover” are misleading. The long-troubled, corrupt institutions are already federally chartered, exempt from normal securities regulations, and enjoy multi-billion-dollar lines of credit from the US Treasury. This won’t be a “takeover,” but a massive, ginormous, Mother of All Bailouts:

Now, clearly Ms. Malkin hasn't the first clue how the mortgage market functions. The problem isn't that we are going to bail them out but rather that they are both too big to fail. If she had analyzed that portion of it, she would have done her readers a service. Rather than analyzing the situation as it is, she simply engaged in more partisan rhetoric about government's quasi socialist bailouts. As such, she contributed to coloring the situation even more.

4) ACORN, La Raza and every other quasi civil rights group that demanded all foreclosures be ceased and mortgages be re arranged. ACORN engaged in practices of extortion in which they would picket banks until those banks agreed to halt foreclosures and rearrange bank terms. This is a rather dangerous practice. If private companies can be bullied into changing their business practices because outside groups force them by bullying practices, business as we know it ceases to exist. Furthermore, all these groups contributed to the distorted narrative that all the fault lied in the mortgage professionals.

Chanting, “Sharks bite, ACORN fights – predatory lenders, you’re not right,” dozens of ACORN members on Sept. 26 stormed the offices of Ocwen Financial, demanding that one of the nation’s largest servicers of subprime mortgages modify those loans to keep families from losing their homes. Ocwen CEO William Erbey had ignored a July letter from Florida ACORN requesting a meeting, so members paid him a visit at work. Among the ACORN members were Olga and Paul Gant of Broward County, who told the Palm Beach Post they are facing foreclosure after their monthly mortgage payments jumped from $2,200 to $3,000 per month.

ACORN is demanding that Ocwen enact a moratorium on foreclosures, modify loans according to borrowers’ ability to repay and lock in interest rates at pre-adjustment levels.Similar demands were made in San Jose, Calif., at the offices ofCountrywide Financial, where scores of ACORN members gathered to protest thatcompany’s failure to work out loan modifications with homeowners. ACORNestimates 1.8 million adjustable rate mortgages worth $900 billion will reset athigher, unaffordable interest rates over the next two years. As many as 2 million families nationwide are in danger of losing their homes.

By doing so, they also contributed to the atmosphere that passed such a horrendous law as Dodd/Frank.

5) The Federal Reserve

If anyone thought the Fed would add calm and reason to the situation, they would be wrong. First, Ben Bernanke simply flipped out as the mortgage crisis hit. As such, he furiously cut rates in a desperate attempt to create liquidity in the market. He did no such thing. All he did was make the dollar weaker and thus contribute to exploding gas and food prices. Meanwhile there is no more liquidity in the market. Then, just recently, the fed passes all sorts of regulations so mindless that everyone should be scared that they are in charge of regulating the industry.

Finally, if you are looking for heroes, the only ones are those attempting buy or procure loans in this horrendous market. They are the footsoldiers that will attempt to bring this market back from the brink of disaster. The biggest heroes are those borrowers that continue to make their mortgage payments on time, and those mortgage professionals that attempt to give good honest loans to those borrowers.

1 comment:

Jay said...

the overwhelming problem with the media is that: 1) they always need to assign blame (in order to complete the reported story), and 2) they always need to blame the larger entity in any dispute (be it corporations, banks, or mortgage lenders). If they didn't blame the larger entity, then they would have to blame people, and if that happened, nobody would watch the news unless they felt the masochistic need to have the blame for an economic crisis thrust upon them.

By ensuring business for them, the media labels banks and mortgage lenders with tags like "predatory", "despicable", "dishonest", and "fraudulent," and all this drives away business from them, causing a lack of borrowers (which hurts chances of market recovery) and increasing chances of collapse.