Fannie Mae’s Rise and Fall
Interesting history of the pressures and difficulties of being Fannie Mae from the New York Times.
Shortly after he became chief executive, Mr. Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.
But at that meeting, Mr. Mozilo, a butcher’s son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans.
Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.
“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.
“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.”
Then Mr. Mozilo offered everyone a breath mint.
Read the whole thing, and then see whether you think it was Fannie Mae or the greedy managers of Wall Street who drove Fannie into the mud.
Sphere: Related ContentWells, Wachovia and Sweet, Sweet Deals
During the early days of the financial meltdown, the news was that Wells Fargo Bank was set to acquire teetering Wachovia, but those reports were overshadowed by the news that the FDIC had brokered a deal with Citigroup for the acquisition.
If you read beyond the smear headlines that seem to dominate every major news source, you’ll discover the following:
- The brokered deal by the FDIC would have Citigroup acquiring Wachovia for $1/share, down from over $4/share a year ago.
- Citigroup’s offer only included the banking operation
- The offer by Wells Fargo was for $7/share and included all operations of the company.
- Wells Fargo has long been interested in expanding its presence to be competitive with Bank of America on the national banking landscape. An acquisition of Wachovia opens the door for them to become competitive while sparing the government $42 billion dollars of absorbed losses.
- A Wells Fargo acquisition protects employees who hold shares of Wachovia in their retirement accounts from huge losses.
On its face, it would seem that a Wells Fargo acquisition of Wachovia is a far superior solution to the fire sale brokered by the FDIC.
Now both deals are mired in expensive, urgent litigation. As of this writing, New York State Supreme Court justice Charles E. Ramos had blocked the Wells Fargo merger. That injunction was lifted by an appeals court a few hours ago.
Meanwhile, the FDIC frets that other deals might not happen because…
The litigation could put regulators in a tough spot. The Wells Fargo deal may be better for taxpayers, but if it succeeds, in the future other financial institutions may not be willing to help the government, as Citigroup did, because of the risk that they might not reap the anticipated benefit.
I’ve heard this before. Specifically with respect to AT&T and illegal wiretaps. Where the Bush administration urged Congress to give immunity because otherwise there was no incentive for companies to cooperate.
Have you ever heard such bogus logic? The Citigroup deal was so sweet it was nearly saccharine. What more incentive would they have needed? The fact that the “benefit” to Citi would have come at the expense of employees and individual shareholders seems to carry no weight. Just as the Bush Administration’s whine about AT&T’s non-cooperation was bogus, given that they were operating under court orders and all…
I have never in my life seen such wanton greed and corruption displayed for the world to see. Let’s hope voters are keeping their eyes open.
Sphere: Related ContentJohn McCain: Gambling With Your Future
John McCain is once again rolling the dice for a high-stakes win. Having demonstrated his capacity for self-contradiction at any turn and suffering in the polls as a result of his past positions and current confusion with the state of our economy, he’s ditching the issues in favor of a risky and flawed attempt to turn the conversation back to culture wars and personal attacks (something he swore he’d never do, of course, but what else is new?)
In the meantime, there are two issues which McCain cannot address adequately. The first is the economy, which he neither understands nor supports. I encourage you to watch the video below to see how McCain, in his own words, falters when he first tries to argue for the value of deregulated financial markets and then, when confronted with the product of those same unregulated markets, turns it around and says he supports regulations to protect citizens.
Here’s reality. Reality is that under a McCain/Palin presidency, any regulatory authority would largely be ignored anyway. McCain has deep ties to Freddie Mac, including large monthly payments to his campaign manager for his lobbying efforts on behalf of Freddie Mac through last month,
This is not new. In the 80′s McCain was one of the Keating Five, the man in the middle of the last financial/real estate scandal of our time — the Savings and Loan meltdown. And then, just as now, it was McCain’s agreement to push for little to no regulation of Savings and Loans that brought down many property owners and small community Savings and Loan Associations.
McCain also doesn’t understand health care and the current issues facing this country in that regard. His plan proposes that we all take a gamble with our health and our homes, a topic I will cover in a separate post.
Watch the video and ask yourself how willing you are to allow John McCain to gamble with what little you have left. On a personal note, I am fairly certain that my father was a compulsive gambler in his later years. When he died in August, he had next to nothing and was dependent upon others for everything. Is that the future we see for our country?
Sphere: Related ContentSlaying the Subprime Vampires – Reprise
The Backstory
Once upon a time, people who wanted to buy a home saved their money, shopped for a house, and then asked a bank to loan them money. If the bank viewed them as a worthy risk, it loaned them the money, the house was bought, a mortgage secured, and payments made. In that time, the mortgages were generally negotiated with a fixed rate of interest over a period not longer than 30 years.
Most people paid their mortgage payments faithfully and over time built equity in their home. But as home prices increased, more and more people were priced out of the home ownership dream in many areas. Here in our little bedroom community home demand soared right alongside prices.
In those olden days, there was a law on the books known as the Glass-Steagall Act, which forced a firewall between investment banking (i.e., stocks, bonds, IPO funding, etc) and commercial banking (your corner bank which probably was chewed up by Wells Fargo or Bank of America about 10 years ago). This law was intended to protect consumers from bank failure by keeping stock and equity investments out of the reach of the keepers of depositors’ money, and therefore prevent another run on the banks such as the one in 1929.
The Spoiler
Glass-Steagall worked quite effectively until it was repealed during the Clinton administration (1999) as part of a larger initiative set forth in the Gramm-Leach-Bliley Act (Financial Services Modernization Act), which broadened the reach of banking institutions and allowed them to offer a smorgasbord of services to customers, including investment services, affiliations with securities firms, creation of bank “holding companies” which created the appearance of separation between their various ventures despite the umbrella protection it provided, allowed for less regulation of foreign investment, and repealed regulations governing bank behavior.
Simply put, Gramm-Leach-Bliley removed many consumer protections and opened the door for many consumer traps.
The Candidate
Let me stop at this point and point out that one of John McCain’s top advisors and campaign co-chairmen is Phil Gramm, co-author of this bill. What has former Senator Gramm been doing since he left the Senate? Well, after Paine Webber was acquired by UBS (a Swiss bank with a long history of secrecy), Phil Gramm went to work for them as a lobbyist.
2005 and 2006 proved to be boom times for UBS and others like them, as lobbying pressure led to the rollback of rules that had protected consumers from predatory lending practices. As the rules relaxed, the predatory lending practices became the way of the day.
Not content to sit idly by and watch investment institutions turn to predatory lending, these mortgages were then wrapped up in packages and sold as ‘investment funds’ to brokerage houses and individual investors.
Thanks to Phil Gramm and colleagues, that simple home purchase has turned into a national nightmare where there are no real ‘owners’ of that mortgage with which to deal. The money just keeps flowing from one hand to the next in a circular motion and with a vampire-like need to feed on the life-blood of the small borrower into the veins of the international moneymen.
This is the man that John McCain relies on for his economic advice, since by his own admission, he’s not up to speed on economics. The man that rejects lobbyists has one as the co-chair of his campaign, and not just any vampire, but the one who is the blood brother of the primary predator by virtue of incestuous and dark lobbying activities.
But this isn’t just about mortgages. Think about those credit card invitations, especially the ones extended to your college-age kid, the ones that have the introductory rate of zero but can possibly go up to as high as 30% in some cases. That’s all part of the game, too.
Subprime mortgages and predatory credit cards are the bread-and-butter of our banking-stock market-mutual-fund business. They’re building the economic backbone of our country on the backs of the hard-working low-wage earners and then claiming that we have to ‘let the market shake everything out’. Nice guys, huh?
Suggestions for Individual Solutions
All but the first suggestion come from my husband, the investment adviser and financial planner. I believe he agrees with the first one, but hasn’t endorsed it, so I will own that one.
- Don’t vote for McCain. Seriously, I mean this. You’ve already seen him toe the party line, and there are many interests aligning behind him to protect their financial investment in individuals’ ruin. Do not put another Bush in office, especially one as clueless as McCain.
- Don’t accept credit terms you can’t afford in the worst case scenario. Just don’t. Remember that the Bankruptcy Act completed the foundation of the pyramid. Lenders are permitted to prey on lower-to-middle income borrowers. The Feds will bail out institutions like Bear Stearns but you will have nothing similar to rely upon. You will have to pay that debt no matter what. Even if your kids get sick or you lose your job, because consumer debt may no longer be discharged in a bankruptcy.
- Try a ‘credit fast’. No credit, no matter what. Pay it off, and live on a cash basis. You’ll be amazed at how much simpler life can be. Remind yourself often that by doing so, you’re depriving the vampires of your blood. It works, I’ve been doing it for 10 years and don’t regret it for a moment.
- If you’re a subprime victim, help may be on the way. Try to refinance your home at a better, fixed interest rate. The one thing I do not think you can do is hope to have a reduction in the principal to account for the drop in your home’s market value. Actually, I don’t think you should. Property values swing wildly all the time, what goes down will go back up. If a borrower could make the payments before the interest rate ballooned, it’s reasonable to expect them to make payments on a higher principal balance with a lower, more reasonable, FIXED interest rate. Whether relief will come in that form, I don’t know. But it seems reasonable to allow for renegotiation of interest rates without writing down principal balances.
Pay attention, please, to all of the proposals on the table by the candidates with regard to this mortgage crisis. It’s also worth paying attention to the players in the campaigns, who I view as far greater threats than individual campaign contributors who may work for an interested party.
Phil Gramm is a power player for McCain. I’ve already told you about Phil Gramm, but here’s another tidbit: Phil Gramm was embroiled in the Enron controversy via his wife, who exempted Enron from Federal oversight while serving on the Commodity Futures Trading Commission and then became a director of Enron while he was busy delivering legislation for financiers and money guys.
I haven’t even gotten to the oil relationships yet, but I will in a different, later post. The bottom line is that we cannot allow John McCain to be elected on the strength of his war record. He must be evaluated on the basis of his entire record, and that includes the people he surrounds himself with and relies upon.
Here are some other posts to read. Please spend time and read them before voting in November. This election will pivot on whether voters understand the economy and the war, because both are inextricably tied together in a bow made of oil and money.
- Jesse: the reality of a burgeoning crisis
- Senate Summary of Gramm-Leach-Bliley
- The Mortgage Lender Implode-o-Meter: Delta Financial Corp
- Karen Dalton-Beninato: Presidential Subprime Primer for Homeowners Under Water
- Barack Obama’s Economic Advisers: David Cutler, Jeffrey Liebman, Austan Goolsbee, Daniel K Tarullo, and others.
Bonus Link: Why is McCain ignoring veterans?
Creative Commons’ Licensed Photo: Vampire Kitty by Domain Barnyard
Creative Commons’ Licensed Photo: John McCain Seattle by soggydan
Technorati Tags: subprime, mortgage, financial markets, banking, Glass-Steagall, Gramm, McCain, Clinton, predators, vampires
Misleading Subprime Advertising
This is a very official looking document we received in February, offering us the opportunity to refinance our mortgage and pull out nearly 300,000. Be sure you click on the thumbnail and look at the larger version. It gives official-looking legal citations, numbering, and even a government-looking seal on it.
I’m sure we landed on a list for this as a result of our required applications for grant and scholarship funding for our middle son. Whatever the reason, see if you can find anything on this document telling you that it: a) Isn’t official; and b) Is a scam.
Then go try a search on the Internet for American Premier Funding (A subprime mortgage bundler). Here’s a hint as to the misleading-ness of this mailing: Doesn’t the “APV/OV” in the address next to the seal look extremely official and government-y? APV stands for “American Premier Funding”. I have no idea what “OV” stands for. I’m guessing it’s an internal code of some sort.
Oh, and 204(a) of the National Housing Act, as amended in 1989 does not apply to our neighborhood or to us, as I’m sure we would have discovered had we been stupid enough to respond.
A commenter on my previous post suggested that most of the folks going into default on their mortgages were scammers who were looking to get rich quick. I challenge him to view this document and tell me who is the scammer and who is looking to get rich quick.
The sad thing about this is that a lot of people probably saw this as an opportunity to climb out of their credit card debt they’d been able to climb into so easily. I don’t blame this completely on the credit card companies, but it’s a symptom of the wider malaise in our culture and our economy that suggests the companies extending credit are good, buying things you can’t afford is good, and accepting interest rates in excess of three times prime in addition to fees is normal.
Technorati Tags: subprime mortgages, american premier funding, mortgage scams, advertising, lies, mail, deception
Sphere: Related ContentChallenge to Republicans and Progressive Democrats
You defeated the compromise.
Now fix it. Come up with a solution to this problem other than watching most of us in the middle class lose everything we’ve worked for.
Go ahead, I’m waiting.
You have 72 hours, starting now.
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