Fed's seek further control...

[SteamWake]

In what is called a 'sweeping financial overhal' a bill is destined to land on the presients desk.

I see it as another layer of control by the federal goverment.

A new consumer protection bureau housed in the Federal Reserve would have independent funding, an independent leader and near-total autonomy to write and enforce rules. The government would have broad new powers to seize and wind down large, failing financial firms and to oversee the $600-trillion derivatives market. In addition, a council of regulators, headed by the Treasury secretary, would monitor the financial landscape for potential systemic risks.

"We've put in the hands of the president a very powerful set of tools for him to reassert American leadership in the world," Frank said.

Re assert? When / how did we lose it Mr. Frank.

Honestly I'd be willing to bet that a large majority of americans dont even know this legislation is in motion.

http://www.washingtonpost.com/wp-dyn...500675_pf.html

[mookiemookie]

There are those that see any system even slightly to the left of a Somalia-like anarchy as complete government oppression and control.

Radical deregulation led to the financial crisis. An abdication of traditional lending standards and practices led to the financial crisis. Obviously the industry is incapable of reigning in its own excesses, so naturally the pendulum will swing the other way and the Feds will reign it in for them.

[SteamWake]

Originally Posted by mookiemookie

Radical deregulation led to the financial crisis.

and here I thought it was reckless spending and a bunch of 'bad loans'.

"It's a great moment. I'm proud to have been here," said a teary-eyed Sen. Christopher J. Dodd(D-Conn.), who as chairman of the Senate Banking Committee led the effort in the Senate.

"No one will know until this is actually in place how it works. But we believe we've done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done."

Wow Hillary is that you?

[krashkart]

Originally Posted by SteamWake

and here I thought it was reckless spending and a bunch of 'bad loans'.

I think mook was indicating that it was deregulation that opened the door to reckless spending/bad loans in the first place.



EDIT

Now that I think of it my stepdad mentioned something similar awhile back, too.

[SteamWake]

Fannie May and Freddie mac??

Wait werent those goverment programs?

[krashkart]

You got me, brother. I hadn't even heard of them before the markets went nose-down.

[mookiemookie]

Originally Posted by SteamWake

Fannie May and Freddie mac??

Wait werent those goverment programs?

They weren't the causes of the crisis. They were actors, but the non-bank subprime originators were making the lion's share of the toxic loans. FNMA and FHLMC were no more the singular cause of the crisis than any one of the individual banks such as Lehman, Bear or B of A.

It's very interesting, in where the power will lie.
The Federal Reserve is no more a part of your federal government than Federal Express.

Also interesting how this legislation escaped major media coverage.

[mookiemookie]

Originally Posted by Snestorm

It's very interesting, in where the power will lie.
The Federal Reserve is no more a part of your federal government than Federal Express.

Putting the Consumer Protection Agency under the purview of the Fed was a mistake in my opinion. The Fed was completely negligent in their oversight during the runup of the credit bubble. Their malfeasence was one of the main causes of the crisis.

But your statement is wrong. The CEO of FedEx isn't appointed by the President, Federal Express doesn't give testimony to congress, FedEx isn't audited by the GAO and FedEx doesn't rebate its interest earned back to the Treasury. Unlike the Federal Reserve.

Originally Posted by mookiemookie

Putting the Consumer Protection Agency under the purview of the Fed was a mistake in my opinion. The Fed was completely negligent in their oversight during the runup of the credit bubble. Their malfeasence was one of the main causes of the crisis.

But your statement is wrong. The CEO of FedEx isn't appointed by the President, Federal Express doesn't give testimony to congress, FedEx isn't audited by the GAO and FedEx doesn't rebate its interest earned back to the Treasury. Unlike the Federal Reserve.

Your government doesn't own the Federal Reserve.
It's the other way around. This is why your vote means almost nothing.



It's not just The Federal Reserve, but The Central Bank of almost every government in the world.

[mookiemookie]

Originally Posted by Snestorm

Your government doesn't own the Federal Reserve.
It's the other way around. This is why your vote means almost nothing.



It's not just The Federal Reserve, but The Central Bank of almost every government in the world.

The conspiracy theory video was made much better with the YouTube's vuvuzela button.

[UnderseaLcpl]

The way I understand it is that Fannie Mae was created in 1938 or somewhere thereabouts to help provide housing for those who couldn't afford it by purchasing and offering subprime mortgatges, as a way to give banks an incentive to lend to those of little means. Though it was never profitable on a consistent basis, Fannie Mae continued to provide a market for subprime loans up until the housing market crisis in the late 70's, a smaller version of what we experienced. At that point, people began asking questions about the wisdom of using a government agency to operate in such a fashion in a free market, and Freddie Mac was established as a compromise, expanding the motrgage market but introducing a pinch of capitalism into the mix as a publicly-traded company.

This system wasn't a problem at the time, as the rate of subprime lending was fairly low, and the the Federal lenders could cover shortfalls, but with the influx of immigrants and speculation in the past 10 years, we were set up for a bubble to burst.

I see this as a failure of government, not of the market, as evidenced by the fact that Fannie Mae and Freddie Mac were the first to fall. If there had been no Fannie Mae or Freddie Mac there would be no significant subprime mortgage market and there would have been no house of cards to topple. Blaming the market for the crisis is like blaming electricity for taking the path of least resistance. If you're smart, you can make it work for you, but if you're foolish you'll get shocked.

[Stealth Hunter]

Originally Posted by mookiemookie

Radical deregulation led to the financial crisis. An abdication of traditional lending standards and practices led to the financial crisis.

Quite right. There's plenty of blame to go around, and it doesn't fasten only on one party or even mainly on what Washington did or didn't do. The problem is one of irresponsibility and greed, with hard-working homeowners and billionaire villains each playing a role. To sum up, put the blame on:

• Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.

• 109th Congress, which supported and passed a mortgage tax deduction that gave consumers a tax incentive to buy more expensive homes (and other assets).

• Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.

• The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.

• Mortgage brokers, who made bad investments, offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.

• Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.

• Wall Street firms, who also made bad investments and paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities which they invested in, and issued bonds using those securities as collateral.

• The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market and also slashed interest rates to make credit cheap.

• Mark-to-Market, an obscure accounting rule which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.

• Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up (a lot like the attitude Americans had just before the Crash of 1929 with investing in the stock market).

• The Reagan administration, which deregulated much of the private sector for the sake of adhering to the public's interests, which allowed savings and mortgage institutions to invest recklessly with less government intervention (and reduced the government's power all through the sector).

[mookiemookie]

Originally Posted by UnderseaLcpl

If there had been no Fannie Mae or Freddie Mac there would be no significant subprime mortgage market and there would have been no house of cards to topple.

This is absolutely false. Suprime lending didn't exist until the early 1990s.

Fannie and Freddie were actually losing market share to non-bank lenders in the subprime market during the runup to the crisis (2003-2007). And remember, the credit bubble extended to more than just home mortgages - commercial real estate, student loans, credit card receivables and other forms of debt that Wall Street had an insatiable appetite for. None of which involved Fannie and Freddie (hereafter referred to as government sponsored entities or GSEs).

The primary sources of the credit bubble and resulting economic collapse were the abandonment of traditional lending standards - banks didn't care if loans were going to pay, as they were moving them off their books to Wall Street within 30, 60, 90 days after closing anyways - and a Federal Reserve that brought rates to historic lows and kept them there for an extended period of time, all the while ignoring the bad behavior of the loan originators. Again, none of this is directly a fault of the GSEs. They did purchase loans from banks, and they did lower their requirements for the loans that they would purchase, but the majority of the garbage loans were securitized by private label issuers, and not the GSEs. Indeed, by the time that the GSEs had relaxed their rules, the die had already been cast and the housing boom was in full swing.

The GSEs were not the first to fall. They were not even government agencies - they were government SPONSORED entities. The important difference being that they could borrow from the Treasury at more attractive rates than others. They were private sector, publicly traded firms.

According to http://www.nytimes.com/2008/10/05/bu.../05fannie.html

From 2001 to 2004, the subprime loan market grew from $160 to $540 billion. And also, by 2004 FNMA had lost 56% of its business to Wall Street firms. the GSEs relaxed their loan buying standards in attempt to play catchup to the greed of the private label securitizers who cared not about the quality of the loans they securitized, just so long as they could get them into a mortgage backed security and out the door.

The "blame Freddie and Fannie" argument even fails in terms of time and space....FNMA's been around for 70-odd years and just now they cause a collapse of the financial system? It makes no sense - especially given that the entire world experienced a housing boom during the early to mid 2000s. UK, France, Spain, Australia, Ireland - if the entire cause of the crisis could be laid at the GSEs doorstep, then how did they cause the runup internationally?

As I said before - blame the GSEs for taking part in the whole mess, but to say they were the cause and start of it is just not true.

Stealth Hunter - I agree with your list! I would add a couple culprits:

The credit rating agencies - rating junk paper as "AAA" and thus giving the green light for asset managers to purchase it based on their investment policy was a huge cause of the crisis.

The repeal of Glass Steagall - allowing depository banks, who are by definition supposed to be risk averse, to be co-mingled with investment banks who by definition take on risk is a recipe for disaster.

The 2004 SEC leverage exemption - in 2004, the SEC allowed just 5 firms - Goldman Sachs, Merrill Lynch, Morgan Stanley, Bear Stearns and Lehman Brothers - to boost their debt-to-net-capital ratio from 12-1 up to 30 or 40 to 1. This allowed for the losses to be magnified. For a testament to how destructive this decision was - look at the names on that list and see which ones still exist today.

[FIREWALL]

And don't leave out VA loans which had almost a 100% default rate.