Dateline - New York City: March 26, 2008
McCain Rejects Broad U.S. Aid on Mortgages
By LARRY ROHTER and EDMUND L. ANDREWS

SANTA ANA, Calif. Drawing a sharp distinction between himself and the two Democratic presidential candidates, Senator John McCain of Arizona warned Tuesday against vigorous government action to solve the deepening mortgage crisis and the market turmoil it has caused, saying that "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers."

Mr. McCain’s comments came a day after Senator Hillary Rodham Clinton of New York called for direct federal intervention to help affected homeowners, including a $30 billion fund for states and communities to assist those at risk of foreclosure.

Mrs. Clinton’s Democratic opponent, Senator Barack Obama of Illinois, has similarly called for greater federal involvement, including creation of a $10 billion relief package to prevent foreclosures.

As the foreclosure crisis has rippled across the economy, it has thrust itself to the forefront of the presidential race, with Democrats seizing on the issue in urging forceful government steps to alleviate the crisis.

Mr. McCain’s remarks Tuesday, to a group of Hispanic businessmen here, signaled a sharpening divide between the two parties’ candidates, with the senator [McCain] warning against quick, costly government fixes to a crises (sic) rooted in the private sector.

[ ... ]

"It sounds remarkably like Herbert Hoover, and I don’t think that’s good economic policy," Mrs. Clinton told reporters in Greensburg, Pa. "The government has a number of tools at its disposal." "I think that inaction has contributed to the problems we face today, and I believe further inaction would exacerbate those problems."

In addition to urging $30 billion in federal aid to states to help homeowners, Mrs. Clinton on Monday also endorsed federal legislation to expand the government’s ability to guarantee restructured mortgages, which she believes would lead more banks and other private entities to buy and resell mortgages.

Mr. Obama’s plan emphasizes making it easier to convert subprime loans to fixed-rate, 30-year loans, while requiring that borrowers have access to better data on loan costs and requiring greater scrutiny of lenders. On Tuesday, he said, "It’s deeply troubling that John McCain is suggesting that the best way to address the housing crisis is to sit back and watch it happen."

[ ... ]

Mr. McCain spoke at some length about the problems caused by lenders and by Wall Street, which bundled mortgages into securities that were chopped into pieces and resold to investors in the United States and abroad. But he did not call for any kind of legislative or regulatory measures to fix those problems, other than to say that the government should eliminate obstacles to the ability of financial institutions to raise more capital.

[ ... ]

John McCain (McBush): wrong about everything since he learned to pander.

As I said above, He Was Against it Before He Was For It.

Labels: bail out, Clinton, crisis, george w. mccain, john mc bush, mccain, mortgage, obama, private sector, regulation

Let's watch while Jane prepares her morning breakfast, bacon and eggs.

Jane's bacon is safe to eat because some girly-man liberal fought for laws to regulate the meat packing industry.

Like the meat-packing industry, the egg producers resisted regulation. "It will cost too much!" "It's un-American!" "Only Commies require food production to be safe at every step along the way!" "We should let the marketplace will sort it out!"

Uh-huh.

1. There is always a reason when the US government imposes safety regulation; most other regulations tend to be suspect, but safety regulations are there because far too many businesses cut corners (to put it kindly)
2. Don't take my word for it; read (or re-read) this
3. See this this, this, or this. Or if you have some spare time, this, which reinforces what I'm saying about 2,560,000 times
   

Has anyone noticed that even with regulation, the entire food production industry is still thriving?

Labels: Liberals, marketplace, regulation, the jungle

It's all over the news. There are more mortgage foreclosures in the works now than there have been since the Great Depression (1930s).

My conservative friends point the finger at the people who are losing their homes. I hear things like "they should have read the fine print" and "if they're stupid enough to get into a bad mortgage, they're too stupid to own a home."

If only it were that simple. The fact is that there are many groups involved, each of whom has contributed to the problem. Let's consider the 'reasonable man' (or more correctly, 'reasonable person') concept in law. A reasonable person has done due diligence when assuming that the well-respected experts are honest and that proper oversight -financial and legal - is working.

• How would Jane Q. Public know the the local bank manager isn't doing his/her job correctly and that government isn't watching to make sure that everything is on the 'up and up'?
  
• How should John Q. Public respond when even his own lawyer says that all the paperwork is in order?
  
• How would John and Jane's lawyer know that a property value appraisal is inflated?

A reasonable person HAS to trust someone. Yet, when one or more of the groups involved perpetrates fraud - the reasonable person winds up paying the costs.

Who played what role in this mess?

• a. home buyers (we'll discuss them later)
  
• b. housing speculators - people who bought several homes with the intention of 'flipping' those houses for quick, big profits (we'll discuss them later)
• c. appraisers - they are the final authority on the value of real estate
  
• d. mortgage brokers - they put together buyers, houses, loans, and lenders
  
• e. lenders - provide funds for each house sale, and 'bundle' loans into packages; the packages become collateral for bonds that are sold in the bond markets
  
• f. bondholders - invest their money in those packages, assuming that their financial return will be in the form of dividends as the buyers make their loan payments and as the resale value of those bonds in the bond markets.
  
• g. Federal regulatory agencies - receive taxpayer funds in return for watching all of the above to make sure that everything is legal and proper.
  

Anyone in groups a,b,c,d,e, and f can become a victim of fraud. Some however, are more likely to perpetrate the fraud, and some are more likely to be the victims.

Members of groups c,d,e are the experts. They are supposed to act honestly AND watch out for fraud committed by the other experts.

Group g is charged with keeping group e honest. If group g doesn't keep group e honest, the entire system breaks down.

Certain political groups are subsidiaries of Wall Street. When those politicians get power, among the first things they do is to gut regulatory agencies and staff said agencies with those same "Wall Street' types who stand to gain the most if given free reign. They assign the weasel to henhouse duty. The oversight that Americans expect and for which Americans pay becomes insignificant. Without a proper watchdog, the inevitable occurs: in the name of 'free market' economics, the crooks take over and wreak havoc - while pocketing huge sums of tainted money.

Groups d and e can pull off enough fraud to destroy the economy. However, it helps if c (appraisers) are complicit. C, d, and e in collusion, can rip off unimaginable sums from group f (bondholder) by overstating the value of the loans that are an integral part of the bondholders' investments.

If group c - appraisers - who sometimes do what less-than-scrupulous mortgage brokers and lenders want - they will report that properties were worth more than they were really worth.

Group d - mortgage brokers - do a fine job, but there's a serious potential problem. Brokers can work the fraud in both directions. Brokers can sucker unsophisticated buyers into loans that are doomed to fail. Then they can overstate values when convincing lenders to loan the money. The future problems don't matter to the broker - the broker collects fees from the borrower and the lender - and then washes his/her hands of the deal. The broker gets the money up-front. In a bizarre twist, the mortgage broker is the only one in the entire process who knows the full story... and the broker is the only one who has none of the risk.

The e group - lenders - are no longer your father's friendly neighborhood banker. They are still essential to the home financing process, but only as 'middle men'. Make no mistake about it: they do NOT 'hold on to' loans. They 'bundle' those loans and sell those packages to investors. If the lender is not paying close attention - or worse, with a 'wink-wink' - accepts bogus loan deals for resale... and then sells those mortgages in the form of bonds, then the bondholders are victims of fraud.

Group b - the "let's speculate in real estate and flip houses" crowd, have found themselves way overextended. When the economy slows, or when housing prices drop - the speculators go "upside-down" in their real estate holdings. If they can't make loan payments and can't sell at prices that enable them to break even, then whoever is "holding the paper" winds up holding empty houses. This always results in a loss.

And then there are the buyers. Experienced homeowners don't usually get caught up in shady deals. First-time buyers, however, are easier to defraud. They don't understand the true significance of adjustable-interest-rate mortgages - that when the rate goes up, they might not be able to make the payments any longer. They also don't realize that one cannot count on housing prices to go up forever. A sneaky broker can con them into thinking that the house WILL go up in value, and they'll be able to sell the house or re-finance with no problem.

Who's to bless and who's to blame?

Greed is at the root of all of this mess. Second in line, and somewhat related to greed, is the short-term attitudes of the players.

• the homebuyers and the bondholders are in it for the long haul (longer than a few weeks)
  
• everyone else in the financial side is there to get the money now - grab it and get out.

Also in the greed mix are the regulators - or more properly, the non-regulators. If the regulators made the lenders stay honest, most of these problems would be minimal. When Wall Street's politicians take over, the market system in the USA unravels as the Greed Factor sucks dry all of the honest people in caught up in this housing crisis.

Labels: appraiser, broker, crisis, foreclosure, fraud, greed, lender, mortgage, mortgage crisis, regulation, regulator, short-term, Wall St.