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  • Who's Behind the Financial Meltdown?

    The Center for Public Integrity has a new project up called The Subprime 25 that identifies the “top 25 lenders who were responsible for nearly $1 trillion of subprime loans made from 2005 through 2007. Together, the companies account for about 72 percent of high-priced loans reported to the government at the peak of the subprime market. Securities created from subprime loans have been blamed for the economic collapse from which the world’s economies have yet to recover.”

    Guess who is at the top of the list? Countrywide Financial. But how did Countrywide manage to get to the top of that list? This 2000 report by the Fannie Mae Foundation provides a clue:

    Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …

    When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs.

    In other words, Fannie and Freddie favored lenders like Countrywide that had irresponsible lending practices. In fact, Fannie Mae was Countrywide’s biggest customer. Thanks to its loose lending practices and backing of Fannie Mae, Countrywide became the largest mortgage lender in the country. In 2006, it financed 20% of all mortgages in the United States — 45% of which were subprime.

    Fannie and Freddie’s subprime business was not isolated to Countrywide. Fannie and Freddie both bought subprime securities since 1995, and by 2004 they were purchasing $175 billion worth of such securities a year, or 44% of the entire market. From 2003 through 2006 Fannie and Freddie bought more than a half trillion dollars in subprime securities. That is more than any other purchaser in the entire world.

    So while the federal government did not make the Center for Public Integrity’s “Subprime 25″ list directly, rest assured that every financial institution on that list is only there thanks to a big assist from big government.

    Posted in Ongoing Priorities [slideshow_deploy]

    27 Responses to Who's Behind the Financial Meltdown?

    1. pamela ruff islan says:

      Franks and dobbs are one of the largest parts of

      the financial meltdown. Why are they still in office and not indited and in jail where they

      belong.

      Paulson also looks more and more guilty of finanical fraud and look where he is. How can this be ?

      Where can i find atricials about these people and track their discraciful finacial practice and find a way to remove and indit them.

      Also where did our President receive all of his money as i am not aware of any business where he was able to earn money to pay of his college loan travel around the world marry and support a family, be a no show senator and run for president and not show his birth certific.?

      thank you pamela

    2. Thomas, Anchorage, A says:

      Starting in my sophomore year in college (fall '05) I started reading the Business Day section of The New York Times everyday between classes (the paper was provided free at Weber State). If I recall it was winter 2006 when there was an article or series of articles discussing the housing bubble/subprime market/RMBS (residential mortgage-backed securities) and their eventual collapse. The article[s] mentioned the failure of major lenders to meet the margin requirements set forth by the regulating arm of government as well as the confusion as to how to value the RMBS and other assets. The author's concern regarding these issues was that without accurate valuation of the assets and some correction of the ballooning value of homes the economy was building itself up for widespread and catastrophic failure.

      I know for certain someone else out there remembers reading warnings about the exact troubles we are seeing. It's almost deja vu.

    3. Thomas, Anchorage, A says:

      Footnote to my above comment: the article[s] also named Fannie Mae as a suspect, if memory serves me.

    4. Angela, Newport News says:

      Subprime problems began in 1978 with the passage of the Community Redevelopment Act. The Carter Administration used this law to supposedly revitalize urban centers that had lost so much of its middle class population. Inner cities were beginning to look like crime-infested blight zones. Fast-forward to 1995 and the Clinton Administration. Trends showed that minorities were not applying for mortgages in any significant number. The federal government applied pressure on banks to loan to people who could not afford a mortgage. Banks had to suspend sound banking practices to give these loans. I mean what bank in its right mind would lend money to someone who has poor credit, no collateral & limited job prospects? But that's exactly what happened? The federal government said "Lend the money or end up with a host of problems." Like Big Brother looking into all your records, your tax data etc. The banking system devised a clever way of dealing with the problem. Enter the concept of subprime.

      Yes, bank greed may have played a part in some of these loans, but I place square blame on the federal government for tinkering AGAIN with the capitalist system.

      Why is it when every time the government comes up with a solution we get a dozen more problems, each one worse than the original problem. And we spend billions, now trillions to fix all the problems that could have been avoided. Government, especially the federal government solves no problem. It IS THE PROBLEM.

    5. Ben C, Ann Arbor, MI says:

      Thank you Angela. I have heard the exact same explanation from a friend of mine who has been in the mortage industry for thirty years. She gave me this insight a year ago.

    6. Joseph, FL says:

      Independent investigation and holding accountable lawmakers, investors and buyers who corrupted the financial system and allowed it to reach a crisis of this magnitude is in order.

    7. Bob S., Washington S says:

      Angela has it nailed!!!

    8. George M. Semel Bozr says:

      It's all water under the bridge, since there were no Republicans involved with Fannie, Freddy and Country Wide. There will be no investigations, they will put people in jail for poring water on Terrorists. Welcome to the new age. They want to remake the country into something its not, in order to do this, the people need to be made to want it, one of the things you need to do, it to injure the banking and finance system. By killing housing, the biggest single investment most people have and there retirement plans, you can then panic the people into going along with things they would not other wise do.

    9. David VanNorman Wi says:

      A whole lot of people need put in jail. The ones that ran Fannie and freddie that got bonuses.are on thetop of my list.Barney Frank and Chris Dodd are on my list also. These people are our employee's and they needto be fired.

    10. Angel, Ohio says:

      ACORN is involved and will be given more money for the next decade by Obama and his THUGS through the stimulus bill.

    11. Al, The Villages, Fl says:

      No question that lenders had to lend the loans before we could have failed mortgages and no question you have to ask why would responsible lender do so. But you also have to recognize that the government didn't do their job and created this mess in the first place – same people who are now in charge of our economy and these banks. The dems are responsible for enabling this mess and the republicans for not stopping it. I will admit that by 2007/8 it was too late for the president to use the bully pulpit because it would have been compromised and politized by the MSM. In retrospec, I'm sure he wishes he had although I suspect that it would not have changed the outcome of the election and the president would then have been blamed by the repubs for losing the election while taking the usual blame by the dem party.

    12. FRANK N.Y.,N.Y. says:

      COPY THE ABOVE ARTICLE WITH COMMENTS AND SEND IT TO YOUR SENATOR AND CONGRESSMAN/WOMAN.

    13. Lynn B. DeSpain says:

      Angela was right on as far as she went. What was not included was Clinton ordered, though Fannie Mae and Freddie Mac, that any lending institution that failed to accept a morgage application on its face falue, (inother words check the figures and turn it down), would lose its FDIC coverage!

      Sure there was lots of greed involved, why not? Because if the President of the United States of America can pull your insurance and shut you down, and you are not allowed to make any sound investment judgements for your stockholders, what would the average person do?

      Think hard about it, without going all noble and all. Be honest.

      Place the basic blame, the blame where it began, on those who somehow always figure that you can fix everything with a "FREE LUNCH."

      Hozro

    14. Whicket Williams Kin says:

      I watched in astonishment as the crooks were all re-elected, and the radicals that TOLD us they were going to destroy our country were put into office. The american voter is the dumbest animal on the planet, and , as all dumb animals, are being consumed by predators. We are not Standing up for GOD, so he is not standing up for us. Remember sodam and gommorra? God does not change.

    15. Mike, Freeport, IL says:

      Whicket…

      Amen brother. Keep the faith.

    16. Debi, Buffalo NY says:

      ACORN is somehow tied to all of this fraud with Fannie and Freddie. ACORN refuses to open their books for audit, they refuse to let US see how OUR tax dollars are being wasted. Something very dirty is going on and more and more people have caught on. I can't imagine how this is all going to turn out, since it seems all these unbelievably crooked politicians & cohorts are immune to any form of castigation. I personally cannot believe how much they've gotten away with already; there seems to be no end in sight. One aspect that's been troubling me for a long time is their straight-out boldness – it's as if they're all giving us the middle finger, daring us to do something about it! It's as if they sincerely believe they'll NEVER be held accountable for the malicious fraud they're perpetrating upon the American people. WHY, in God's Name???? Theories, please?

    17. chuck, wyoming says:

      PRAISE GOD,

      JESUS LIVES,

      PASS THE AMMO.

    18. Mike, Texas says:

      Everything is relative. Someone in power needs to connect the dots, and there are many. Start with an audit of the Fed, then Fannnie and Freddie, Barnie the banking queen, Geitner, and all the way down to Acorn Housing. Hmm, there's that name again… Acorn. Seems like where ever there's Acorn, there's corruption, and where ever there's corruption there's Acorn. And here's the best part… they're receiving OUR TAX dollars by way of federal grants. Sounds criminal to me, but then, that's just me.

    19. Mike, Texas says:

      Just another thought that's been rolling around in my head for a few days; I believe there is a huge cover-up relating to the stress tests, bailouts, fannie & freddie, barnie franks, geitner, the AIG thing– I have a feeling that there is possibly in excess of a few trillion dollars in "toxic assets" out there, being hidden(protected from public view) just waiting to fall.

      Think about this; the housing boom dramatically increased home values(over inflated) as a direct result of demand. My home in FL tripled in value(not actually but that was what the market drove it to) in five years. Two years after the housing bubble burst, its now worth what it was 8 years ago, and nobody wants to buy it for that price.

      How many mortgages in or approaching default status(headed for foreclosure) are homeowners who are upsidedown in their mortgage?

      With unemployment hitting 8.9% this week, and El Presidente's less than stimulating stimulus plan, I don't believe that the real meltdown has occurred yet.

    20. Marshall Hill MI. says:

      God did not leave us! We left him!

    21. Dennis Anacortes, says:

      Pamela Ruff ——- thanks for your thoughts and questions……… I have been wondering the same as you ……… how and why all these crooks have gotten away with ruining our Country so easily. I have to believe that the likes of Geo. Soros and his cronies are behind it coupled with the Saudis (maybe why O bowed to the King)

      You're right they need to be investigated-and hauled off to jail…….along with the ACORN operatives ……….. A C O R N =

      ASSOCIATED CORRUPT OBAMA'S RADICAL NUTS

      PLS.KEEP SOUNDING OUT …….. AND TELL EVERYONE TO QUIT WATCHING THE NAT'L MEDIA'S NEWS BROADCASTS ……. THEN MAYBE THEY'LL BEGIN TO CHG. THEIR BIASES TO GET THE VIEWERS TO COME BACK

      FYI – I WILL NOT GIVE ACORN ANY CENSUS INFO. — I UNDERSTAND OBAMA VIA RAHM EMMANUEL HAS/IS DIRECTING ACORN TO BE IN CHARGE OF COLLECTING THE CENSUS INFO. ……. NOT IN MY LIFETIME …. BOYCOTT THE CENSUS UNTIL IT IS PROVEN TO BE AN UNBIASED OPERATION AND NOT UNDER THE EXECUTIVE BRANCH……. LOL ………. YOU GO GIRL!

    22. TedN, St. Petersburg says:

      Good comments. However, the overall understanding may be incomplete. An element seldom discussed concerns the involvement of the credit rating agencies that measure the quality of the security underlying the financial instrument. If their evaluations had been more objective, the market for the “toxic mortgage paper” would not have existed. Or, perhaps ratings were based on the collateralized asset (home) value NEVER declining and could be sold to cover the credit obligation. Therefore, banks could disregard the borrowers ability to repay as they would be bought by the GSE's or others, repackaged into traunches and sold at good profits. Everyone from end to end made significant money.

      To mitigate risk further, wall street implemented derivatives and credit default swaps. Extensive and complex financial models had been developed to assess risk and price it accordingly. Alan Greenspan also endorsed these products as reliable and basically foolproof. Mr. Greenspan was highly respected and no one in government was capable of (or chose not to) questioning his opinion or positions besides there not being any history to compare the viability of these systems. If the real estate market slowed or simply leveled off, these strategies would have worked. However, no one expected, including many respected economists, for real estate to not only level off but DECLINE.

      Models are limited to the variables and data used and obviously in this example incomplete. There was no history to develop mature models and many of the necessary variables could not be identified. Economics and human behavior is a complex business and naïve and arrogant to assume it can be modeled with reliability sufficient to be betting trillions of dollars and having widespread effects and consequences.

      Moreover, real estate is historically a good hedge against inflation and no other investments exists allowing for the same degree of high leverage. So, with the slowing stock market in 2001, the Federal Reserve dropping interest rates to 1% (which in turn provided financing at below market rates or “free money” in real terms) a similar problem may have evolved regardless of the CRA. Consider the majority of foreclosures exist in areas where the largest run ups occurred between 2003 – 2006 and “subprime” loans were used to finance the 20% down payment and essentially removing any risk to the buyer / mortgagor. Since they had no skin in the property purchase, they could simply walk away if its value declined to less than the financed amounts. This is obviously a very hazardous metric defying fundamental lending practices. But since Wall Street devised products to offset this risk banks would continue to loan money. It had nothing to do with the CRA buyers in that category.

      Finally, Wall Street knew they would not be allowed to fail considering the "too big to fail" mentality in addition to the symbiotic relationship that exists between Wall Street and Washington. Since the Federal Reserve can easily create money to fund any bailout (read “The Creature From Jekyll Island” by Ed Griffin for more understanding of the illusion at work) and the staggering amount of money that could be made all along the food chain, Wall Street had little reason to not move full speed ahead.

      It appears there is an abundance of incompetence and egregious behavior in the GSE’s and all those involved with preventing oversight. The Bush administration as early as 2002 expressed concern over the risky behavior of the GSE’s and again in the following couple of years. I believe Karl Rove reports that one last attempt to have safeguards put into place around 2003 were frustrated by a Chris Dodd leading a filibuster. Those at the GSE’s profiting the most (Franklin Raines $10 million +), et al should all be investigated and thrown in jail for their complete incompetence and egregious behavior allowing these conditions.

    23. Larry, in the Republ says:

      Long story in compressed form-Barney "Happy FEET" Franks and his crony Dobbs are both guilty of theft, fraud, and lieing to Congressional Committees regarding the lending practices and financial "footing" of Freddie and Fannie. Those two along with Maxine "Muddy" Waters, who praised the Clinton push of bad paper through the Fred and Fannie guises,and Nancy "Profit Sharing" Pelosi are responsible for the lies perpetrated on the American people! All I got say is good luck trying to bring charges up on Happy Feet,because He'll dance his way down to Criminal Court, ACORN and the ACLU to file "HATE" crime charges and bring "Uncivil" suites against any and all who dare to call him out on his lies and dishonor!! Gays and lesbians love this new "SHEILD" of defense which in no way should be misconstrued as the "Badge of HONOR"! Enough said? Oh well, this probaly won't make the post anyway because it speaks of "special" protections that some people have because of a sexual preference when the rest of us "straight" shooters are held to the Laws and prosecutions of this COUNTRY!! All is well on the "equality front". Right?

    24. Ken St Louis says:

      If you all think things are bad now, you ain't seen nothin yet! Obama plans on turning Am erica into another cesspoll like England or France! He hates America, is a narcisscist ( loves himself and nothing else) aND IS PROBABLY THE BIGGEST TRAITOR AMERICA HAS EVER SEEN. yES THE LIKES OF bARNEY fRANK AND cHRIS dODD NEED TO BE IN JAIL, but we need term limits to keep this from hapopening again in the future! REMEMBER: IF YOU THINK ITS FREE, A SLAVE YOU'LL SOON BE!

    25. Anna New Jersey says:

      Come on folks, students of history, etc….have you never seen a dictator in the making? They prey on people in very devious ways…we had to listen to the libs trashing everything for years and there are way too many people out there who believe everything they say. I really feel that it is about time AMERICANS stop feeling so guilty about everything. Wake up. Pay attention to what is going on and stop voting for free ride candidates while you still have the chance to vote freely. Who is to say that we will ever be rid of what we have in power in government today. The way I see it, dictators don't leave.

      The traitors definitely need to be held accountable for creating a worldwide mess.

    26. dave ,seattle , WA says:

      sorry my typing is so bad, I wrote this after coming off work from my third job and only a few hrs sleep

    27. Pingback: Top Ten Reasons America Won’t Miss the 111th Congress | The Conservative Papers

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