Den økonomiske krisen i USA

Diskusjon om politiske temaer fra det internasjonale nyhetsbildet.

Den økonomiske krisen i USA

Innlegg Vegard Martinsen 19 Jul 2008, 18:19

Artikkelen linket til nedenfor gir en bra innføring i årsaken til problemene mht boliglån i USA de siste månedene.

"Fannie Mae's Golden Goose: A Lesson In Moral Hazard," Bill Burnham, Burnham's Beat, July 11 ... s-gol.html


In the mid 1990’s I spent over a year as part of a team consulting to Fannie Mae. Given that they have been in the news a bit over the last few days, I thought it might be interesting to pass along a few observations that initially crystallized during my time there.

The World’s Biggest Mortgage Bank
For those of you that don’t know Fannie Mae, it is one of the largest financial institutions in the county with over $880BN in assets. It is almost exclusively focused on buying, selling, and guaranteeing single family residential mortgages. Fannie Mae was originally a US government agency, but became a public company in the 1970s. Despite being a public company, Fannie Mae has remained a quasi-government agency subject to federal oversight and regulation. This government regulation, combined with a few perks such a direct credit line from the US Treasury as well as its overwhelming size and importance to the US housing market has resulted in what amounts to an implicit US government guarantee that Fannie Mae (and its cousin brother Freddie Mac) will never default on their debt. [Uthevet her] There is no law or regulation to that effect, just an assumption by the market that Fannie Mae is too big, too close and too important to the government for the government to ever let Fannie Mae fail. With the mortgage market in massive turmoil and Fannie Mae’s stock down 85% in the last year, that assumption is currently being heavily tested.


The seeds of Fannie Mae's current crisis were actually sown in the recovery from its last crisis. In the mid-1980s Fannie Mae almost went out of business thanks in large part to some very poor and rather unsophisticated asset and liability management practices….

A new team of people took over the finance side of Fannie Mae and implemented a series a relatively sophisticated and ultimately incredibly profitable Asset and Liability Management (ALM) strategies. One of the key innovations was issuing debt instruments, specifically callable debt instruments…. Normally, callable debt is quite expensive (much more expensive than residential mortgage debt), because bond holders want to be compensated for selling the call option to the issuer, but thanks to Fannie Mae's quasi-government status it was able to issue this callable debt at yields that were only marginally above straight treasury yields….

With this strategy in hand, not only could Fannie Mae buy mortgage securities for less than the cost of its debt (and thus earn a nice spread), but it could almost entirely contain pre-payment risk effectively making the purchase of mortgage securities "risk free" except for credit risk, which itself was very low thanks to Fannie Mae's strong underwriting guidelines. Fannie Mae had discovered the equivalent of a financial golden goose.

With its golden goose in hand, Fannie Mae almost immediately began buying a lot more mortgage securities. Who did it buy these securities from? Why none other than Fannie Mae itself. You see Fannie Mae's original role was to buy mortgages from individual banks, package them up into securities, guarantee those securities against loss, and then sell them to other financial institutions. However once Fannie Mae realized that the "golden goose" allowed them to buy those same securities for its own portfolio and lock-in "risk free" profits, Fannie became a major buyer of its own securities. Fannie Mae was thus in the rather bizarre position of guaranteeing an ever increasing portion of its own assets against default….

Now a normal private company could not pursue this strategy because as it issued more and more debt to fund the golden goose, the yields on the incremental debt would start to increase to the point where the strategy no longer made sense. But Fannie Mae was different. Because of the implicit government guarantee of its debt, Fannie could issue incremental debt with little or no regard to its existing debt load because everyone assumed the federal government would backstop the debt.

Fannie Mae's only significant problem thus became that the supply of mortgage securities would prove insufficient to fund its projected earnings growth (which was well above the projected growth in mortgage debt). As a result Fannie began a series of largely successful political campaigns to increase the volume of mortgage securities available to fund their habit….

[Fannie Mae] created a home ownership "foundation" which opened offices in almost every congressional district and promptly set about mobilizing all the local advocates for "affordable" housing to put pressure on their elected representatives to let Fannie Mae offer "affordable housing programs." Of course, "affordable housing programs" was just a euphemism for allowing Fannie Mae to lower its underwriting standards so that more mortgages could be created and the golden goose could thus kick out more golden eggs.

This proved to be a highly effective political coalition for Fannie Mae. Not only did they build a huge network of grass roots political supporters through their "foundation," but politicians saw political advantages in supporting the programs because it cast them in the role of trying to help families buy a new home (as opposed to lowering underwriting standards to help a giant corporation keep up its earnings growth by taking a free ride on the US government's guarantee).
Sist endret av Vegard Martinsen den 07 Aug 2008, 08:03, endret 2 ganger.
Vegard Martinsen
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Innlegg Vegard Martinsen 07 Aug 2008, 07:05

Fra selveste New York Times (alle uthevelser foretatt her): ... mNQzENPVqw

At Freddie Mac, Chief Discarded Warning Signs

The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others.

That chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.

Today, Freddie Mac and the nation’s other major mortgage finance company, Fannie Mae, are in such perilous condition that the federal government has readied a taxpayer-financed bailout that could cost billions. Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Mr. Syron heightened those perils by ignoring repeated recommendations.

In an interview, Freddie Mac’s former chief risk officer, David A. Andrukonis, recalled telling Mr. Syron in mid-2004 that the company was buying bad loans that “would likely pose an enormous financial and reputational risk to the company and the country.”

Mr. Syron received a memo stating that the firm’s underwriting standards were becoming shoddier and that the company was becoming exposed to losses, according to Mr. Andrukonis and two others familiar with the document.

But as they sat in a conference room, Mr. Syron refused to consider possibilities for reducing Freddie Mac’s risks, said Mr. Andrukonis, who left in 2005 to become a teacher.

“He said we couldn’t afford to say no to anyone,” Mr. Andrukonis said. Over the next three years, Freddie Mac continued buying riskier loans.

Mr. Syron contends his options were limited.

“If I had better foresight, maybe I could have improved things a little bit,” he said. “But frankly, if I had perfect foresight, I would never have taken this job in the first place.”

Mr. Andrukonis was not the only cautionary voice at Freddie Mac at the time. According to many executives, Mr. Syron was also warned that the firm needed to expand its capital cushion, but instead that safety net shrank. Mr. Syron was told to slow the firm’s mortgage purchases. Instead, they accelerated.

Those and other choices initially paid off for Mr. Syron, who has collected more than $38 million in compensation since 2003.

But when housing prices began declining in 2006, choices at Freddie Mac and Fannie Mae proved disastrous. Stock prices at both companies have fallen by more than 60 percent since February, destroying more than $80 billion of shareholder value.

More than two dozen current and former high-ranking executives at Freddie Mac, analysts, shareholders and regulators said in interviews that Mr. Syron had ignored recommendations that could have helped avoid the current crisis.

Many of those interviewed were given anonymity for fear of damaging their careers by speaking publicly.

Now, some outsiders are saying that Mr. Syron and the top executive at Fannie Mae — some of the highest-profile figures in the business world — should be replaced.

“The top people should be booted out, and replaced by executives who have the confidence of the markets,” said Janet Tavakoli, a finance industry consultant and observer of both firms. Large Freddie Mac shareholders, speaking on the condition of anonymity, echoed those sentiments.

Mr. Syron and the Fannie Mae chief executive, Daniel H. Mudd, defended their choices, saying in interviews that they did not anticipate that the housing market would decline so quickly and that they were buffeted by conflicting pressures.

“This company has to answer to shareholders, to our regulator and to Congress and those groups often demand completely contradictory things,” ,Mr. Syron said in an interview.

Indeed, executives of both companies maintain that one of the reasons the firms hold so many bad loans is that Congress has leaned on them for years to buy mortgages from low-income borrowers to encourage affordable housing. In 2004, Freddie Mac warned regulators that affordable housing goals could force the company to buy riskier loans.

Others, however, dismiss that explanation. “Sure, it’s hard to deal with the pressures of Congress and shareholders and regulators,” said a former high-ranking Freddie Mac executive. “But that’s why executives get paid so much. It’s not acceptable to blame those pressures for making bad choices.”

In a statement, Freddie Mac said executives were unable to verify that Mr. Andrukonis’s memorandum existed, and that the company’s default and delinquency rates were substantially lower than other firms. “There is little to nothing that Freddie Mac could have done to prevent the losses that it is now incurring,” wrote company spokesman, David R. Palombi.

Mr. Mudd said the companies were victims of circumstance.

“You’ve got the worst housing crisis in U.S. recorded history, and we’re the largest housing finance company in the country, so when one goes down, the other goes with it,” he said. A Fannie Mae spokesman, Brian A. Faith, said that beginning in 2005, executives “sounded the alarm” about riskier loans and began limiting their purchases.

The depths of Freddie Mac’s problems are complicated by its long-planned, continuing search for a chief executive to replace Mr. Syron, who is expected to remain chairman. Two people who were approached — Kenneth I. Chenault of American Express and Laurence D. Fink of BlackRock — said they did not want to be considered for the position.

Some outsiders are surprised to learn that among the candidates the company is considering is Alan Schwartz, who headed Bear Stearns as it collapsed.

Mr. Chenault, Mr. Fink and Mr. Schwartz could not be reached or declined to comment.

Mr. Syron joined Freddie Mac as chief executive and chairman in 2003, after the company revealed it had manipulated earnings by almost $5 billion. He came to Freddie Mac after serving as chairman of the Thermo Electron Corporation, a scientific instruments firm, and of the American Stock Exchange. An economist with a Ph.D. and the first in his family to graduate from high school, Mr. Syron was welcomed as an unpretentious but politically astute leader.

Mr. Mudd was promoted to chief executive of Fannie Mae the following year, after that company was also accused of accounting errors totaling $6.3 billion. His compensation has totaled more than $42 million.

By the time both men took over, the firms had perfected the art of making money by capitalizing on the perception they were implicitly backed by the government. That belief allowed Fannie and Freddie to borrow at relatively low rates and use those funds to buy mortgages as investments. The companies also collected fees in exchange for guaranteeing that borrowers would repay other home loans.

By the end of 2007, the firms held mortgages worth more than $1.4 trillion combined, and guaranteed payments on loans worth $3.5 trillion more.

Both firms had sophisticated systems to hedge against risks. But they remained exposed to one unlikely, but potentially catastrophic possibility: a wide-scale decline in national home prices.

The only real protection against such a downfall was purchasing only the safest loans.

However, the companies were constantly under pressure to buy riskier mortgages. Once, a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers, according to a Congressional source. Shareholders attacked the executives for missing profitable opportunities by being too cautious.

Mr. Syron and Mr. Mudd eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.

“The thinking was that if something really bad happened to the housing market, then the government would need Freddie and Fannie more than ever, and would have to rescue them,” Mr. Andrukonis said. “Everybody understood that at some level the company was putting taxpayers at risk.”

Representatives of Mr. Syron and Mr. Mudd said the firms never made choices assuming the government would intervene. Both said they balanced shareholder and Congressional demands against market realities.

For years, the companies collected rich profits. But some executives grew increasingly concerned.

Mr. Andrukonis wrote his memo in 2004. At the time, he also briefed the risk oversight committee of the board of directors, but did not share his memo with them, he said. A member of that committee declined to return phone calls.

Soon thereafter, Freddie Mac’s head of capital compliance and oversight, Donald Solberg, counseled Mr. Syron to maintain a thick capital cushion, according to multiple people familiar with those discussions. Mr. Solberg continued making that recommendation until early 2007, when he left the company. Mr. Solberg declined to comment on his conversations.

Last year, Treasury Secretary Henry M. Paulson Jr. and the Federal Reserve chairman, Ben S. Bernanke, privately urged both companies to raise more money. At one point, Mr. Bernanke threatened to publicly scold the companies if they did not raise more cash.

Beginning in November, Fannie Mae raised $14.4 billion from shareholders over a six-month period.

But Mr. Syron was more resistant. Freddie Mac raised $6 billion in preferred stock last year, but at a March conference in New York, Mr. Syron combatively dismissed suggestions he would raise more simply because officials told him to.

“This company will bow to no one,” Mr. Syron told a room of investors and analysts. Despite promises, the company has delayed a planned $5.5 billion stock sale. Because of that delay, the effective cost of raising funds has skyrocketed as the company’s share price has declined.

In a statement, Freddie Mac said Mr. Syron’s March comments focused on dilutive capital raising and that the stock sale was delayed because lawyers said it could not occur while the company was registering with the Securities and Exchange Commission. That process was finalized last month.

In 2007, as home prices were falling and defaults rising in some areas, people at both firms urged their chief executives to scale back on mortgage purchases. Fannie Mae shrunk its mortgage portfolio slightly.

Mr. Syron’s Freddie Mac, however, increased its portfolio by $17 billion.

That same year the companies posted combined losses of $5.2 billion. This year, they have announced losses of $2.4 billion, and analysts say they may lose an additional $24 billion or more.

Last month, after weeks of rumors and bad news, investors began dumping the companies’ shares, driving their stock prices down almost 60 percent apiece. The selling did not subside until Mr. Paulson unveiled a rescue plan with powers to inject billions of taxpayer dollars into the companies. That plan has not been activated, but the law, signed by President Bush last week, also gives the government sweeping new regulatory control over the firms.

“It basically worked exactly as everyone expected — when things got bad, the government came to the rescue,” said a second former high-ranking Freddie Mac executive. “But we didn’t expect it would come at the cost of a new regulator who now has the power to burrow into our business forever.”

In the last three weeks, the companies’ stock prices have recovered a small portion of their losses. Executives, however, remain concerned that more bad news could spark another panic.

Freddie Mac will report its second-quarter financial results Wednesday. Fannie Mae will release its results on Friday.

“I’ve had four other jobs as C.E.O., and I came out of them all pretty well,” Mr. Syron said. “What I’m working for right now is to save my reputation.”
Vegard Martinsen
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Innlegg Vegard Martinsen 18 Sep 2008, 18:55

Her ligger en guide til Equal Opportunity Lending, utgitt av the Federal Reserve Bank of Boston.

Her finner man bla følgende anbefalinger om hvordan vurdere lånesøknader:

While the banking industry is not expected to cure the nation’s social and racial ills, lenders do have a specific legal responsibility to ensure that negative perceptions, attitudes, and prejudices do not systematically affect the fair and even–handed distribution of credit in our society. Fair lending must be an integral part of a financial institution’s business plan.

Even the most determined lending institution will have difficulty cultivating business from minority customers if its underwriting standards contain arbitrary or unreasonable measures of creditworthiness. Consistency in evaluating loan applications is also critical to ensuring fair treatment. Since many mortgage applicants who are approved do not meet every underwriting guideline, lending policies should have mechanisms that define and monitor the use of compensating factors to ensure that they are applied consistently, without regard to race or ethnicity.

Policies regarding applicants with no credit history or problem credit history should be reviewed.

Det finne mange flere anbefalinger som reellt sett er en oppskrift på å gå konkurs.
Vegard Martinsen
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Innlegg Vegard Martinsen 23 Sep 2008, 18:07

Senator DeMint Opposes Wall Street Bailout
Plan does not solve the problems that caused the current credit
crunch, and could make them much worse

September 22, 2008 - Washington D.C. - Today, U.S. Senator Jim
DeMint (R-South Carolina) announced his opposition to the $700
billion plan proposed by the Bush Administration to bailout Wall

"After reviewing the Administration's proposed bailout plan, I
believe it is completely unacceptable. This plan does nothing to
address the misguided government policies that created this mess
and it could make matters much worse by socializing an entire
sector of the U.S. economy. This plan fails to oversee or regulate
the government failures that led to this crisis. Instead it greatly
increases the role for Secretary Paulson whose market predictions
have been consistently wrong in the last year, and provides
corporate welfare for investment firms on Wall Street that don't
want to disclose their assets and sell them to private investors for
market rates. Most Americans are paying their bills on time and
investing responsibly and should not be forced to pay for the
reckless actions of some on Wall Street, especially when no one can
guarantee this will solve our current problems."

"This plan will not only cause our nation to fall off the debt cliff, it
could send the value of the dollar into a free-fall as investors around
the world question our ability to repay our debts. It's also very
likely that this plan will extend the cycle of bailouts, encouraging
other companies to behave in reckless ways that create the need for
even more bailouts, triggering an endless run on our treasury. This
plan may make things look better for Wall Street in the next couple
months, but the long-term consequences to our economy could be

"There are much better ways of dealing with this problem than
forcing American taxpayers to pay for every asset some investor
doesn't want anymore. We should start by reforming government
policies and programs that created this mess, including the Federal
Reserve's easy money policy, the congressional charters of Fannie
Mae and Freddie Mac, and the Community Reinvestment Act. Then
Congress should pass a number of permanent and proven pro-
growth reforms to encourage capital formation and boost asset
values. We need to make permanent reductions in the corporate tax
and the capital gains tax rates. We have the second highest
corporate tax rate in the world, which encourages companies to take
jobs and investment overseas."

"It's a sad fact, but Americans can no longer trust the economic
information they are getting from this Administration. The
Administration said the bailout of Bear Stearns would stop the
bleeding and solve the problem, but they were wrong. They said
$150 billion in new government spending using rebate checks would
solve the problem, but they were wrong again. They said new
authority to bailout Fannie Mae and Freddie Mac would solve the
problem without being used, but they were wrong again. Now they
want us to trust them to spend nearly a trillion dollars on more
government bailouts. It's completely irresponsible and I cannot
support it." ... 6e39c6c94a
Vegard Martinsen
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Government bailouts are bearish

Innlegg Per Arne Karlsen 24 Sep 2008, 10:50

Government bailouts are bearish by Richard Salsman

In our view, all the scare-mongering about a potential “systemic
catastrophe” or “financial cataclysm,” should a major financial
institution fail, is just that: scare-mongering. These unproven (and
unprovable) assertions are made by those who don’t understand the
financial system, or stand on the wrong side of trades or are eager to
see still more socialist power accumulate in Washington."
Per Arne Karlsen
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Innlegg Vegard Martinsen 24 Sep 2008, 12:53

A Mortgage Fable

Once upon a time, in the land that FDR built, there was the rule of "regulation" and all was right on Wall and Main Streets. Wise 27-year-old bank examiners looked down upon the banks and saw that they were sound. America's Hobbits lived happily in homes financed by 30-year-mortgages that never left their local banker's balance sheet, and nary a crisis did we have.

Then, lo, came the evil Reagan marching from Mordor with his horde of Orcs, short for "market fundamentalists." Reagan's apprentice, Gramm of Texas and later of McCain, unleashed the scourge of "deregulation," and thus were "greed," short-selling, securitization, McMansions, liar loans and other horrors loosed upon the world of men.

Now, however, comes Obama of Illinois, Schumer of New York and others in the fellowship of the Beltway to slay the Orcs and restore the rule of the regulator. So once more will the Hobbits be able to sleep peacefully in the shire.

With apologies to Tolkien, or at least Peter Jackson, something like this tale is now being sold to the American people to explain the financial panic of the past year. It is truly a fable from start to finish. Yet we are likely to hear some version of it often in the coming months as the barons of Congress try to absolve themselves of any responsibility for the housing and mortgage meltdowns.

Yes, greed is ever with us, at least until Washington transforms human nature. The wizards of Wall Street and London became ever more inventive in finding ways to sell mortgages and finance housing. Some of those peddling subprime loans were crooks, as were some of the borrowers who lied about their incomes. This is what happens in a credit bubble that becomes a societal mania.

- The Federal Reserve. The original sin of this crisis was easy money. For too long this decade, especially from 2003 to 2005, the Fed held interest rates below the level of expected inflation, thus creating a vast subsidy for debt that both households and financial firms exploited. The housing bubble was a result, along with its financial counterparts, the subprime loan and the mortgage SIV.

Fed Chairmen Alan Greenspan and Ben Bernanke prefer to blame "a global savings glut" that began when the Cold War ended. But Communism was dead for more than a decade before the housing mania took off. The savings glut was in large part a creation of the Fed, which flooded the world with too many dollars that often found their way back into housing markets in the U.S., the U.K. and elsewhere.

- Fannie Mae and Freddie Mac. Created by government, and able to borrow at rates lower than fully private corporations because of the implied backing from taxpayers, these firms turbocharged the credit mania. They channeled far more liquidity into the market than would have been the case otherwise, especially from the Chinese, who thought (rightly) that they were investing in mortgage securities that were as safe as Treasurys but with a higher yield.

These are the firms that bought the increasingly questionable mortgages originated by Angelo Mozilo's Countrywide and others. Even as the bubble was popping, they dived into pools of subprime and Alt-A ("liar") loans to meet Congressional demand to finance "affordable" housing. And they were both the cause and beneficiary of the great interest-group army that lobbied for ever more housing subsidies.

Fan and Fred's patrons on Capitol Hill didn't care about the risks inherent in their combined trillion-dollar-plus mortgage portfolios, so long as they helped meet political goals on housing. Even after taxpayers have had to pick up a bailout tab that may grow as large as $200 billion, House Financial Services Chairman Barney Frank still won't back a reduction in their mortgage portfolios.

- A credit-rating oligopoly. Thanks to federal and state regulation, a small handful of credit rating agencies pass judgment on the risk for all debt securities in our markets. Many of these judgments turned out to be wrong, and this goes to the root of the credit crisis: Assets officially deemed rock-solid by the government's favored risk experts have lately been recognized as nothing of the kind.

When debt instruments are downgraded, banks must then recognize a paper loss on these assets. In a bitter irony, the losses cause the same credit raters whose judgments allowed the banks to hold these dodgy assets to then lower their ratings on the banks, requiring the banks to raise more money, and pay more to raise it. The major government-anointed credit raters -- S&P, Moody's and Fitch -- were as asleep on mortgages as they were on Enron. Senator Richard Shelby (R., Ala.) tried to weaken this government-created oligopoly, but his reforms didn't begin to take effect until 2007, too late to stop the mania.

- Banking regulators. In the Beltway fable, bank supervision all but vanished in recent years. But the great irony is that the banks that made some of the worst mortgage investments are the most highly regulated. The Fed's regulators blessed, or overlooked, Citigroup's off-balance-sheet SIVs, while the SEC tolerated leverage of 30 or 40 to 1 by Lehman and Bear Stearns.

The New York Sun reports that an SEC rule change that allowed more leverage was made in 2004 under then Chairman William Donaldson, one of the most aggressive regulators in SEC history. Of course the SEC's task was only to protect the investor assets at the broker-dealers, not the holding companies themselves, which everyone thought were not too big to fail. Now we know differently (see Bear Stearns below).
Meanwhile, the least regulated firms -- hedge funds and private-equity companies -- have had the fewest problems, or have folded up their mistakes with the least amount of trauma. All of this reaffirms the historical truth that regulators almost always discover financial excesses only after the fact.

- The Bear Stearns rescue.
In retrospect, the Fed-Treasury intervention only delayed a necessary day of reckoning for Wall Street. While Bear was punished for its sins, the Fed opened its discount window to the other big investment banks and thus sent a signal that they would provide a creditor safety net for bad debt.

Morgan Stanley, Lehman and Goldman Sachs all concluded that they could ride out the panic without changing their business models or reducing their leverage. John Thain at Merrill Lynch was the only CEO willing to sell his bad mortgage paper -- at 22 cents on the dollar. Treasury and the Fed should have followed the Bear trauma with more than additional liquidity. Once they were on the taxpayer dime, the banks needed a thorough scrubbing that might have avoided last week's stampede.

- The Community Reinvestment Act.
This 1977 law compels banks to make loans to poor borrowers who often cannot repay them. Banks that failed to make enough of these loans were often held hostage by activists when they next sought some regulatory approval.
Robert Litan, an economist at the Brookings Institution, told the Washington Post this year that banks "had to show they were making a conscious effort to make loans to subprime borrowers." The much-maligned Phil Gramm fought to limit these CRA requirements in the 1990s, albeit to little effect and much political jeering.

We could cite other Washington policies, including the political agitation for "mark-to-market" accounting that has forced firms to record losses after ratings downgrades even if the assets haven't been sold. But these are some of the main lowlights.

Our point here isn't to absolve Wall Street or pretend there weren't private excesses. But the investment mistakes would surely have been less extreme, and ultimately their damage more containable, if not for the enormous political support and subsidy for mortgage credit. Beware politicians who peddle fables that cast themselves as the heroes.
Vegard Martinsen
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Innlegg Per Arne Karlsen 24 Sep 2008, 20:15

No fallen temple By Peter Foster

It seems beyond the conceptual abilities of most people that current problems might have been based on too much rather than too little regulation. Somehow people can ignore that the U.S. financial institutions that recently stumbled were subject to comprehensive oversight by the Federal Reserve, the SEC, the Federal Deposit Insurance Corporation and others. They have a blind spot to the role of government programs and policies in promoting the housing bubble, and of facilitating institutions, especially Fannie Mae and Freddy Mac, that were widely perceived as being government backed (and ultimately were). They do not grasp that the big five Wall Street investment banks, which have so recently and stunningly disappeared — either by going out of business, by acquisition or by changing their status to that of commercial banks — were themselves indirectly creations of 1930s U.S. regulation. Meanwhile, other major regulatory factors in the recent problems were mark-to-market rules which unreasonably sucked the air from balance sheets, and bank reserve requirements that served to exacerbate both over-exuberant lending and credit implosion.
Per Arne Karlsen
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Innlegg Vegard Martinsen 25 Sep 2008, 17:20

Jeg er ikke sikker på i hvilken tråd denne passer, men den er ganske nyttig:

The US Inflation Rate - 1948 to 2007
Vegard Martinsen
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The SEC Wants to Ban Reality

Innlegg Per Arne Karlsen 25 Sep 2008, 18:58

The SEC Wants to Ban Reality By John Tamny

That is so because to the extent that short sales drive down the prices of certain stocks, this is wonderful information that insures the process whereby capital is taken from the firms thought to be misusing it, and invested in those thought to be taking better care. The basic reality is that today’s market winners won’t necessarily be tomorrow’s, so if short sales are banned to the alleged benefit of certain companies, there will be other, potentially more vibrant companies of the future that will miss out on the capital that would reach them in a free market.
Per Arne Karlsen
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Innlegg Vegard Martinsen 26 Sep 2008, 09:13

Arne Strand i Dagsavisen i dag:

...Sammenbruddet på Wall Street er også et sammenbrudd for Frps politiske plattform – markedsliberalismen. Frps politikk er et ekko av den amerikanske politikken med kullsviertro på markedet, skattelettelser, private løsninger, mindre stat, mindre kontroll og færre reguleringer. Med sin enorme statlige redningsoperasjon kaster Bush-regjeringen vrak på alt det markedsliberalister over hele verden står for. For en troende markedsliberalist må dette være et like stort sjokk som Sovjetunionens sammenbrudd var for en troende kommunist....

Jeg trodde Strand var en intelligent mann.
Vegard Martinsen
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Innlegg Bent A. 26 Sep 2008, 16:11

Vegard Martinsen skrev:Arne Strand i Dagsavisen i dag:

...Sammenbruddet på Wall Street er også et sammenbrudd for Frps politiske plattform – markedsliberalismen. Frps politikk er et ekko av den amerikanske politikken med kullsviertro på markedet, skattelettelser, private løsninger, mindre stat, mindre kontroll og færre reguleringer. Med sin enorme statlige redningsoperasjon kaster Bush-regjeringen vrak på alt det markedsliberalister over hele verden står for. For en troende markedsliberalist må dette være et like stort sjokk som Sovjetunionens sammenbrudd var for en troende kommunist....

Jeg trodde Strand var en intelligent mann.

Det er skremmende å se hvordan Strand bevisst sprer løgn. Strand har nemlig fått tilsendt materiale som helt konkret viser at hans analyse er feil (han gjentar her de samme løgnene han har spredt tidligere). Så dette er ikke et spørsmål om å være intelligent eller ikke. Mannen er med på en kampanje der har som hensikt å sikre sosialistisk flertall til neste valg, koste hva det koste vil. Sannheter og løgner inngår her i et taktisk spill som kun har denne ene målsettingen: Å bli sittende ved makten.

Det er mulig Strand ikke har noe valg i den forstand at avisen (og mektige personer) gir gitt Strand "ordre" om å kjøre denne linjen, hvis han er interessert i å beholde jobben sin. Men ingen skal fortelle meg at mannen ikke skjønner at det er noe svært muffens med hele denne forklaringen som legges frem. Bare det faktum at USA ikke har økonomisk laissez-faire tilsider det. Det finnes vel neppe et menneske i hele Norge som tror det.
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Bent A.
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Innlegg Vegard Martinsen 27 Sep 2008, 06:19

Objektivisten John Allison er president & CEO i banken BB&T, og han sendte dette brevet til alle medlemmer av Kongressen.

(BB&T er ikke rammet av krisen.)

Key Points on “Rescue” Plan From A Healthy Bank’s Perspective

Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis. These government supported enterprises distorted normal market risk mechanisms. While individual private financial institutions have made serious mistakes, the problems in the financial system have been caused by government policies including, affordable housing (now sub-prime), combined with the market disruptions caused by the Federal Reserve holding interest rates too low and then raising interest rates too high.

There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.
While all financial intermediaries are being impacted by liquidity issues, this is primarily a bailout of poorly run financial institutions. It is extremely important that the bailout not damage well run companies.

Corrections are not all bad. The market correction process eliminates irrational competitors. There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom. It is important that any rules post “rescue” punish the poorly run institutions and not punish the well run companies.

A significant and immediate tax credit for purchasing homes would be a far less expensive and more effective cure for the mortgage market and financial system than the proposed “rescue” plan.

This is a housing value crisis. It does not make economic sense to purchase credit card loans, automobile loans, etc. The government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.

The guaranty of money funds by the U.S. Treasury creates enormous risk for the banking industry. Banks have been paying into the FDIC insurance fund since 1933. The fund has a limit of $100,000 per client. An arbitrary, “out of the blue” guarantee of money funds creates risk for the taxpayers and significantly distorts financial markets.

Protecting the banking system, which is fundamentally controlled by the
Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bailout insurance companies, investment banks, hedge funds and foreign companies.
It is extremely unclear how the government will price the problem real estate assets. Priced too low, the real estate markets will be worse off than if the bail out did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?

The proposed bankruptcy “cram down” will severely negatively impact mortgage markets and will damage well run institutions. This will provide an incentive for homeowners who are able to pay their mortgages, but have a loss in their house, to take bankruptcy and force losses on banks. (Banks would not have received the gains had the houses appreciated.) This will substantially increase the risk in mortgage lending and make mortgage pricing much higher in the future.

Fair Value accounting should be changed immediately. It does not work when there are no market prices. If we had Fair Value accounting, as interpreted today, in the early 1990’s the United States financial system would have crashed. Accounting should not drive economic activity, it should reflect it.

The proposed new merger accounting rules should be deferred for at least five years. The new merger accounting rules are creating uncertainty for high quality companies who might potentially purchase weaker companies.

The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank Paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The decision to protect the money funds is a clear example of a material lack of insight into the risk to the total financial system.

Arbitrary limits on executive compensation will be self defeating. With these limits, only the failing financial institutions will participate in the “rescue,” effectively making this plan a massive subsidy for incompetence. Also, how will companies attract the leadership talent to manage their business effectively with irrational compensation limits?
Vegard Martinsen
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Registrert: 07 Sep 2003, 12:07

Innlegg Vegard Martinsen 28 Sep 2008, 08:37

Congress Tries To Fix What It Broke
By INVESTOR'S BUSINESS DAILY | Posted Wednesday, September 17 ... 4845091102

Regulation: As the financial crisis spreads, denials on Capitol Hill grow more shrill. Blame an aloof President Bush, greedy Wall Street, risky capitalism — anybody but those in Congress who wrote the banking rules.

Such denials won't hold against the angry facts banging on their doors. The only question is whether the guilty party can keep up the barricade until Election Day.

A visibly annoyed House Speaker Nancy Pelosi rejected suggestions that Democrats share blame for the meltdown. "No," she snapped at reporters who dared ask.

Stick to our narrative, she scolded: The bursting of the housing bubble was another story of market failure and deregulation.
"The American people are not protected from the risk-taking and the greed of these financial institutions," she said, while calling for investigations of the industry.

Only, the risk-taking was her idea — and the idea of all the other Democrats, along with a handful of Republicans, who over the past 30 years have demonized lenders as racist and passed regulation after regulation pressuring them to make more loans to unqualified borrowers in the name of diversity.

They were the ones who screamed — "REDLINING!" — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.

If they don't comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.
[uthevet her]

No fewer than four federal banking regulatory agencies are responsible for enforcing the law. They subject lenders to racial litmus tests and issue regular report cards, the industry's dreaded "CRA rating."
The more branches that lenders put in poor neighborhoods, and the more loans they make there, the better their rating. Those lenders with low ratings can not only be fined, but also blocked from mergers and other business transactions needed to expand.

The regulation grew to monstrous proportions during the Clinton administration, obsessed as it was with multiculturalism. Amendments to the CRA in the mid-1990s dramatically raised the amount of home loans to otherwise unqualified low-income borrowers.

The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical "housing rights" groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama.

HUD, in turn, pressured Fannie Mae and Freddie Mac to purchase more subprime mortgages, and Fannie and Freddie, in turn, donated to the campaigns of leading Democrats like Barney Frank and Pelosi who throttled investigations into fraud at the agencies.

Soon, investment banks such as Bear Stearns were aggressively hawking the securities as "guaranteed." Wall Street's pitch was that MBSs were as safe as Treasuries, but with a higher yield.

But they weren't safe. Everyone in the subprime business — from brokers to lenders to banks to investment houses — absolved themselves of responsibility for ensuring the high-risk loans were good.

The mortgage lenders didn't care, because they were going to sell the loans to other banks. The banks didn't care, because they were going to repackage the loans as MBSs. The investors and traders didn't care, because the MBSs were backed by Fannie and Freddie and their implicit government guarantees.
In other words, nobody up and down the line — from the branch office on main street to the high-rise on Wall Street — analyzed the risk of such ill-advised loans. But why should they? Everybody was just doing what the regulators in Washington wanted them to do.
So everybody won until everybody lost, including the minorities the government originally mandated the banks to serve.
The original culprits in all this were the social engineers who compelled banks to make the bad loans. The private sector has no business conducting social experiments on behalf of government. Its business is making profit. Period. So it did what it naturally does and turned the subprime social mandate into a lucrative industry.

Of course, it was a Ponzi scheme, because they weren't allowed to play by their rules. The government changed the rules for risk.

In order to put low-income minorities into home loans, they were ordered to suspend lending standards that had served the banking industry well for centuries. No one wants to talk about it, so they just scapegoat Wall Street. Even John McCain has joined the Democrat chorus on this.
The FBI is now investigating 24 large mortgage lenders for alleged abuses. But who will investigate the pols and the lobbyists and the community agitators who made the bad decisions that ultimately forced businesses to make their bad decisions?
Vegard Martinsen
Innlegg: 7868
Registrert: 07 Sep 2003, 12:07

Obama and McCain Don't Understand Markets

Innlegg Per Arne Karlsen 28 Sep 2008, 09:01

Obama and McCain Don't Understand Markets by Frank Holmes

That’s because of FAS 157’s requirement of a “mark-to-market” valuation on these investments each quarter. Mark-to-market essentially means the value of these investments if they had to be sold immediately. Current uncertainties and liquidity issues have chased away just about all of the buyers for many of these investments, so the markets are distorted. When there are no buyers, under FAS 157 the value has to marked down, sometimes to zero. This is the case even for securities that could be sold in the future at face value once they reach maturity.

Overlaying FAS 157 with the demands of Sarbanes-Oxley creates a recipe for continuous quarterly write-downs until all value is gone. New York has lost its status as the world’s financial capital since Sarbanes-Oxley was enacted, and the harsh requirements of FAS 157 may accelerate that trend.
Per Arne Karlsen
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Registrert: 07 Sep 2003, 12:39
Bosted: Oslo

Innlegg Vegard Martinsen 29 Sep 2008, 06:44 ... ic-crisis/

How The U.S. Government Engineered The Current Economic Crisis

These people (the U.S. government) need to be stopped. Every time we get ourselves into an economic mess, there’s usually some milestone idiocy we can point back to as the government action that made the meltdown inevitable.

Take the current housing crisis that has now spread to the financial markets in general. The cause was too-easy credit that fueled a massive increase in housing prices as people bought houses they couldn’t afford with mortgages they weren’t able to pay off.

In 1999 there was roughly $5 trillion in total U.S. mortgage debt. That number ballooned to $12 trillion by 2007, and we know what happened from there (data is from the U.S. Office of Federal Housing Enterprise Oversight). To put this into perspective, total U.S. GDP is about $11 trillion annually, and U.S. government debt is around $9 trillion. If the housing market really falls apart (meaning more than conservative estimates of a 20% drop), there’s no way the government can simply cover these losses.

Why did it happen? Let’s go back to 1999, when Fannie Mae, the nation’s biggest underwriter of home mortgages, was under pressure by the Clinton administration to find a way to get more loans to “borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans.” A pilot program was launched, which soon became general policy. Money flowed to people who couldn’t afford to pay it back. [Uthevet her]

These new policies came on top of previous changes in the 90’s that let consumers get zero-down payment loans.

In a 1999 article that now looks absolutely insane, the New York Times reported on the easing of credit terms. Fannie Mae Chairman Franklin Raines, who’s quoted in the article, was all sunshine and roses as he threw away the financial future of millions of Americans. But at least one person. Peter Wallison, had a good idea of how this would all play out:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

Too bad nobody listened to that guy.
Vegard Martinsen
Innlegg: 7868
Registrert: 07 Sep 2003, 12:07


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