Monday, April 26, 2010

Jonathan Kruase's Alternate Economic Reality

Man, Jonathan Kruase really doesn't have the first damn clue what he's talking about when he's discussing financial issues. Here's the latest proof of his own obliviousness:
But what really gets my goat is that the reform bill is the brainchild of Connecticut Senator Chris Dodd. Dodd is the very Senator who helped to create the situations that led to the mortgage crisis. He led the charge to bully Fannie Mae and Freddie Mac to make the sub-prime mortgages that created the financial bubble which burst two years ago.
This is false:

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.

It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.

I don't know how anyone else could make that more clear: subprime mortgages were created by private banks and lending institutions, not Freddie Mac or Fannie Mae. Krause simply doesn't understand the very role of the institution he's criticizing. Here he is again wrapping up that thought:
At that time, banks were "evil" for locking so many "hard-working" Americans out of homeownership by having such ludicrous requirements like down payments and the ability to actually repay the loan. Senator Dodd also seems to forget he supported the de-regulation of Wall Street that opened the door to derivatives trading without direct SEC oversight.
Again, here's more of the McClatchy piece:

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

Got that? 24% in 2006 is less than 48% in 2004 -- so the F-Macs actually decreased their presence in the secondary markets during that time that Krause thinks they were trying to monopolize the market ... or something. Here's a more accurate conclusion to draw:

During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.


Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

So if you're relying on Jonathan Krause to help you through our tough economic time or with your own personal finances -- stop what you're doing right now! There are charities that do fine work who need the money you're throwing away.


CJ said...

And don't forget default credit swaps triggering AIG's problems because the institutions were betting against their own CDO's in order to collect the insurance money on defaulted loans. Talk about gaming a system. Not illegal (yet), but it should be.

I know J-Man tends to shoot from the hip and toss bits of info about, but the dude really should do a little more homeowrk, He credibility is practically and embarrasingly nil.

Anonymous said...

Don't underestimate how important it is for conservatives to be able to blame the financial crisis on ANYONE other than who actually caused it. And blaming it on poor minorities who took out more loans than they could afford fits perfectly into their narrative that ACORN and the Democrats are behind everything wrong in this country.