In addition to all of the headline news crises swirling around America, there is quiet movement underway to bring back some of the most destructive mortgage lending policies (such as lowered minimum credit scores, 100 percent financing options and expanded gift money sources) which could potentially bring about Housing Crisis II.
In fact, it might already be too late to stop this madness, but if we don’t gain an understanding of just what brought about Housing Crisis I, and hopefully awaken the masses to the insanity of the present system of government manipulation of money and means, they are going to literally Cloward-Piven us into certain economic destruction.
Therefore as a public service, the following is a housing-crisis event line in layman terms.
It all starts when Joe Average Borrower goes to Local Mortgage Broker asking for a loan to purchase a new home or to refinance an existing loan so that he could lower the interest rate on his current mortgage. This cozy and convenient opportunity is made possible because mortgage interest rates are artificially made extremely favorable through big government interventionist policies (which in and of itself is a recipe for economic disaster).
In an effort to help Joe Average Borrower (and to put food on his own table), Local Mortgage Broker goes to Larger Bank to finance the new mortgage (for discussion purposes we will call this entity “Larger Bank” rather than Fifth Third Bank, Wells Fargo, Flagstaff or any of the other more recognizable mid-sized financial institutions located throughout our country).
Larger Bank goes to the formerly government-sponsored (now government owned) enterprises known as Fannie Mae (FNMA) or Freddie Mae (FMAC) and uses FNMA/FMAC guidelines to approve desired mortgage requested by Joe Average Borrower through Local Mortgage Broker. FNMA/FMAC guidelines are constructed, constrained and made almost unrecognizable by an alphabet soup of government regulatory agencies, all supposedly with “the people’s best interest” in their minds and hearts (yeah, sure).
In the previous decade, Local Mortgage Broker gave lots of Joe Average Borrowers an appealing new mortgage in the name of Larger Bank because (through vastly manipulated government regulatory intervention) FNMA and FMAC reduced the minimum credit-eligibility requirements so that they could offer programs and products that seem too good to be true, such as No Income/No Asset (NINA) loans or 100 percent financed home purchases (all done in the nebulous but oh so politically correct name of “fair housing”). Note, in layman’s terms: Anything that seems too good to be true generally is.
On another side note, in layman’s terms, rather than our government promoting success in the form of a Sunday chicken for every pot, and/or using their vast taxpayer funded resources to protect us from enemies both foreign and domestic, our government had suddenly deemed that success could only be a defined as home ownership for every Tom, Dick or Harry, whether they could afford the home or not.
So, Joe Average Borrower pays Larger Bank over the life of the loan or Larger Bank transfers or sells the loan to Another Lending Institution which results in Joe Average Borrower sending the same payment to a different address, while Larger Bank continues to get cash for future investments and everybody is happy.
These steps seem simple enough in layman’s terms, but in reality they underlie a carefully constructed maze of confusing wealth distribution tactics that resulted in nothing short of the masses being made economically anemic while the movers and shakers padded their own pockets with a healthy dose of inestimable wealth.
Now back to the details. In the abnormal … I mean normal … course of government sponsored manipulation, Fannie Mae or Freddie Mae then purchased the new mortgages from Larger Bank using money gained from selling stocks to an honest array of investors, both large and small, who had great faith in these government sponsored (now owned) behemothans (didn’t most of us sort of trust our government at one point in time or another)?
Fannie Mae or Freddie Mac then bundled newly purchased mortgages into what was called MBS (mortgage-backed securities) through REMICs (real estate mortgage investment conduits) [are you confused yet?] which held the mortgages in trust (now there’s that wonderful word again – trust).
Then Fannie and Freddie issued what was called “securities” and sold them to Wall Street (“Wall Street” collectively refers to huge investment firms like JPMorgan Chase or Goldman Sachs, for example. Let’s call these firms the Largest Banks). Oh, yes, please note that Goldman Sachs, for one, has a long and storied relationship with big government power players.
So, in layman’s terms, our government gave tax exempt status to REMICs so that FNMA/FMAC didn’t have to pay taxes on the income that they earn from “selling securities” to the Largest Banks on Wall Street. Isn’t that convenient?
In layman terms, our benevolent government sponsored (now owns) these two behemoth financial institutions that benefited from the backing of the U.S. government with their securities earning a premium over Treasuries even though they were not considered to be direct obligations of the government. How very quaint.
The black and white of it is that Fannie and Freddie are behind-the-scenes recipients of taxpayer funded entitlements known as “corporate welfare” with little or no recognizable government culpability that can only be benefiting the big government power players and their revolving door buddies at the Largest Banks. And the story continues.
Various Wall Street power players (who move with ease and very little guilt in and out of bed with the big government power players) then divided these securities into risk classes and sold them to pension fund holders (for example) along with selling credit default insurance which they could not cover. If this all seems too circular, let’s willingly suspend disbelief and go on for purposes of discussion. Please remember at this point that the shaky mortgages held by Joe Average Borowers all over this country were being sold to Joe Average Pension Accounts as “securities.” Are you feeling secure yet?
Of course pensions are funded using employee (private sector) or taxpayer (public sector) streams of cash which are then compounded in value by the pension holders making investments, in the Largest Banks on Wall Street, for example. The pension contracts for many of these large groups of people were set in stone when times were very good. The private sector was making a ton of money because we were a manufacturing country that produced goods that consumers wanted to buy and so we were very generous in our agreements with the public sector and unions in general and we seemingly didn’t, and still don’t, have the wherewithal to tie these lifetime pension payouts to current market (which would, for example, alleviate the burden placed on tax payers to support government workers until death do us part, even when we are not earning enough money to put bread on our own tables).
Okay so everyone was still happy prior to Housing Crisis I. Many people owned homes that were beyond their wildest dreams, the Local Brokers paid their employees well, Larger Banks paid their employees even better, Fannie Mae and Freddie Mac paid their employees extremely well (some with bonuses that were thought to be through-the-proverbial-roof by many tax payers standards of living – but that has come to be expected when “the government” is the sponsor/owner), the Largest Banks paid their employees lavishly. Pension funds funded their obligations (or at least used various creative accounting practices to make it appear as though they had fully funded pension accounts), and government workers retired with compensation packages that outpace anything that most Joe Average private sector workers will ever see in their lifetimes.
But the Joe Average Borrowers liked their homes so much that they didn’t and don’t complain and we all looked the other way because we were so busy being happy.
Then reality struck. By the mid 2000s we were seeing our good union jobs being NAFTA’d and GATTed right out of our country and our speculative loans based upon shaky ground to begin with, became wildly unmanageable. And when Joe Average Borrower didn’t have any skin in the game because he purchased his home without down payment or risk, he simply walked away from the home and the mortgage, and the American Dream became a nightmare for a wide swath of society. Guess what happened then … the Banks owned the homes (Oh, great)! Pension funds were raided and big government bailouts were passed out like candy to the very same people who benefited the most from the big government intervention tactics that caused this crying shame to begin with.
And so, what did the big government power players do when our entire economy collapsed and the curtain was finally pulled back on a scheme so convoluted as to be unrecognizable? It increased regulations! Made new rules! Glossed over the old scheme with a new scheme and continued to take it out on the very people who work so hard to give “the government” such a cozy cover in the first place.
Once that perfect government sponsored storm began in 2008, our government initiated a congressionally approved stimulus package called TARP whereby Joe Average Borrower literally funded Largest Bank to the tune of somewhere between $400 and $700 billion tax payer dollars. And as if that wasn’t enough the government shortly thereafter started pumping printed, fiat money into our system with what was called QE (quantitative easing – or increased government monetary theft … I mean increased government intervention, in laymen terms) which has continued to keep mortgage interest rates artificially low. Just a note, in layman’s terms, this fake money is surely destroying our children’s inheritance.
Now, as a result of a laundry list of government interventions gone bad, we have a crushing new level of government regulatory oversight of our private mortgage industry where hard working citizens are being treated as if they are most certainly guilty of something until the regulators prove them innocent of everything.
We have the government takeover of our financial markets with the printing of fiat money that is being handed out to invisible recipients for unsustainable causes.
We have the government takeover of our health insurance industry with no known health “care” improvements.
Our auto industries are being literally destroyed with recalls and regulations; plant closings and layoffs. We have been assured that our jobs will “never come back.”
We have the seemingly permanent loss of home equity, personal savings and lowered earnings for a large percentage of the productive segment of the United States, and yet we still don’t have enough Joe Average Borrowers who are willing to put the brakes on the big government power players who continue to line their pockets with our redistributed wealth.
Even in layman’s terms; it doesn’t make a lick of sense.
And now we have new people (future homeowners with zero “skin in the game”) streaming across our borders willy nilly? God help us.
If we don’t get off our couches and actually do something to stop this madness, in layman’s terms, we are all screwed.