It is beyond incredible when the American government seeks to bailout or rescue the financial (mortgage) sector of the economy without addressing the root causes that led to the slump in the first place.
Since the politicians chose to completely ignore or disregard the underlining causes for the demise of investment banks, along with Fannie Mae and Freddie Mac, why don't we lesser souls at least remind them of the job they failed to do?
How did we get here? Objective analysts and experts, not the blind partisans, have exposed the root causes of the breakdown in the American, and by extension, the global economy. In plain language, here they are:
Liberal politicians had a hand in it. Dating back to the Jimmy Carter administration, the liberals wanted to increase home ownership among Americans, and they wanted this to happen by all means necessary. To reach the goal of home ownership by the masses, some stringent lending rules had to be changed, making it easier for just about any potential borrower to qualify for a home loan. Those would have been borrowers who would otherwise not qualify for mortgage loans under normal circumstances. Under President Bill Clinton, more was done to ditch out homes to Americans with poor credit. The liberals succeeded in turning home ownership into another big government program.
Conservative politicians played their part too. Under Ronald Reagan, the conservatives moved to deregulate the financial markets. The fiscal conservatives wanted to let the free market take its course. Call it a "hands off" approach, the gospel of the free enterprise evangelists.
Of course, all of the politicians liberal and conservative alike had good intentions for changing the rules of Wall Street. The liberals did it in order to level the playing field for home ownership (compassion, if you will). And the fiscal conservatives relaxed the rules (deregulation) for Wall Street in order to promote free market capitalism (the market is always right).
But all the big-hearted politicians overlooked one little thing: that "minor" flaw that lurks in the heart of every profit-driven capitalist and communist, and socialist, for that matter. That flaw is greed. With the beast of greed added to the mix, another block was put in place.
Investment banks securitized home loans. That meant, they could now buy and sell mortgage loans in the same way that investors buy and sell stocks in companies. Soon, a group of people known as mortgage brokers appeared on the scene. These mortgage brokers, some of whom disguised themselves as home builders, had one job description: originate home loans, then turn right around and sell those loans to other lenders. They would sell a family a house for $1 down, then few weeks later, that family would receive a letter from Country Wide or some other lender, saying, "We are your new mortgage lenders now. The terms of your loan remain the same. Send your next payment to us."
Loose lending laws coupled with greed soon resulted in the proliferation of NINJA loans. NINJA stands for "No Income, No Job, No Assets". That meant, a lender could qualify a borrower for a home loan even if that borrower did NOT have any reliable income, job or assets to provide concrete evidence that the new home owner was financially able to repay the loan. In the banking community, the official name for NINJA loans is "subprime loans". I like NINJA loans better.
Why did lenders make NINJA loans? For one simple reason: That lender's money was not on the line. All they had to do was to initiate the loan and get the borrower to sign the papers. Next, they would sell the loan to another lender or investor.
Also, wanton greed paved the way for excessive salaries for Chief Executive Officers and money managers, who earned their lofty perks by generating and flipping as many new NINJA loans as possible.
The demand for "loan shares" kept driving the prices of homes up all across America, creating the housing bubble. Once those millions of broke mortgagees began to default on their adjustable rate mortgage loans, the prices of homes started to tank. In the end, even responsible borrowers, who were repaying their loans, suffered the consequences of falling home prices, as they found themselves in upside-down situations, with their homes worth less than what they originally "bought" them for.
Today, after the bailout has been signed into law, millions of mortgagees are still holding NINJA loans and are likely to lose their homes.
In view of all this, can you believe that there is nothing in the 450-page Wall Street bailout bill that will change this bleak picture for these desperate homebuyers? Neither is there is anything in that bill that will stop the prices of homes from continuing to trend downward. How dare these politicians do such a thing? Because they can get by with it, the American people having given up on good leadership from their government officials.
Well, guess what? The politicians are already saying, "Yes, we passed that bill and the president signed it with lightning speed, we're not yet done. We've got to do more."
Our question is, Why pass the bailout package in a hurry only to tell us that you didn't finish the job? And why say the bailout will help Main Street too when you did not care to include direct help for Main Streeters in the bill?
Since the politicians chose to completely ignore or disregard the underlining causes for the demise of investment banks, along with Fannie Mae and Freddie Mac, why don't we lesser souls at least remind them of the job they failed to do?
How did we get here? Objective analysts and experts, not the blind partisans, have exposed the root causes of the breakdown in the American, and by extension, the global economy. In plain language, here they are:
Liberal politicians had a hand in it. Dating back to the Jimmy Carter administration, the liberals wanted to increase home ownership among Americans, and they wanted this to happen by all means necessary. To reach the goal of home ownership by the masses, some stringent lending rules had to be changed, making it easier for just about any potential borrower to qualify for a home loan. Those would have been borrowers who would otherwise not qualify for mortgage loans under normal circumstances. Under President Bill Clinton, more was done to ditch out homes to Americans with poor credit. The liberals succeeded in turning home ownership into another big government program.
Conservative politicians played their part too. Under Ronald Reagan, the conservatives moved to deregulate the financial markets. The fiscal conservatives wanted to let the free market take its course. Call it a "hands off" approach, the gospel of the free enterprise evangelists.
Of course, all of the politicians liberal and conservative alike had good intentions for changing the rules of Wall Street. The liberals did it in order to level the playing field for home ownership (compassion, if you will). And the fiscal conservatives relaxed the rules (deregulation) for Wall Street in order to promote free market capitalism (the market is always right).
But all the big-hearted politicians overlooked one little thing: that "minor" flaw that lurks in the heart of every profit-driven capitalist and communist, and socialist, for that matter. That flaw is greed. With the beast of greed added to the mix, another block was put in place.
Investment banks securitized home loans. That meant, they could now buy and sell mortgage loans in the same way that investors buy and sell stocks in companies. Soon, a group of people known as mortgage brokers appeared on the scene. These mortgage brokers, some of whom disguised themselves as home builders, had one job description: originate home loans, then turn right around and sell those loans to other lenders. They would sell a family a house for $1 down, then few weeks later, that family would receive a letter from Country Wide or some other lender, saying, "We are your new mortgage lenders now. The terms of your loan remain the same. Send your next payment to us."
Loose lending laws coupled with greed soon resulted in the proliferation of NINJA loans. NINJA stands for "No Income, No Job, No Assets". That meant, a lender could qualify a borrower for a home loan even if that borrower did NOT have any reliable income, job or assets to provide concrete evidence that the new home owner was financially able to repay the loan. In the banking community, the official name for NINJA loans is "subprime loans". I like NINJA loans better.
Why did lenders make NINJA loans? For one simple reason: That lender's money was not on the line. All they had to do was to initiate the loan and get the borrower to sign the papers. Next, they would sell the loan to another lender or investor.
Also, wanton greed paved the way for excessive salaries for Chief Executive Officers and money managers, who earned their lofty perks by generating and flipping as many new NINJA loans as possible.
The demand for "loan shares" kept driving the prices of homes up all across America, creating the housing bubble. Once those millions of broke mortgagees began to default on their adjustable rate mortgage loans, the prices of homes started to tank. In the end, even responsible borrowers, who were repaying their loans, suffered the consequences of falling home prices, as they found themselves in upside-down situations, with their homes worth less than what they originally "bought" them for.
Today, after the bailout has been signed into law, millions of mortgagees are still holding NINJA loans and are likely to lose their homes.
In view of all this, can you believe that there is nothing in the 450-page Wall Street bailout bill that will change this bleak picture for these desperate homebuyers? Neither is there is anything in that bill that will stop the prices of homes from continuing to trend downward. How dare these politicians do such a thing? Because they can get by with it, the American people having given up on good leadership from their government officials.
Well, guess what? The politicians are already saying, "Yes, we passed that bill and the president signed it with lightning speed, we're not yet done. We've got to do more."
Our question is, Why pass the bailout package in a hurry only to tell us that you didn't finish the job? And why say the bailout will help Main Street too when you did not care to include direct help for Main Streeters in the bill?
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