Tuesday, September 23, 2008

The Roots of Subprime's Prime Time

With all the partisan sniping™ about what caused the financial mess that we're in, it behooves us to step back a moment from the electioneering and party politics and place the blame where it really, indisputably belongs.

All those nimrods who bought more house than they could afford.

You see, none of this would have been possible if all those people who read "maximum loan amount" on their preapproved loan documents as "buy a house that costs this much" had just stayed out of the market; or at least had been familiar with the nuances of the word "maximum". Because all the (well, most of) the troubles Wall Street is currently facing can be traced directly back to the dimwit making $35,000 per year who just absolutely fell in love with that 1800 square foot $400,000 bungalow in Tangletown with its $8000 per year in property taxes. The figures and locations are of course different from case to case, but the ratios tend to be the same. Sure, there may be a thin film of folks who were victimized by circumstances and were forced to default. I'm certainly not blaming them. Most people get farked by the fickle finger of fate at some point in their lives. I'm talking about those people that you think about when you drive past those vast tracts of McMansions and overpriced townhouses in Eden Prairie or Plymouth, wondering to yourself: "how can so many people afford these super-expensive homes?" You now have your answer. Most of them can't.

But, Foot, what about all those banks who extended loans to individuals that mathematically would have required them to work 3 jobs, sell plasma and whore out their children in order to repay those loans?

Short answer: see discussion of the word "maximum" supra.

Cheap shot answer that makes me tingle as I cut and paste it into my ThunderJournal: see this 1999 story from the New York Times:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits
.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''


And here is where I insert the gratuitous link to Frankie "Da Flipper" Raines' political contributions.

With that out of the way, we move on to one of the most prophetic news grafs I have ever seen; especially remarkable given its in a newspaper which also syndicates Krugmann's krap:

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.

And we close with a quote from that super evil neocon country club elite organization reviled by liberals for its unenlightened view of the American economy, the American Enterprise Institute:

''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.''

Doomed to repeat it, et cetera et cetera.

[Tip o' the pitcher to Ryan, who in a single post has shown us that even a guy whose most significant online achievement to date was posting a picture of his ass can still be worth 20 leftybloggers.]

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