Have a nice day!

Have a nice day!

Have a nice day!

Have a nice day!

Do you remember (if you are old enough) the term “Red Lining” that was bandied about by the Clinton regulators in the 90′s? Google it if you don’t know. It applies to the practice of a bank drawing a red line around certain neighborhoods or geographies as a way to say that they DO NOT lend to anyone in those areas because they will not get paid back. The Clinton Admin wanted to increase home ownership, and they saw this practice as a barrier to increasing home ownership in poor urban areas. They authorized organizations like ACORN to storm bank branches with protests, many of which turned violent, and threaten the banks that they will put them out of business unless they stop “Red Lining”. Yet another seeming good leftist idea with good intentions, but the devil is always in the details.

So the banks went to Congress to lobby for their interests. The Congress was able to strike some compromises and agreed to use the Government sponsored FannieMae and FreddieMac as a guarantor of mortgages that were offered to low income people.

Now, pretend you are a banker. Your business is loaning money. That’s what you do. Your government threatens you and tells you that you must loan money to people who were never able to get loans previously. But to compromise with you, the government also tells you that they will guarantee the loans so you won’t lose money by lending to people that cant pay. Hmmmmm…. A no lose proposition to sell your products (loans)? Hmmmmmmmm… sounds pretty good, doesn’t it? And that is what the banks did. They created loan products that were low up-front costs but became tougher in the out years. They loaned up to 100% or more on the value of the properties because the low income people typically have little to no down payment. The banks, at the urging of the Feds, did everything they could to overcome the problem of making loans to people that could not afford them.

So looking over the situation now, you as the banker begin to realize that you have made a lot of risky loans, but they are guaranteed by Fannie or Freddie. Your business is loaning money, not servicing mortgages. So you sell your loans at a discounted rate to investors. Those investors believe the loans are guaranteed. The market over a 10 to 12 year period begins to ingest trillions of dollars of these loans. Some of the bankers begin to be worried about those loans in their investments and they create insurance products to hedge their bets (called derivatives).

In late 2007, it started becoming apparent that as those mortgages matured in years, a higher and higher percentage of them started to default. The market was maturing, supply had met demand, and prices started to level off or come down a little. The first in the line to show trouble was Country Wide (Chris Dodd’s buddy, by the way). Then a couple of smaller ones started to roll over. Then it became obvious that neither Fannie nor Freddie had anywhere near the reserves to pay up on their promises. (Why doesn’t this surprise anyone?) As the house of cards began to crumble, the ripple into the financial system and the loans and derivatives that used them as collateral all came crashing down.

This is exactly what happened. The government, trying to social engineer home ownership, created a perverse incentive for banks to do what they should not be doing. Then the government tried to insure the banks would not lose money with tax payer promises to cover their losses.

The entire thing was a scam. And do you think the politicians that created the mess would take the blame? HELLLL NO!!!! They do what they always do. Blame the evil bankers for wanting to make a profit. They would never tell you the truth because they might get thrown out of office and lose their power. That could never happen when they can blame everyone else.

Then what do they do? The 2 IDIOTS most responsible for the whole mess in Congress come up with a bill called Dodd-Franks that turns getting a regular mortgage into an anal exam of 80 to 100 pages of paperwork for the average American, and millions of worthy payers being turned down or turned off by the process. And you leftist nutjobs ignorantly cheer such nonsense.

I know you won’t like the truth. Leftist nutjobs rarely do. But this is the way it went down and this is the way in works. If you knew this, instead of watching MSLSD all day, you wouldn’t be a leftist nutjob.

Have a nice day!