-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: March 23, 2007 12:01:22 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: If Housing Bubble Bursting Triggers Another Great
Depression, Blame the Federal Reserve
FED ACCUSED OF SUBPRIME ‘PERFECT STORM’
By Eoin Callan, Edward Luce and Krishna Guha in Washington
Financial Times (UK), March 23 2007 00:33
The Federal Reserve helped create a “perfect storm” in the US
subprime mortgage market that could expose up to 2.2m more
Americans to the threat of home foreclosure, Chris Dodd, chairman
of the Senate Banking committee, said on Thursday.
Mr Dodd, who is also a Democratic Party candidate for the 2008
presidential nomination, alleged the Fed had failed in its
oversight role when the growth in high-risk “adjustable rate
mortgages (ARM)” to risky borrowers was exploding.
While questioning leading mortgage lenders and federal banking
regulators, Mr Dodd also promised legislation to crack down on
predatory lending in the US mortgage market, where a rising level
of repayment delinquency has caused global market jitters during
the past month.
Mr Dodd said that US regulators had relaxed guidelines on mortgage
lending at precisely the point in 2004 and 2005 when the riskiest
ARM loans – which impose initially light monthly payments that
escalate quickly at a later date – were increasing most rapidly.
That also coincided with the start of the Fed’s consecutive 17-
stage rise in rates.
“Despite those warning signals the leadership of the Federal
Reserve seemed to encourage the development and use of ARMs that,
today, are defaulting and going into foreclosure at record rates,”
he said.
Mr Dodd, who was supported by Richard Shelby, the senior Republican
on the committee, also expressed frustration at the fact the Fed
had so far failed to issue promised guidance to tighten controls on
the $1.2 trillion subprime mortgage market.
An estimated 1m subprime borrowers will have their rates adjusted
sharply upwards this year and another 800,000 next. Roger Cole, a
senior Fed official, said the guidance would come out by May at the
earliest. But he conceded that the Fed could have done more.
Thursday’s hearing could mark the start of a backlash against
leading subprime mortgage lenders. Senior executives from four of
the leading lenders – HSBC, Countrywide, WMC Mortgage, First
Franklin – testified. Of those invited, only New Century, the
largest subprime lender, declined to send a witness.
Mr Dodd said the lenders had engaged in “unconscionable and
deceptive” practices. But he also admitted that it would be hard to
pass a stricter law.
The Center for Responsive Politics, a watchdog, said New Century
more than doubled its Washington lobbying efforts between 2004 and
2005 and contributed $342,000 in campaign funds to candidates in
last year’s mid-term congressional elections.
Mr Dodd said lenders had engaged in “unconscionable and deceptive”
practices.
--------------
BLAME FLIES FOR HIGH-RISK MORTGAGE MELTDOWN
AS PRESSURE RISES FOR CONGRESS TO ACT
By Marcy Gordon
ASSOCIATED PRESS, March 22, 2007
http://www.signonsandiego.com/news/business/20070322-1717-congress-
riskymortgages.html
WASHINGTON – Charges of blame were flying Thursday for the meltdown
of the high-risk mortgage market as pressure mounted for Congress
to do something about rising foreclosures among homeowners unable
to meet high payments.
“What we're looking at is a tsunami of foreclosures that is on the
horizon,” Sen. Robert Menendez, D-N.J., declared at a hearing of
the Senate Banking Committee. Most heavily affected, he said, will
be black and Hispanic homeowners who were pressured into taking out
mortgages at rates they cannot afford.
Under fire from lawmakers, federal regulators said they lacked full
authority to prevent the crisis spawned during the soaring housing
boom of 2003-2005.
Sen. Christopher Dodd, D-Conn., the committee's chairman, laid out
what he called a “chronology of regulatory neglect” as banks and
other lenders loosened their standards for making riskier mortgage
loans during the boom. He later said he plans to convene a special
summit of regulators, mortgage lenders, consumer groups and others
to work out a plan of relief for vulnerable homeowners.
“Our nation's financial regulators were supposed to be the cops on
the beat, protecting hardworking Americans from unscrupulous
financial actors,” Dodd said. “Yet they were spectators for far too
long.”
Many mortgage lenders haven't come under the Federal Reserve's
supervision because their primary regulators are state banking
authorities. However, Dodd and others maintain, the central bank
does have authority under federal law to exert jurisdiction over
those companies and broaden lending regulations to cover them.
Some of the biggest companies in the so-called subprime mortgage
market were called to account before the banking panel.
The distress in subprime mortgages – higher-priced home loans for
people with tarnished credit or low incomes who are considered
greater risks – has roiled financial markets and stoked anxiety
that it could spill over into the broader economy.
Company executives said they had tightened their lending practices
and eliminated some higher-risk types of mortgages and urged
Congress not to rush in and overreact.
“We take the situation very seriously and we're taking strong
steps” to correct problems, testified Brendan McDonagh, the chief
executive of HSBC Finance Corp.
With millions of homeowners said to be at risk of losing their
homes in coming years, the issue took on an increasingly political
complexion Thursday. While a number of politicians, consumer
advocates and community activists are clamoring for Congress to
act, industry interests and some Republican lawmakers are warning
that new restrictions on mortgage lending could choke off credit to
those who most need it.
Away from the hearing, Democratic presidential contender Sen.
Barack Obama called on Federal Reserve Chairman Ben Bernanke and
Treasury Secretary Henry Paulson to convene a “homeownership
preservation summit” bringing together major players for the
purpose of stemming the foreclosure tide.
“We cannot sit on the sidelines while increasing numbers of
American families face the risk of losing their homes,” the
Illinois Democrat said in a letter to Bernanke and Paulson.
Dodd, who also is seeking the party's presidential nomination,
warned at the hearing that some 2.2 million homeowners could lose
their homes in the next few years.
Mortgage payments that were 30 or more days past due shot up to a
3½-year high in the final quarter of last year and new foreclosures
surged to record levels as borrowers with blemished credit
histories had trouble keeping up monthly payments, according to the
Mortgage Bankers Association. The late-payment rate for loans
classified as subprime jumped to 13.33 percent in the October-
December quarter, up from 12.56 percent in the previous prior
period and the highest in four years.
Acknowledged Roger Cole, head of the Federal Reserve's banking
supervision division, “I will say that given what we know now, yes,
we could have done more sooner.”
Under pointed questioning from Dodd, Cole promised to put in motion
a process at the central bank that could lead to a broadening of
federal rules governing mortgage lending standards.
A patchwork of federal and state regulatory agencies hold
jurisdiction over financial companies, putting many subprime
mortgage lenders outside stringent regulation, the regulators said.
New Century Financial Corp., which had been the second-largest high-
risk mortgage lender but is now in precarious financial straits,
refused Dodd's invitation to send an executive to testify at the
hearing.
Appearing with HSBC's McDonagh were executives of Countrywide
Financial Corp.; WMC Mortgage, which is owned by General Electric
Co.; and First Franklin Financial Corp., part of Merrill Lynch & Co.
Another Democratic senator making a presidential bid, Hillary
Rodham Clinton, recently proposed requiring lenders to clearly
explain mortgage terms to borrowers – especially for loans with
initially low “teaser” rates that balloon after a few years.
-------------------
FREDDIE MAC WARNS ON SPILLOVER OF SUBPRIME TURMOIL
By Daniel Pimlott in New York
Financial Times, March 23, 2007
http://www.msnbc.msn.com/id/17753523/
Freddie Mac, the US mortgage finance provider, warned that the
turmoil in the subprime mortgage market could spill over into the
market for consumer debt, as it revealed a loss in its fourth quarter.
Richard Syron, chairman and chief executive of the giant government-
chartered group, said that following the massive expansion in the
availability of credit for mortgage and borrowing-hungry consumers
in recent years, the meltdown of the market for mortgages to people
with patchy credit history could spread.
"There has been enormous credit expansion worldwide, and a great
increase in the amount of liquidity," he said. "As every great
expansion period will be followed by some adjustment, a lot of that
is going to be in the subprime residential mortgage market. A lot
of that will flow over into the consumer market as consumers become
more worried about debt."
He also sounded caution over the "bleed over" of the subprime
problems into the rest of the mortgage market, although he said
that as yet the effect on more secure mortgages had been "slight".
But he said that the subprime collapse also provided business
opportunities, and that the company was working "intensely" on
alternative products that could fill the subprime space.
Freddie Mac, which buys mortgages wholesale from lenders, does not
have a major exposure to subprime mortgages, but last month said
that it would stop buying no longer buy several risky types of
subprime mortgages.
The warnings came as Freddie Mac made a loss of $480m in the fourth
quarter.
The loss was the second the group has reported in a row, after
losing $500m the previous quarter. It compares with net income of
$684m in the fourth quarter of the previous year.
For the year, the company made $2.2bn, or $2.84 a share, up from
$2.1bn, or $2.75 a share, in 2005. The rise in income came "despite
a challenging year for housing and mortgage finance," said Richard
Syron, chairman and chief executive officer.
The company is recovering from a accounting scandal in 2003, when
the company revealed that it had under-reported earnings by $5bn,
and has not yet returned to full quarterly financial reports.
Administrative expenses rose by $100m over the year due to costs
related to improving technology for internal control over financial
reporting.
The company is still set for a return to quarterly reporting in the
second half of 2007, but said that if it was ready earlier, it
might start issuing quarterly reports before then.
The company also pledged to invest another $1bn in share buybacks
this year.
--------
DON'T BLAME "THE FREE MARKET" FOR
HOUSING BUBBLE -- BLAME THE FEDERAL RESERVE
by Ron Paul
March 23, 2007
http://www.freeliberal.com/archives/002676.html
The U.S. housing market, long considered vulnerable by many
economists, is now on the verge of suffering a serious collapse in
many regions. Commodities guru and hedge fund manager Jim Rogers
warns that real estate in expensive bubble areas will drop 40 or
50%. Mainstream media outlets like the New York Times are reporting
breathlessly about the possibility of widespread defaults on
subprime mortgages.
When the bubble finally bursts completely, millions of Americans
will be looking for someone to blame. Look for Congress to hold
hearings into subprime lending practices and “predatory” mortgages.
We’ll hear a lot of grandstanding about how unscrupulous lenders
took advantage of poor people, and how rampant speculation caused
real estate markets around the country to overheat.
It will be reminiscent of the Enron hearings, and the message will
be explicitly or implicitly the same: free-market capitalism, left
unchecked, leads to greed, fraud, and unethical if not illegal
business practices.
But capitalism is not to blame for the housing bubble, the Federal
Reserve is. Specifically, Fed intervention in the economy-- through
the manipulation of interest rates and the creation of money--
caused the artificial boom in mortgage lending.
The Fed has roughly tripled the amount of dollars and credit in
circulation just since 1990. Housing prices have risen dramatically
not because of simple supply and demand, but because the Fed
literally created demand by making the cost of borrowing money
artificially cheap. When credit is cheap, individuals tend to
borrow too much and spend recklessly.
This is not to say that all banks, lenders, and Wall Street firms
are blameless. Many of them are politically connected, and
benefited directly from the Fed’s easy money policies. And some
lenders did make fraudulent or unethical loans. But every cent they
loaned was first created by the Fed.
The actions of lenders are directly attributable to the policies of
the Fed: when credit is cheap, why not loan money more recklessly
to individuals who normally would not qualify? Even with higher
default rates, lenders could make huge profits simply through
volume. Subprime lending is a symptom of the housing bubble, not
the cause of it.
Fed credit also distorts mortgage lending through Fannie Mae and
Freddie Mac, two government schemes created by Congress supposedly
to help poor people. Fannie and Freddie enjoy an implicit guarantee
of a bailout by the federal government if their loans default, and
thus are insulated from market forces. This insulation spurred
investors to make funds available to Fannie and Freddie that
otherwise would have been invested in other securities or more
productive endeavors, thereby fueling the housing boom.
The Federal Reserve provides the mother’s milk for the booms and
busts wrongly associated with a mythical “business cycle.”
Imagine a Brinks truck driving down a busy street with the doors
wide open, and money flying out everywhere, and you’ll have a
pretty good analogy for Fed policies over the last two decades.
Unless and until we get the Federal Reserve out of the business of
creating money at will and setting interest rates, we will remain
vulnerable to market bubbles and painful corrections. If housing
prices plummet and millions of Americans find themselves owing more
than their homes are worth, the blame lies squarely with Alan
Greenspan and Ben Bernanke.
Dr. Paul is a Republican congressman from Texas.
AOL now offers free email to everyone. Find out more about what's
free from AOL at AOL.com.
www.ctrl.org
DECLARATION & DISCLAIMER
==========
CTRL is a discussion & informational exchange list. Proselytizing propagandic
screeds are unwelcomed. Substance—not soap-boxing—please! These are
sordid matters and 'conspiracy theory'—with its many half-truths, mis-
directions and outright frauds—is used politically by different groups with
major and minor effects spread throughout the spectrum of time and thought.
That being said, CTRLgives no endorsement to the validity of posts, and
always suggests to readers; be wary of what you read. CTRL gives no
credence to Holocaust denial and nazi's need not apply.
Let us please be civil and as always, Caveat Lector.
========================================================================
Archives Available at:
http://www.mail-archive.com/[email protected]/
<A HREF="http://www.mail-archive.com/[email protected]/";>ctrl</A>
========================================================================
To subscribe to Conspiracy Theory Research List[CTRL] send email:
SUBSCRIBE CTRL [to:] [EMAIL PROTECTED]
To UNsubscribe to Conspiracy Theory Research List[CTRL] send email:
SIGNOFF CTRL [to:] [EMAIL PROTECTED]
Om
