Today’s Tosser: Illinois Review


Get this out to everyone on your personal email list. Here’s what happened, including questions from Illinois Congressman Don Manzullo (R-16) of Barack Obama’s close advisor and Fannie Mae former CEO Franklin Raines per C-SPAN’s objective eye and ear.

Even if you take the case at the worst, calling Raines a close advisor is a lie.  The entire statement he made was that:

The commercial’s main charge is based on an April story in The Washington Post that said Raines has “taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing policy matters.” Reporter Anita Huslin says Raines told her that during an in-person interview.

Now, compare that to having a campaign manager on the Freddie Mac dole through August, it appears that Illinois Review is descending into self-parody.  Again.

But let’s, again, clarify where the Fannie and Freddie problems come from:

As of April, Sanders said, the rate of serious delinquencies on loans held by Freddie Mac was 0.81 percent. Fannie Mae’s rate of serious delinquencies was 1.15 percent. Those rates compare to market-wide rates of serious delinquency of 1.47 percent for prime mortgages, 8.35 percent for Alt-A mortgages, and 20.74 percent for subprime mortgages.

Fannie Mae and the smaller Freddie Mac either own or guarantee nearly half the entire market of U.S. home loans. The companies purchase mortgages from lenders, keep some for their own investment portfolio, and resell some to Wall Street investors as collateralized debt obligations or asset-/mortgage-backed securities.

“It is clear that Fannie and Freddie are the remaining source of stability and prudent underwriting practices among financial intermediaries,” Sanders said. “It is their willingness to continue to purchase conforming loans that is keeping the U.S. housing market afloat.”

Finance Professor Herbert Kaufman holds the same view. “Fannie and Freddie haven’t been involved in subprime mortgages — those with all the defaults, the real source of the market crisis. Fannie and Freddie, instead, have mainly bought prime mortgages, with strong credit standards and fairly strict lending requirements. Even in this bad mortgage market, the default rate on those prime mortgages is reasonable based on historical precedent.

Fannie and Freddie made good loans. However, they bought bad MBSs to make more money and that’s where the instability comes from.  It’s fair to say they should be regulated more-in fact, requiring all mortgage lenders to meet the same or similar levels of regulation as banks would have greatly limited this entire fiasco–but, you know, regulation is bad….

The way to solve the problem is to return Fannie and Freddie to their initial state and take away the perverse incentives created by being privately held.

Daily Dolt: Illinois Review AKA The New Protocols of the Elders of Zion

Scary brown people caused the economic crisis! Why? Because economics is complicated and we don’t understand the first thing about the housing market, we are going to make up a bunch of shit about it to blame some subgroup.

The truth about the mortgage meltdown is oozing out slowly, but surely.  Early adopters are connecting Jimmy Carter’s Community Reinvestment Act which Bill Clinton expanded to extort banks into making bad loans and they are beginning to understand CEO Franklin Raines’ reprise of Enronomics at Fannie Mae.  They are starting to see the connections and to recognize this was no random economic development, rather, it was a conspiracy to gain control Fannie and Freddie to loot it.  The motive was to gain anc consolidate political power, disguised as “affordable housing” programs.

This afternoon, others, including visitors to The Illinois Review, are becoming aware of an internet video viraling its way into the public’s awareness.  It shows clips of a 2004 hearing where Democrats are praising the management of Fannie and Freddie while at the same hearing , an official of the Office of Federal Housing Enterprise Oversight is testifying that Fannie was falsifying its books and thereby creating doubt about its capital adequacy.  As much as the Democrats seemed to ignore those warnings, the Republicans seemed to “get it” as the video plainly shows.

One particularly disappointing clip is of Maxine Waters praising Franklin Raines even as she chooses to ignore testimony that he’s a looter via an ongoing accounting fraud.  What’s particularly telling is Congresswoman Waters’ observation that the GSE’s had met their quotas and her regard for their innovations.  This included “desktop underwriting”, a process by which “community organizers” could become existential loan officers.  It is how Fannie and Freddie could loosen credit standards it required of borrowers at the “point of sale”.  Banks using desktop underwriting could thereby be assured that any loan they originated through the system would be acceptable—and purchased—by the government.  As the banks were paid fees to originate these loans, they could care less whether the loans made any economic sense.

The financial treachery continued as Fannie and Freddie polluted the markets when they offered investors packages of these sub-prime mortgages to get them off their own balance sheet. These are the instruments which the legislation which failed today officially describes as “toxic”.  With the government’s guarantee, they soon found their way to Wall Street.

There are many problems, but the most basic is that Seiffe fails to understand the housing market and CRA in particular.  CRA was designed to fight redlining or the discrimination of businesses and individuals based on their zip code, not their creditworthiness.  It’s largely successful, and CRA loans have very low rates of default. One big reason is that most CRA activity happens in the core bank business not in affiliates that face…wait for it…less regulation.

In fact, the CRA is the model for what that bastion of crazy liberalism used in expanding it’s insurance business to intercity neighborhoods. Yes, that’s right, State Farm insurance is part of the dastardly plot to serve people in poor areas.  Bring out your Masonic conspiracy theories, Ralf.

The idea isn’t hard to understand. The markets are often irrational about whether something is good business and so you provide carrots and sticks to get them to invest in areas underserved by banks.  Banks aren’t familiar with the areas often times and so are averse to making decisions regarding loans for businesses or other investments in such areas.  The CRA provides a framework for banks to better engage the community and provide loans to customers who are credit worthy, but live in underserved areas.

For anyone who has worked with HMDA data that largely deals only with banks regulated under the federal oversight and CRA, the default rates in areas that are poor don’t show significant differences in defaults from other areas.

However, we do observe higher overall defaults in those areas overall.  What does that mean? CRA isn’t creating the problem because CRA covered institutions don’t see much higher than average default rates on home loans.  The problem are largely unregulated entities making bad loans.  Go figure.

Robert Gordon provides some of the basic empirical evidence that Ralf is allergic to:

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the “tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, “has increased the volume of responsible lending to low- and moderate-income households.”

Yellen is hardly alone in concluding that the real problems came from the institutions beyond the reach of CRA. One of the only regulators who long ago saw the current crisis coming was the late Ned Gramlich, a former Fed governor. While Alan Greenspan was cheering the sub-prime boom, Gramlich warned of its risks and unsuccessfully pushed for greater supervision of bank affiliates. But Gramlich praised CRA, saying last year, “banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business.”

It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did.

And that is not political correctness. It is correctness.

The fundamental problem is that in a zeal to deregulate everything possible, the Republican congress with some Democratic accomplices passed bills to allow the connection between lender and long term health of a loan to be completely separated encouraging loan originators to make bad loans and sell them off. CRA does the opposite by tying business to the local community’s health.  It’s largely successful and a strategy very similiar to such tactics has led to State Farm increasing it’s profits by insuring lown income zip codes that many competitors will not insure.

But Ralf’s ignorance goes even further in ascribing the problem with Fannie and Freddie for offering toxic Mortgage Backed Securities. The problem is that the collapse wasn’t caused by Fannie and Freddie that have very low rates of default on those loans initiated under Fannie and Freddie, but because Fannie and Freddie bought market created mortgage based securities that collapsed and sapped their already taxed reserves.
It’s absolutely true that Fannie and Freddie had lax oversight and should have been forced to have greater reserves and been watched more closely, but their loans originated under their guidelines weren’t the problem. The problem is they played in the securities market trying to boost investor return beyond their basic mission and bought a whole hell of a lot stupid paper.  But Ralf completely misdiagnoses where the problem lies. It wasn’t in Fannie and Freddie originate loans, it was in private market initiated sub-prime loans. But screw it–who needs details and facts!

Blaming that lax oversight on Democrats alone is a bit hysterical though. The original sin was Lyndon Johnson’s fault since Fannie and Freddie should have been kept as government institutions and not quasi-governmental institutions with perverse incentives such as investing in private market created MBSs.  But more to the point, as the mortgage crisis deepened over the last couple of years, the Bush Administration pushed to have them refinance subprime loans in danger of default–to a target of $40 billion and it included jumbo loans as some to buy securities for–significantly increasing their exposure.

A private GSE structure is untenable as it promotes risky behavior with an implicit taxpayer backing and it creates super coalitions in Congress to push against serious oversight.  Keeping Fannie and Freddie as public entities would reduce the pressure to provide the profit and instead focus on what should be the mission of the two entities–providing guarantees for safe loans that are affordable to middle class families.

What’s stunning about these attacks on the CRA and the fundamental misunderstandings of the housing market is that the garbage comes from people who claim to be from the party of markets.  Unfortunately, those people don’t have the first clue about the housing market and seem content to just make shit up.

Some people might show some shame for such ignorance.  Apparently dishonesty or ignorance cause no shame for Illinois Review writers.

“It wasn’t a “gotcha.” She was talking to a voter,” Couric said.

I’m not of the belief that someone with Palin’s background couldn’t be a reasonable candidate for VP.  I’m just absolutely convinced she is not.

“Couric: Is that something you shouldn’t say out loud, Sen. McCain? ”

“Of course not,” McCain said, “But, look, I understand this day and age “gotcha” journalism. Is that a pizza place? In a conversation with someone who you didn’t hear … the question very well, you don’t know the context of the conversation. Grab a phrase. Gov. Palin and I agree that you don’t announce that you’re going to attack another country….

As McCain continued speaking, Couric asked: “Are you sorry you said it … Governor?”

“Wait a minute,” McCain said. “Before you say, “is she sorry she said it,” this was a “gotcha” sound bite that, look …”

“It wasn’t a “gotcha.” She was talking to a voter,” Couric said.

“No, she was in a conversation with a group of people and talking back and forth. And,” McCain said. “I’ll let Gov. Palin speak for herself.”

“Well, it … in fact, you’re absolutely right on,” Palin said. “In the context, this was a voter, a constituent, hollering out a question from across an area asking, “What are you gonna do about Pakistan? You better have an answer to Pakistan.” I said we’re gonna do what we have to do to protect the United States of America. ”

“But you were pretty specific about what you wanted to do, cross-border …

“Well, as Sen. McCain is suggesting here, also, never would our administration get out there and show our cards to terrorists, in this case, to enemies and let them know what the game plan was, not when that could ultimately adversely affect a plan to keep America secure.,” Palin said.

“What did you learn from that experience? ” Couric asked.

“That this is all about “gotcha” journalism. A lot of it is. But that’s okay, too. ”

Couric: “Gov. Palin, since our last interview, you’ve gotten a lot of flak. Some Republicans have said you’re not prepared; you’re not ready for prime-time. People have questioned your readiness since that interview. And I’m curious …

“Yeah,” Palin said.

“”To hear your reaction,” Couric said.

“Well, not only am I ready but willing and able to serve as vice-president with Sen. McCain if Americans so bless us and privilege us with the opportunity of serving them, ready with my executive experience as a city mayor and manager, as a governor, as a commissioner, a regulator of oil and gas,” Palin said.

“This is not the first time that I’ve seen a governor being questioned by some quote, “expert.”” McCain said. “I remember that Ronald Reagan was a cowboy.

“President Clinton was a governor of a very small state that had “no experience” either,” she said. “I remember how easy it was gonna be for Bush I to defeat him. I still recall, whoops, that one. But the point is I’ve seen underestimation before.

“I’m very proud of the excitement that Gov. Palin has ignited with our party and around this country. It is a … level of excitement and enthusiasm, frankly, that I haven’t seen before. And I’d like to attribute it to me. But the fact is that she has done incredible job. And I’m so proud of the work that she’s doing. ”

So it is something you shouldn’t say out loud, but shouting it across a bar is okay.

Seriously? This is what they have?

Governor Pat Quinn

Why the loss of material if Rod Blagojevich steps or is forced down doesn’t bother me.

Already, however, Rezko has provided information to the feds, who are in the process of vetting it, sources said.

The Chicago Sun-Times first reported the likelihood of Rezko’s cooperation a month ago, following accounts from various sources who saw Rezko being brought into the federal courthouse from the Metropolitan Correctional Center. Rezko had no court appearances during that time.

One source, who asked not to be identified, told the Sun-Times in an Aug. 28th article that Rezko was twice seen inside the U.S. Attorney’s office following his conviction. AT the time, Rezko’s lawyer, Joseph Duffy, called that contention of Rezko inside prosecutor’s offices, “bogus.”

What do you do as a Prosecutor after you’ve claimed the scalp of two Governors–from the same state?

Next You Know the Trib Will Be Discovering the Evil of Signing Statements

No kidding

But Blagojevich’s attempt to go around lawmakers and spend money they didn’t approve for a vast health care program may be just as insidious as his pay-to-play politics. His effort to expand health care through the program known as FamilyCare was soundly rejected by the Illinois legislature. But he did it anyway, spending millions of dollars to broaden eligibility for state-funded health care to people with higher family incomes.
The Illinois secretary of state said the governor had no authority to do that. A legislative rule-making body said he had no authority to do that. But he did it anyway.

In April, Cook County Circuit Judge James Epstein issued an injunction to block the governor’s program. The appellate court on Friday upheld that injunction. The reviewing court’s ruling lends credence to the belief of many critics, including this page, that Blagojevich has been completely reckless in this effort. As a result, thousands of people may have paid premiums for health coverage that now will evaporate.

The Trib is whining about how a recall provision would have helped here so much.  Actually, what would help is the paper of record in Illinois pointing out the gross violations of the State of Illinois Constitution (throw in the federal executive violations of the Constitution for consistency) and getting some urgency about impeachment instead of a dumb idea that would take much longer to work.
Blagojevich isn’t just a likely criminal in terms of the the law, but he’s also treated the Illinois Constitution as a toilet paper.  He’s attempted to grab executive power where no authority exists and has attempted to authorize spending on his own, something he has no authority to do under the Illinois Constitution.  Jesse White told him.  JCAR told him. And now the Illinois Appellate Courts told him.  At some point, it might be time to set-up some consequences for the behavior.  He’s attempted to run a secretive government not releasing subpeonas and hidden as much as he can from the public.
Americans  as a whole have gotten used to such behavior, but oddly, depending on what side of the political divide they are on, only seem to see it at the Governor’s mansion or the White House and not both.


COURIC: Why isn’t it better, Governor Palin, to spend $700 billion helping middle-class families struggling with health care, housing, gas and groceries? Allow them to spend more and put more money into the economy? Instead of helping these big financial institutions that played a role in creating this mess?

PALIN: That’s why I say, I like ever American I’m speaking with were ill about this position that we have been put in where it is the tax payers looking to bailout.

But ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up the economy– Helping the — Oh, it’s got to be about job creation too. Shoring up our economy and putting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americas. A

And trade we’ve got to see trade as opportunity, not as a competitive scary thing. But 1 in 5 jobs being created in the trade sector today. We’ve got to look at that as more opportunity. ALl those things under the umbrella of job creation.

This bailout is a part of that.

One of my various part time employments from time to time is grading AP exams for the Government and Politics Exam.  Sometimes students who clearly don’t know what they are talking about back into a few points by hitting accidentally on the points in the rubric.  The above does not even do that.
In this case, as the kids say:  EPIC FAIL!