Financial Crisis Disinformation Disembled by Deluded Dennis Marks

What caused the Financial crisis of 2007–08 is a topic still debated by Democrats and Republicans. Conservatives, of course, blame the government. It was TOO MUCH regulation they say, despite the fact that this is total hogwash.

Just recently on the blog of a fellow who goes by the (ironic?) moniker of rAtional nAtion, the deluded Dennis Marks (AKA dmarks) HAD to contribute (once again) some untruths, in response to another commenter bringing up the bonuses the bankster CEOs received post-bailout.

Dennis Marks: Yes... the top brass at Fannie and Freddie.. the government agencies that had a major role in the financial collapse, received tens of millions for a job well done. (6/22/2014 AT 05:55:00 AM EDT)

There are two lies contained within this statement. First of all, Fannie and Freddie did NOT have "a major role in the financial collapse". The bipartisan Financial Crisis Inquiry Commission, which consisted of 6 Democrats and 4 Republicans, determined the blame lay elsewhere.

During the bubble, loan originators backed by Wall Street capital began operating beyond the Fannie and Freddie system that had been working for decades by peddling large quantities of high-risk subprime mortgages with terms and features that drastically increased the chance of default. Many of those loans were predatory products such as hybrid adjustable-rate mortgages with balloon payments that required serial refinancing, or negative amortization, mortgages that increased the unpaid balance over time. Wall Street firms such as Lehman Brothers and Bear Stearns packaged these high-risk loans into securities, got the credit-rating agencies to bless them, and then passed them along to investors, who were often unaware or misinformed of the underlying risks. It was the poor performance of the loans in these "private-label" securities - those not owned or guaranteed by Fannie and Freddie - that led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission, among other independent researchers. In fact, Fannie and Freddie lost market share as the bubble grew: The companies backed roughly half of all home-loan originations in 2002 but just 30 percent in 2005 and 2006. In an ill-fated effort to win back market share, Fannie and Freddie made a few tragic mistakes. Starting in 2006 and 2007 - just as the housing bubble was reaching its peak - Fannie and Freddie increased their leverage and began investing in certain subprime securities that credit agencies incorrectly deemed low-risk. Fannie and Freddie also lowered the underwriting standards in their securitization business, purchasing and securitizing so-called Alt-A loans. While Alt-A loans typically went to borrowers with good credit and relatively high income, they required little or no income documentation, opening the door to fraud (which was often perpetrated by the mortgage broker rather than the homebuyer). These decisions eventually contributed to the companies' massive losses, but all this happened far too late to be a primary cause of the housing crisis. (excerpt from a 9/6/2012 Center for American Progress article by John Griffith, "7 Things You Need to Know About Fannie Mae and Freddie Mac").

Fannie and Freddie "began investing in certain subprime securities that credit agencies incorrectly deemed low-risk". This is the "systemic breakdown in accountability and ethics" referred to in the Financial Crisis Inquiry Commission report. Ratings agencies lied about the risk of subprime securities.

Credit rating agencies (CRAs) - firms which rate debt instruments/securities according to the debtor's ability to pay lenders back - played a significant role at various stages in the American subprime mortgage crisis of 2007-2008 that led to the Great Recession of 2008-2009. The new, complex securities of "structured finance" used to finance subprime mortgages could not have been sold without ratings by the "Big Three" rating agencies - Moody's Investors Service, Standard & Poor's, and Fitch Ratings. A large section of the debt securities market — many money markets and pension funds - were restricted in their bylaws to holding only the safest securities - i.e securities the rating agencies designated "triple-A". The pools of debt the agencies gave their highest ratings to included over three trillion dollars of loans to homebuyers with bad credit and undocumented incomes through 2007. Hundreds of billions dollars' worth of these triple-A securities were downgraded to "junk" status by 2010, and the writedowns and losses came to over half a trillion dollars. This led "to the collapse or disappearance" in 2008-9 of three major investment banks (Bear Stearns, Lehman Brothers, and Merrill Lynch), and the federal governments buying of $700 billion of bad debt from distressed financial institutions. (Source: Wikipedia).

In this respect Fannie and Freddie were victims of the CRAs that lied about the risk involved and gave false ratings of "triple-A". That is what necessitated their bailout, although the majority of the bad securities were of the "private-label" variety and "not owned or guaranteed by Fannie and Freddie".

F&F suffered as a result of the crisis, but DID NOT CAUSE IT. Instead of playing a "major role" F&F's contribution to inflating the bubble was "very little". And, it was not "over regulation" but under regulation that is to blame. Don't hope and pray that people act ethically, make sure they do via regulation. That is just common sense.

Secondly (in regards to the other lie I said Dennis told), the top brass at Fannie and Freddie did not receive "tens of millions for a job well done".

The Federal Housing Finance Agency, the government regulator for Fannie and Freddie, approved $12.79 million in bonus pay after 10 executives from the two government-sponsored corporations last year met modest performance targets tied to modifying mortgages in jeopardy of foreclosure. (Excerpt from a 11/1/2011 Politico article by Josh Boak and Joseph Williams, "Fannie Mae, Freddie Mac Executives Get Big Housing Bonuses").

I would, however, give Dennis a break on this one and deem his "tens of millions" an exaggeration instead of a lie. I WOULD, except for Dennis' track record of dissembling on the issue of F&F's role in the financial crisis at every opportunity presented to him. Given his history of lying, I'm going to go ahead and label "tens of millions" another Dennis Whopper.

That isn't to say that I approve of the F&F "top brass" receiving any bonuses at all. Why the hell should any executive receive a fricking bonus when their company needs a tax-payer bailout? I mean, even if there is no blame to assign to them, a bonus in such a circumstance is NOT called for.

But, F&F, being "partially private" acted exactly like all the other bankster-ran financial institutions that gave their CEOs bonuses. But that could have been prevented by nationalizing instead of bailing out. And THAT, I should note, is a course of action the deluded dummy known as Dennis disagrees with.

Although the Republicans in Congress would have disagreed as well, which is why a nationalization plan (the BEST course of action) would not have flown. So the Congressional Democrats (acting in the best interest of the country) along with a few Republicans who agreed to fall on their swords (for the good of the banksters) did the only thing that was possible and prevented a further descent (a descent that could have resulted in a depression).

Which is not to say that I am a fan of the bailout. I think it was the wrong course of action. In this I am in agreement with Dennis, but Dennis (apparently) believes nothing should have been done. With that I am strongly in disagreement. That is another delusion as ridiculous as believing that Fannie and Freddie "had a major role in the financial collapse" (or lying about it).

TADM #44