Imagine if you will that the federal government believes all Americans have the right to home ownership as an inalienable right as the pursuit of happiness. So in its infinite wisdom instructs the largest mortgage purchaser in the world, Federal National Mortgage Association (Fannie Mae), to require banks to loosen lending requirements to sub-par borrowers to make the dream of home ownership a reality to those who otherwise could not afford a home. As a sweetener Fannie Mae provided liquidty to insure banks and mortgage companies had plenty of easy money for what would later become and known as toxic loans. The risk was cut out of the equation by Fannie Mae's backing and so went the oversight. Loan committees that recommend granting loans for its borrowers to its bank board of directors no longer had to evaluate risk or health of the borrower. Fannie Mae would bear the brunt of the risk.
But what if CitiBank or any other AAA credit-rated company decides to do just that. Lend to people that qualify by merit (financially capable)and lend to people that do not qualify to satisfy a dream of home ownership with a quota backed by Fannie Mae. So, Citi Bank, that is AAA rated bundles the good loans with the bad loans (now known as toxic loans)to create a loan package that is sold to investors, funds, etc. The loan portfolio has a AAA rated credit grade on it due to Citi Bank even though the loans in the loan portfolio when blended (package) is sub-par at best and certainly not AAA rated loans.
Along comes Lehman Brothers who purchase the loans and leverages them 30 times against their value for borrowing purposes and at the same time have them insured by AIG which became easy because AIG believes the loan portfolio to be AAA rated quality but it was not. So as a result Lehman borrows huge sums of money aginst the bad loans. As the loans become uncollectable the market punishes Lehman and starts putting pressure on them to reduce thier lending. And eventually they run out of money. The loans are brought into question and as the market value of homes erode so does the value of the portfolio. As the loan value dimminishes more pressure is put on Lehman to shore up the portfolio usually by putting up more cash. Cash it does not have because it cannot borrow. So the cycle continues. Lehman seeks insurance releif thorugh it's policy with AIG. Now AIG unravels insuring loans that were toxic. An so does Fannie Mae.
Welcome to the free market. Where is the oversight? Where is the Congress? Where are the internal and external auditors? With freedom comes responsibility. Where are the fiscal hawks when you need them?
Thursday, January 15, 2009
Monday, January 5, 2009
Political (in)experience
Caroline Kennedy is making her pitch to be the next senator of NY replacing Hillary Clinton as she moves to a cabinet position. I do not know whether or not Kennedy is qualified or not. This is not the topic I want to discuss but rather the schizofrenia of the American public and how short our memory is in relation to politics and the problems associated with it.
The big question "Is she qualified?" This seems to be the question the media and the pundits are fixated on. I really don't get it. We just went through 8 years of a congress receiving its lowest approval ratings from the public since inception. We had a president that has over 68% of Americans dis-approving of his job performance and we just elected a new president that only had 2 years of Seante experience. Is experience really an issue?
How can the public forget so easily? We, as Americans, want term limits to bring in fresh blood. We want to stop corruption and graft that make so many politicians wealthy ( see Bob Dole - poor Kansas farmer and came out of the senate a millionaire). We hate anyone in office that sets records for the amount of time they spent in the game. We have too many old white guys that have been at it too long but yet when it coms to what we need - a fresh, inexperienced voice- we reject it on the grounds of inexperience.
If its experience we want then recruit or elect the same hacks that have brought us to the brink of economic collapase, made us the bullies of the world, and have harmed our reputation maybe beyond repair. America, please make up your mind. We need different results by bringing in new and different prespectives. We can not get new results from the same old thing. WAKE UP!
The big question "Is she qualified?" This seems to be the question the media and the pundits are fixated on. I really don't get it. We just went through 8 years of a congress receiving its lowest approval ratings from the public since inception. We had a president that has over 68% of Americans dis-approving of his job performance and we just elected a new president that only had 2 years of Seante experience. Is experience really an issue?
How can the public forget so easily? We, as Americans, want term limits to bring in fresh blood. We want to stop corruption and graft that make so many politicians wealthy ( see Bob Dole - poor Kansas farmer and came out of the senate a millionaire). We hate anyone in office that sets records for the amount of time they spent in the game. We have too many old white guys that have been at it too long but yet when it coms to what we need - a fresh, inexperienced voice- we reject it on the grounds of inexperience.
If its experience we want then recruit or elect the same hacks that have brought us to the brink of economic collapase, made us the bullies of the world, and have harmed our reputation maybe beyond repair. America, please make up your mind. We need different results by bringing in new and different prespectives. We can not get new results from the same old thing. WAKE UP!
Playing the race card
It has been a while since I decided to write again and much has happened. We have a new black president and many believe this to be good. I think so too but also see this change bringing in a lot of discussion. As part of a story I saw some interesting items with the newsheads in relation to the Illinois Senate seat vacated by Obama. With the Illinois governor possibly headed to jail his choice for the senate has been greeted with less than enthusiasm. But my issue isn't the governor it is the injection of race into the conversation. This discussion really sums up the differences between Blacks and Hispanics and the differences in our value systems. I am not sure who brought up the race card but I have heard it from many sides. Side A say it has to be a Black because a Black held the seat. (so what?) Side B says it should be the most qualified, which makes me think about another senate seat in New York where one of the Kennedy's is vying for top pole position.
Why does this situation define differences between Blacks and Hispanics is because there is another senate seat be given up due to another appointment in Colorado held by a Hispanic, Senator Ken Salazar, yet he is being replaced by a white person by a white governor. Should Hispanics be playing the race card? Are Hispanics playing the race card and insisting on a Hispanic replacement so as not to add to the white washing of the senate? According to what I see and hear this is not the case. As a matter of fact there is little discussion in the "liberal" press or the conservative press. (I liked it much better when we only had one press). Does this mean that Hispanics have no power to command and demand a Hispanic replacement? Or does this mean that whites and blacks do not really care what Hispanics say and do with no one paying attention or cares? In either case Hispanics just do not play the race card a lesson all can learn.
Why does this situation define differences between Blacks and Hispanics is because there is another senate seat be given up due to another appointment in Colorado held by a Hispanic, Senator Ken Salazar, yet he is being replaced by a white person by a white governor. Should Hispanics be playing the race card? Are Hispanics playing the race card and insisting on a Hispanic replacement so as not to add to the white washing of the senate? According to what I see and hear this is not the case. As a matter of fact there is little discussion in the "liberal" press or the conservative press. (I liked it much better when we only had one press). Does this mean that Hispanics have no power to command and demand a Hispanic replacement? Or does this mean that whites and blacks do not really care what Hispanics say and do with no one paying attention or cares? In either case Hispanics just do not play the race card a lesson all can learn.
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