Wednesday, December 28, 2011

Marshalsea Prison: The Great Housing Bamboozle Part I Collapse

“I hate news and information and anything that threatens to puncture the bubble of oblivion in which I live.”    -Augusten Burroughs, Magical Thinking: True Stories

I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk. -Alan Greenspan

....and then the Market Just Collapsed.
Abandoned McMansion, Rio Vista, Ca.
In early 2007, the fever broke. The great mania that had swept the nation for several years met reality and the whole deck of cards collapsed. Unlike other manias like the hoola hoop, this one was far from benign. It threatened not only our very homes but to bankrupt us as a nation.

Marshalsea Prison - The Series

Marshalsea Prison is a series devoted to the economic decline and fall of the West. Marshalsea Prison references this infamous debtors prison in London where Charles Dicken's father was incarcerated. In modern times, the debtors run the asylum that holds society hostage. Other posts in this series include:

Our Demise Will Not Be Televised
Financial Repression and the The Fall from Grace
The Prodigal Son

Recipe for Disaster


James A Johnson has been called corporate America's founding father of regulation manipulation although that is unfair to corporations since he is really a Democrat Party operative. During his tenure at chief executive

Cloaked effort to expan

Led efforts to expand home ownership
The story centers around James Johnson, a Democratic sage with a raft of prestigious connections. Appointed as chief executive of Fannie Mae in 1991, Johnson started an aggressive effort to expand homeownership.
Back then, Fannie Mae could raise money at low interest rates because the federal government implicitly guaranteed its debt. In 1995, according to the Congressional Budget Office, this implied guarantee netted the agency $7 billion. Instead of using that money to help buyers, Johnson and other executives kept $2.1 billion for themselves and their shareholders. They used it to further the cause — expanding their clout, their salaries and their bonuses. They did the things that every special-interest group does to advance its interests.
Fannie Mae co-opted relevant activist groups, handing out money to Acorn, the Congressional Black Caucus, the Congressional Hispanic Caucus and other groups that it might need on its side.
Fannie ginned up Astroturf lobbying campaigns. In 2000, for example, a bill was introduced that threatened Fannie’s special status. The Coalition for Homeownership was formed and letters poured into Congressional offices opposing the bill. Many signatories of the letter had no idea their names had been used.
Fannie lavished campaign contributions on members of Congress. Time and again experts would go before some Congressional committee to warn that Fannie was lowering borrowing standards and posing an enormous risk to taxpayers. Phalanxes of congressmen would be mobilized to bludgeon the experts and kill unfriendly legislation.
Fannie executives ginned up academic studies. They created a foundation that spent tens of millions in advertising. They spent enormous amounts of time and money capturing the regulators who were supposed to police them.

NYT June 2011, Who Is James Johnson?

The American Interest dated June 2011: Fanniegate: Gamechanger For The GOP?

WSJ dated June 2008 - Countrywide Friends Got Good Loans, Mozilo Sought, Received Better Rates for Some; Problems for Fannie Mae?

Boston Fed Study

1992 - Faulty study used to pretext to
The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.
It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history—such as past delinquencies and whether the borrower met lenders credit standards—explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.
The study did not take into account a host of other relevant data factoring into denials, including applicants’ net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.
When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Smoking-Gun Document Ties Policy to Housing Crisis by Paul Sperry, Investor’s Business Daily, October 31, 2011

1992 Boston Fed Study Mortgage Lending in Boston: Interpreting HMDA Data by Alicia H. Munnell; Geoffrey M. B. Tootell; Lynn E. Browne; James McEneaney

Defaults, Denials, and Discrimination in Mortgage Lending - Boston Federal Reserve Bank, 1993

Application of Reverse Michael LaCour-Little in the THE JOURNAL OF REAL ESTATE RESEARCH

Policy Statement

January 1994

Convened by HUD, and sponsored by the National Fair Housing Alliance, the National Association of Human Rights Workers and the International Association of Official Human Rights Agencies, the National Fair Housing Summit, held in Washington January 19-22, was the largest government-sponsored civil rights meeting in 12 years, and the largest fair housing meeting ever.

Bill Clinton

The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

Henry Cisneros

“I’ve been waiting for someone to put all the blame at my doorstep.” Henry Cisneros

Washington Post, Sep 1999 - Cisneros Pleads Guilty to Lying to FBI Agents

NYT - Building Flawed American Dreams

Roberta Achtenberg - The Player

There are many others to blame. One of the least known but most important is Roberta Achtenberg. She made her name fighting the closure of San Francisco’s AIDS-ridden gay bath-houses as a breach of homosexuals’ civil rights and she campaigned to end funding for the Boy Scouts unless they recruited gay scout-masters. Bill Clinton put her in charge of “Fair Housing and Equal Opportunity”. -Express UK - The Man Who Broke the Bank at Monte Carlo

"We are going to empower you to carry on the quest for fair housing, long after we have departed Washington, regardless of who succeeds us. We will do this through Executive Orders, regulations, stronger federal programs, [and] increased financial support. . . " - Roberta Achtenberg

Shelterforce Interview: Roberta Achtenberg, Assistant Secretary for Fair Housing and Equal Opportunity

Roberta Achtenberg - US Commission on Civil Rights Bio

Janet Reno

Justice Department prosecution of banks and mortgage lenders for lending discrimination under "disparate impact" and "secondary impact" theory

US Dept of Justice, Janet Reno's March 1998 Remarks to Community Reinvestment Coalition

Greg Squires -

 “Why Are Professors Liberal?” That is especially true of their own field, sociology, which has become associated with “the study of race, class and gender inequality — a set of concerns especially important to liberals

WHY ARE PROFESSORS LIBERAL? by Ethan Fosse and Neil Gross, January 2010

NYT, January 17th, 2010: Professor Is a Label That Leans to the Left

Neil Gross, Sociology Professor, University of British Columbia

US Treasury

US Treasury Policy Statement On Discrimination in Lending dated March 1994

Civil Rights Act

Co Option


Meredith Whitney - Prophet of Doom

The Prophet of Dollars and Sense


UDayton, Robert Hardiway - The Great American Housing Bubble: Cause and Effect

The Spectator UK - Clinton Democrats are to blame for the credit crunch

NYT Sep 1999 - Fannie Mae Eases Credit To Aid Mortgage Lending
Poverty and Race Research Action Council, March 1994 - The National Fair Housing Summit

The Global Financial Crisis according to Paul Sperry

Brookings Institute, Nov 2009: Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble

Sub Prime Primer

Smoking-Gun Document Ties Policy to Housing Crisis by Paul Sperry, Investor’s Business Daily, October 31, 2011

The Housing Bubble, A Time Bomb in Low-Income Communities? by Dean Baker, dated May 2004

CEPR Housing Bubble Fact Sheet by Dean Baker dated Dated July 2005 Oversimplification and Exaggeration

Occam's razor: the application of a principle to political economy, to the ... By Francis William Bain

Washington Times - Occupy Wall Street dated Oct 12, 2011: On greed, bankers and human nature

Guardian UK Nov 2011: Nobel Prize Winning Psychologist, A Great Deal of Prejudice is Built In

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