National Debt Graph How “Voodoo” Caused Most of the National Debt

US DEBT DECREASING UNTIL REAGAN

 https://www.crfb.org/blogs/trump-will-face-highest-debt-gdp-ratio-any-new-president-truman

https://zfacts.com/national-debt/

National Debt Graph

How “Voodoo” Caused Most of the National Debt

Here’s how national-debt policy was captured by Wall Street and went crazy. You can see exactly when it happened in this graph. You can even see George H.W. Bush predict it in the video clip below when he was running against Reagan — and then take it back when he became Reagan’s choice for VP.

CBO SAID $1.2 TRILLION DEFICIT JAN 07, 2009. WHO WAS PREZ?

 CBO SAID $1.2 TRILLION DEFICIT JAN 07, 2009. WHO WAS PREZ?

Now show me the LAWS Obama passed that caused the deficits please? Almost everything was UNFUNDED TAX CUTS, UNFUNDED WARS, UNFUNDED MEDICARE EXPANSION BY THE GOP THAT COST $119 BILLION THIS YEAR AND RESULTS OF "HANDS OFF REGULATORS" THAT ALLOWED THE US (AND WORLDS) ECONOMY TO CRASH!

The Real Heroes of the 1998 Budget Surplus: Clinton and His Economy

 Newt Gingrich would love to claim credit for the 1998 budget surplus, but the facts show he had nothing to do with it, writes Michael Linden.

When Bill Clinton took office in January 1993, the federal budget deficit was projected to be $310 billion that year, or about 5 percent of GDP. The Congressional Budget Office was also projecting that five years later, in 1998, the federal budget would still be in the red to the tune of $357 billion, or 4.5 percent of GDP. At the time, the CBO called the deficit outlook, “grim.”

Five years later, the United States enjoyed its first federal budget surplus in nearly 30 years—an incredible turnaround given the bleak projections at the beginning of the Clinton administration. Who, or what, was responsible for the more than $360 billion fiscal improvement? Was it President Clinton who deserves the credit as is widely believed? Or is it, as recently claimed by then-Speaker of the House Newt Gingrich, he, who by shutting down the government in 1995, eventually forced the budget into the black?

There are, indeed, two main heroes in the story of the remarkable budget surplus of 1998, but neither of them are Newt Gingrich or his Republican Congress. It turns out that their contribution to deficit reduction did more harm than good. No, the true heroes of deficit reduction were, first, President Clinton, whose 1993 budget—passed without a single Republican vote—raised taxes on the wealthy and dramatically altered the nation’s fiscal path, and second, a steadily improving economy. Those two factors, and particularly the interaction between them, account for virtually the entire fiscal improvement. Contrary to the Gingrich assertion, legislation passed by the Republican-led Congress of 1995 through 1997 combined to actually worsen the fiscal situation—albeit slightly.

In order to assign credit (or blame) for shifts in the country’s fiscal fortunes from 1993 to 1998, we scoured Congressional Budget Office reports from that period. Usually, over the course of a single year, the CBO releases three projections of the federal budget, each revised from the previous release to account for changes in legislation, economic conditions, and technical assumptions, and describe each change in some detail. We can see clearly what actually defeated the deficit by compiling and studying the changing CBO estimates of the 1998 budget.

Take President Clinton’s 1993 budget bill—officially known as the Omnibus Budget Reconciliation Act of 1993. OBRA, which mainly raised taxes on wealthy people but also raised the gas tax, extended limits on discretionary spending and cut back on some mandatory spending, was signed into law on August 10, 1993. Just five months prior, the Congressional Budget Office projected a 1998 deficit of $360 billion. One month after the bill passed, the CBO’s new estimate of the 1988 deficit was down to $200 billion. The CBO explained the dramatic improvement this way: “For the first time in two and one-half years, the deficit projections have taken a decided turn for the better… The reconciliation act deserves most of the credit for the improvement over the long run.” Indeed, of the $160 billion improvement from March to September of that year, CBO directly credited OBRA with $143 billion. In fact, OBRA turns out to have been the single largest contributor to the 1998 surplus.

After OBRA, the second largest contributor to fiscal improvement over the period was the rapidly strengthening economy. As the economy improved, the government began to take in more revenue than expected, since taxpayers were making more money, and had to spend somewhat less than expected, as poverty declined and the demand for social services declined with it. Over the course of the five-year period, CBO assigned a total of $102 billion in fiscal improvement directly to the effects of this kind of broad economic growth. There is also another substantial block of fiscal improvement—about $66 billion worth—that CBO classifies as “technical changes” but that are probably best categorized as economic. This $66 billion was the result of revenue collections that exceeded the level that CBO was expecting even with higher economic growth. In part, this occurred because the economic data on which CBO relied was lagging behind the actual boom.

But there is another reason why the economic boom produced even more revenue than expected, and again, it had absolutely nothing to do with Newt Gingrich. I’ll let the CBO report from September 1997 explain: “Over the past four years, growth in revenues has consistently outpaced that of gross domestic product (GDP) by 2 to 3 percentage points. Several factors have contributed to that outcome. The tax increases enacted in the Omnibus Budget Reconciliation Act of 1993 were the main causes in 1994 and 1995. Also, the personal and corporate income tax bases grew faster than GDP over the period, especially in 1996 and 1997. Higher income taxpayers experienced above-average income growth, which boosted revenues because their income is taxed at higher marginal rates.”

In other words, the rapid growth in personal and corporate income, especially among those at the top of the income ladder, interacted with the higher tax rates that Clinton and the Democratic Congress enacted in 1993. The result was even more revenue flowing into the treasury than just the economic factors or the new tax system alone would have predicted.

All together, OBRA plus direct economic factors, plus even higher than expected revenues from their interaction combined to produce a $311 billion fiscal improvement. That $311 billion wiped away more than 85 percent of the deficit. No help from Newt Gingrich required.

The remaining $50 billion or so of deficit reduction came mainly from lower than anticipated health care spending, lower than anticipated debt service payments, and other technical adjustments.

Notice that legislation crafted by the GOP-led Congress had no net impact whatsoever on the 1998 balanced budget. But that isn’t quite fair. There were several bills passed by Gingrich’s Congress that did impact the budget projections for 1998. It’s just that—and pay attention to this next part— their combined effect was to increase the deficit that year

https://www.americanprogress.org/article/not-so-fast-newt/

1993 Deficit Reduction Plan without a Single Republican Vote.

 September 1993

The Omnibus Budget Reconciliation Act of 1993 has made a substantial dent in the annual budget deficits and in the accumulation of federal debt. Last winter, CBO projected that the deficit would grow from $290 billion to $360 billion over the 1992-1998 period, and that debt held by the public would swell from 51 percent to 62 percent of GDP. Now, the deficit is projected to fall to $200 billion over those years, and the debt is expected to reach only 55 percent of GDP.

...The Budget Enforcement Act of 1990 capped discretionary budget authority and outlays through fiscal year 1995, and the Omnibus Budget Reconciliation Act of 1993 extended the caps through 1998. Under these caps, nominal discretionary outlays in 1998 would be no higher than in 1993; in real terms, discretionary outlays would be cut by 14 percent over this period.


https://www.cbo.gov/sites/default/f...3-1994/reports/09-1993-outlookentirerpt_0.pdf

THAT'S PAY-GO (NO INCREASE IN SPENDING WITHOUT CUTS OR REVENUES) THE GOP GOT RID OF UNDER DUBYA AND DONNIE!!!!

PAYGO, which stands for “pay as you go,” is a budget rule requiring that tax cuts and mandatory spending increases must be offset (i.e., “paid for”) by tax increases or cuts in mandatory spending.

To Establish Fiscal Discipline, President Clinton:

• Enacted the 1993 Deficit Reduction Plan without a Single Republican Vote.

The plan included more than $500 billion in deficit reduction.

"The deficit has come down, and I give the Clinton Administration and President Clinton himself a lot of credit for that. [He] did something about it, fast. And I think we are seeing some benefits."
— Paul Volcker, Federal Reserve Board Chairman (1979-1987), in Audacity, Fall 1994

"Clinton's 1993 budget cuts, which reduced projected red ink by more than $400 billion over five years, sparked a major drop in interest rates that helped boost investment in all the equipment and systems that brought forth the New Age economy of technological innovation and rising productivity."
— Business Week, May 19, 1997

No, the true heroes of deficit reduction were, first, President Clinton, whose 1993 budget—passed without a single Republican vote—raised taxes on the wealthy and dramatically altered the nation’s fiscal path, and second, a steadily improving economy. Those two factors, and particularly the interaction between them, account for virtually the entire fiscal improvement. Contrary to the Gingrich assertion, legislation passed by the Republican-led Congress of 1995 through 1997 combined to actually worsen the fiscal situation—albeit slightly.

...OBRA, which mainly raised taxes on wealthy people but also raised the gas tax, extended limits on discretionary spending and cut back on some mandatory spending, was signed into law on August 10, 1993. Just five months prior, the Congressional Budget Office projected a 1998 deficit of $360 billion. One month after the bill passed, the CBO’s new estimate of the 1988 deficit was down to $200 billion. The CBO explained the dramatic improvement this way: “For the first time in two and one-half years, the deficit projections have taken a decided turn for the better… The reconciliation act deserves most of the credit for the improvement over the long run.” Indeed, of the $160 billion improvement from March to September of that year, CBO directly credited OBRA with $143 billion. In fact, OBRA turns out to have been the single largest contributor to the 1998 surplus.

https://www.americanprogress.org/article/not-so-fast-newt/

James Kennedy and Alan Greenspan, on the effect of mortgage equity withdrawals (MEWs) on the growth of the US economy.

Notice that in both 2001 and 2002, the US economy continued to grow on an annual basis (the "technical" recession was just a few quarters). Their work suggests that this growth was entirely due to MEWs. In fact, MEWs contributed over 3% to GDP growth in 2004 and 2005, and 2% in 2006. Without US homeowners using their homes as an ATM, the economy would have been very sluggish indeed, averaging much less than 1% for the six years of the Bush presidency. Indeed, as a side observation, without home equity withdrawals the economy would have been so bad it would have been almost impossible for Bush to have won a second term.

The Economic Blue Screen of Death - Thoughts From The Frontline - Investment Strategies Analysis Intelligence for Seasoned Investors.

https://www.mauldineconomics.com/frontlinethoughts/the-economic-blue-screen-of-death-mwo101708

 RIGHT WING BS, LOOK AT LOAN PERFORMANCE BUBS

GSE Critics Ignore Loan Performance


TIMEFRAME:

Q When did the Bush Mortgage Bubble start?

A The general timeframe is it started late 2004.

From Bush's President's Working Group on Financial Markets MARCH 2008

The Presidents Working Group's March policy statement acknowledged that turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007



Q Did the Community Reinvestment Act under Carter/Clinton caused it?


A "Since 1995 there has been essentially no change in the basic CRA rules or enforcement process that can be reasonably linked to the subprime lending activity. This fact weakens the link between the CRA and the current crisis since the crisis is rooted in poor performance of mortgage loans made between 2004 and 2007. "

http://www.federalreserve.gov/newsevents/speech/20081203_analysis.pdf


FACTS on Dubya's great recession

https://www.usmessageboard.com/threads/facts-on-dubyas-great-recession.362889/

https://www.usmessageboard.com/threads/president-trump-crushes-obama-in-first-four-months-comparison.594112/page-8#post-17258248

Compared to Ronnie?


The Iran-contra scandal as it became known, did serious damage to the Reagan presidency. <b>The investigations were effectively halted when President George H. W. Bush (Reagan's vice president) pardoned Secretary of Defense Caspar Weinberger before his trial began.></b>


Iran-Contra Affair

Elliott Abrams (R) , CONVICTED
Robert C. McFarlane, (R) , CONVICTED
Alan D. Fiers (R), CONVICTED
Richard R. Miller (R), CONVICTED
Clair George (R), CONVICTED
Richard Secord (R), CONVICTED
Thomas G. Clines (R), CONVICTED
Carl R. Channel (R), CONVICTED
John Poindexter, (R), CONVICTED
Oliver North (R), CONVICTED


Department of Housing and Urban Development grant rigging

James Watt, (R), CONVICTED
Phillip D. Winn (R), CONVICTED
Thomas Demery (R), CONVICTED
Deborah Gore Dean (R), CONVICTED
Joseph A. Strauss, (R), CONVICTED
Silvio D. DeBartolomeis (R), CONVICTED
Lobbying scandal
Michael Deaver, (R), CONVICTED
Lyn Nofziger (R), CONVICTED


EPA scandals

<b>Over twenty high-level EPA employees were removed from office during Reagan's first three years as president.</b>

Rita Lavelle, (R) an administrator at the EPA, misused Superfund monies and was convicted of perjury.

Anne Gorsuch Burford, (R) the controversial head of the EPA. Burford, citing "Executive Privilege," refused to turn over Superfund records to Congress. She was found in Contempt, whereupon she resigned.


Inslaw Affair

Inslaw Affair (1985-1994+); a protracted legal case that alleged that top-level officials of President Ronald Reagan's (R) Department of Justice were involved in copyright violation of the Promis program from Inslaw Inc. forcing it into bankruptcy and then failed to appoint an independent counsel to investigate it.


D. Lowell Jensen, (D) Deputy Attorney General was held in Contempt of Congress.

C. Madison Brewer A high ranking Justice Department official was held in Contempt of Congress.

Attorney General Edwin Meese (R) refused to investigate the matter. His successor Attorney General Dick Thornburgh (R) also refused to investigate.

They were succeeded by Attorney General William P. Barr (R) who also refused to investigate the matter. No charges were ever filed


Savings & loan crisis

"The theft from the taxpayer by the community that fattened on the growth of the savings and loan (S&L) industry in the 1980s is the worst public scandal in American history. Teapot Dome in the Harding administration and the Credit Mobilier in the times of Ulysses S. Grant have been taken as the ultimate horror stories of capitalist democracy gone to seed. Measuring by money, [or] by the misallocation of national resources... the S&L outrage makes Teapot Dome and Credit Mobilier seem minor episodes."


Operation Ill Wind

Operation Ill Wind was a three-year investigation launched in 1986 by the FBI into corruption by U.S. government and military officials, and private defense contractors.


<b>FIFTY CONVICTIONS IN THIS SCANDAL ALONE

https://en.wikipedia.org/wiki/Reagan_administration_scandals

National Bureau of Economic Research:

The top 0.1 percent was composed of 160,000 families with average 
wealth of $72.8 million. All told, they owned 22 percent of the nation’s
wealth.

Meanwhile, the bottom 90 percent -- 144 million families with average
wealth of $84,000 -- owned only 22.8 percent of the wealth.

In other words, the top 0.1 percent and the bottom 90 percent of U.S.
households own virtually the same share of all the nation's wealth. Is there a problem with this number?

Non-Partisan Congressional Tax Report Debunks Core Conservative Economic Theory

The conclusion?

Lowering the tax rates on the wealthy and top earners in America donot appear to have any impact on the nation’s economic growth.

This paragraph from the report says it all—

“The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”

http://www.forbes.com/sites/rickungar/2012/11/02/non-partisan-congressional-tax-report-debunks-core-conservative-economic-theory-gop-suppresses-study/#2839b7ac431b

Bush's statement, "Intelligence gathered by this and other governments leaves no doubt that the Iraq regime continues to possess and conceal some of the most lethal weapons ever devised" indicates certainty.

Cheney's statement, "Simply stated, there is no doubt that Saddam Hussein now has weapons of mass destruction." indicates certainty.

None of the reliable evidence indicated certainty. Even the October '02 NIE contained caveats. Bush could not say truthfully and with certainty that Saddam Hussein had WMD, and yet he did. He lied.



 Both Colin Powell in February 2001, and Condoleezza Rice in July 2001 stated in no uncertain terms that Saddam Hussein was not a threat


 Furthermore, Bush et al made the decision to go to war (apparently without evidence of any kind) in November, 2001, only 4 months after Rice stated Saddam Hussein was not a threat.

"Significantly, the decision is made independent of normal policy-making procedures—a National Intelligence Estimate (NIE) on Iraq was not requested, members of Congress were not consulted, and the concerns of senior military officers and intelligence analysts were ignored."




 http://usatoday30.usatoday.com/news/world/2002-09-10-iraq-war_x.htm



 According to John D. (Jay) Rockefeller IV, Chairman of the Senate Select Committee on Intelligence,

“Before taking the country to war, this Administration owed it to the American people to give them a 100 percent accurate picture of the threat we faced. Unfortunately, our Committee has concluded that the Administration made significant claims that were not supported by the intelligence,” Rockefeller said. “In making the case for war, the Administration repeatedly presented intelligence as fact when in reality it was unsubstantiated, contradicted, or even non-existent. As a result, the American people were led to believe that the threat from Iraq was much greater than actually existed.”

Bush had to lie, because if he had told the truth--Saddam Hussein is not a threat, but we know he wants to acquire WMD-- the American people would never have allowed the Iraq war.


 Who should be held accountable? The evidence is overwhelming that Bush lied. You can only take the premise "he didn't know he was lying" so far before it begins to sound absurd. Considering the consequences of his actions, it's time to stop making excuses for him.





 Even before his first term, Bush told his biographer, Mickey Herskowitz:

“One of the keys to being seen as a great leader is to be seen as a commander-in-chief,” Herskowitz remembers Bush saying. “My father had all this political capital built up when he drove the Iraqis out of [Kuwait] and he wasted it. If I have a chance to invade Iraq, if I had that much capital, I’m not going to waste it. I’m going to get everything passed I want to get passed and I’m going to have a successful presidency.”



 Hussein was an obstacle for PNAC's objective, to “remain the predominant outside power in the region and preserve U.S. and Western access to the region’s oil.”



 It reveals he wanted to invade Iraq even before he was in office. As soon as he took office, he asked his cabinet members to "find a way to attack Iraq," according to Paul O'Neill.



 http://www.cbsnews.com/news/bush-sought-way-to-invade-iraq/


  Eight months later, 9/11 provided the "Pearl Harbor event" PNAC stated would be needed as a catalyst for war. Cheney, Rumsfeld, Wolfowitz and other PNAC members were (coincidentally) already in place in the Bush administration to carry out the PNAC mission.



 Luckily for Bush, 9/11 made war a popular thing. It's why he said he hit the trifecta.


 He was wrong about WMD (maybe he should have let Hans Blix finish his work), but he accomplished the PNAC mission. Saddam Hussein is gone, and Bush is now demanding 58 permanent bases in Iraq:


 http://www.alternet.org/story/88256/status_of_forces_agreement_will_decide_whether_iraq_is_independent_or_%22a_client_state_of_the_us%22

"The Pearl Harbor of the 21st century took place today." President George W. Bush, in his daily diary, September 11, 2001

When one can't argue the facts, one complains about the sources.


 Conservatives don't like fact checking sites because conservatives don't believe in facts.

Political Scientist: Republicans Most Conservative They've Been In 100 Years

 Keith Poole of the University of Georgia, with his collaborator Howard Rosenthal of New York University, has spent decades charting the ideological shifts and polarization of the political parties in Congress from the 18th century until now to get the view of how the political landscape has changed from 30,000 feet up. What they have found is that the Republican Party is the most conservative it has been a century.

 

 

 

 http://www.npr.org/sections/itsallpolitics/2012/04/10/150349438/gops-rightward-shift-higher-polarization-fills-political-scientist-with-dread

 

 

 

 

DUBYA'S BUBBLE EVERYTHING

The regulators turned a blind eye to excesses while George Bush crowed about creating an “ownership society” (which was actually an over-debted society).

Bogus appraisals and fraudulent financing whipped up into a souffle of financial pain for those who drank the coolaid.

Federal report: Home flipping drove housing bubble

Federal report: Home flipping drove housing bubble

Federal report: Home flipping drove housing bubble

Federal report: Home flipping drove housing bubble

Flip This Economy

 

A new study shows how short-term speculators made the housing bubble much, much worse.

 . New research from the Federal Reserve Bank of New York indicates that flippers were in fact sufficiently numerous and active to make a major impact on prices, and that these facts have interesting implications for both monetary policy and bank regulation in the future.



 The data let us see that the growth of house prices in the first half of the aughts was closely associated with a sharp rise in the number of people owning multiple homes. In 2000, only 20 percent of mortgages were going to multiple mortgage holders and 75 percent of those were for second houses. By 2006, 35 percent of mortgages were multiples and more than 5 percent of all loans were going to people with four or more mortgages. What’s more, the trend was especially pronounced in what we now know to have been the prime bubble states of California, Florida, and Nevada. By 2006, at least 25 percent of mortgages in these states were going to people who already owned one home, and a further 20 percent went to people with at least two.

 http://www.slate.com/articles/business/moneybox/2012/01/how_small_time_house_flippers_made_the_housing_bubble_much_much_worse_.html

Report: Flippers drove home bubble

  A new federal report shows that speculative real-estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.


Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an "undocumented" dimension of the housing market crisis that had been previously overlooked.
More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.
"This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family," the researchers noted.
Investors defaulted in large numbers after home values began to drop in 2006.

 http://www.lowellsun.com/ci_19568926

 

 

Federal report: Home flipping drove housing bubble

In 2006, just as the Housing market was peaking, the NYT ran this graphic of the 100-year Case Shiller chart. It showed how radically overvalued Housing had become.
Two years later, TBP reader Steve Barry updated that graphic, including the projected Home Price mean reversion. (See versions for 2008, 2009 and 2010).
Its time to update this for 2011. Note the 2009 tax credit wiggle:




http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/


 









The U.S. Financial Crisis Inquiry Commission, in January 2011, concluded "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.”




June 17 2002 :President G.W. Bush sets goal of increasing minority home owners by at least 5.5 million by 2010 through tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith-based organizations



 2003: Fannie Mae and Freddie Mac buy $81 billion in subprime securities.


2003  December: President Bush signs the American Dream Downpayment Act to be implemented under the Department of Housing and Urban Development. The goal was to provide a maximum downpayment assistance grant of either $10,000 or six percent of the purchase price of the home, whichever was greater. In addition, the Bush Administration committed to reforming the homebuying process that would lower closing costs by approximately $700 per loan. It was said it would further stimulate homeownership for all Americans.



2004

 HUD increased Fannie Mae and Freddie Mac affordable-housing goals for next four years, from 50 percent to 56 percent, stating they lagged behind the private market; from 2004 to 2006, they purchased $434 billion in securities backed by subprime loans.











October:SEC effectively suspends net capital rule for five firms - Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Freed from government-imposed limits on the debt they can assume, they levered up 20, 30 and even 40 to 1.



 2004–2005: Arizona, California, Florida, Hawaii, and Nevada record price increases in excess of 25% per year

High-risk mortgage loans and lending/borrowing practices

A mortgage brokerage in the US advertising subprime mortgages in July 2008.

In the years before the crisis, the behavior of lenders changed dramatically. Lenders offered more and more loans to higher-risk borrowers, including undocumented immigrants. Lending standards deteriorated particularly between 2004 and 2007, as the government-sponsored enterprise (GSE) mortgage market share (i.e. the share of Fannie Mae and Freddie Mac, which specialized in conventional, conforming, non-subprime mortgages) declined and private securitizers share grew, rising to more than half of mortgage securitizations


 Subprime mortgages grew from 5% of total originations ($35 billion) in 1994, to 20% ($600 billion) in 2006


 In addition to considering higher-risk borrowers, lenders had offered progressively riskier loan options and borrowing incentives. In 2005, the median down payment for first-time home buyers was 2%, with 43% of those buyers making no down payment whatsoever





 To produce more mortgages and more securities, mortgage qualification guidelines became progressively looser. First, "stated income, verified assets" (SIVA) loans replaced proof of income with a "statement" of it. Then, "no income, verified assets" (NIVA) loans eliminated proof of employment requirements. Borrowers needed only to show proof of money in their bank accounts. "No Income, No Assets" (NINA) or Ninja loans loans eliminated the need to prove, or even to state any owned assets. All that was required for a mortgage was a credit score



Types of mortgages became more risky as well. The interest-only adjustable-rate mortgage (ARM), allowed the homeowner to pay only the interest (not principal) of the mortgage during an initial "teaser" period. Even looser was the "payment option" loan, in which the homeowner has the option to make monthly payment that do not even cover the interest for the first two or three year initial period of the loan. Nearly one in 10 mortgage borrowers in 2005 and 2006 took out these “option ARM” loans, and an estimated one-third of ARMs originated between 2004 and 2006 had "teaser" rates below 4%. After the initial period, monthly payments might double or even triple



 The proportion of subprime ARM loans made to people with credit scores high enough to qualify for conventional mortgages with better terms increased from 41% in 2000 to 61% by 2006. In addition, mortgage brokers in some cases received incentives from lenders to offer subprime ARM's even to those with credit ratings that merited a conforming (i.e., non-subprime) loan

Subprime Debacle Traps Even Very Credit-Worthy

As Housing Boomed, Industry Pushed Loans To a Broader Market

http://www.wsj.com/articles/SB119662974358911035



Mortgage underwriting standards declined precipitously during the boom period. The use of automated loan approvals allowed loans to be made without appropriate review and documentation. 


 In 2007, 40% of all subprime loans resulted from automated underwriting. The chairman of the Mortgage Bankers Association claimed that mortgage brokers, while profiting from the home loan boom, did not do enough to examine whether borrowers could repay. Mortgage fraud by lenders and borrowers increased enormously


 The Financial Crisis Inquiry Commission reported in January 2011 that many mortgage lenders took eager borrowers’ qualifications on faith, often with a "willful disregard" for a borrower’s ability to pay. Nearly 25% of all mortgages made in the first half of 2005 were "interest-only" loans. During the same year, 68% of “option ARM” loans originated by Countrywide Financial and Washington Mutual had low- or no-documentation requirements




So why did lending standards decline? At least one study has suggested that the decline in standards was driven by a shift of mortgage securitization from a tightly controlled duopoly to a competitive market in which mortgage originators held the most sway. The worst mortgage vintage years coincided with the periods during which Government Sponsored Enterprises (specifically Fannie Mae and Freddie Mac) were at their weakest, and mortgage originators and private label securitizers were at their strongest.



 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831




Why was there a market for these low quality private label securitizations? In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with financial innovation such as the mortgage-backed security (MBS) and collateralized debt obligation (CDO), which were assigned safe ratings by the credit rating agencies.


In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable. NPR described it this way:

The problem was that even though housing prices were going through the roof, people weren't making any more money. From 2000 to 2007, the median household income stayed flat. And so the more prices rose, the more tenuous the whole thing became. No matter how lax lending standards got, no matter how many exotic mortgage products were created to shoehorn people into homes they couldn't possibly afford, no matter what the mortgage machine tried, the people just couldn't swing it. By late 2006, the average home cost nearly four times what the average family made. Historically it was between two and three times. And mortgage lenders noticed something that they'd almost never seen before. People would close on a house, sign all the mortgage papers, and then default on their very first payment. No loss of a job, no medical emergency, they were underwater before they even started. And although no one could really hear it, that was probably the moment when one of the biggest speculative bubbles in American history popped.

"The FBI defines mortgage fraud as 'the intentional misstatement, misrepresentation, or omission by an applicant or other interest parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.'"


 In 2004, the Federal Bureau of Investigation warned of an "epidemic" in mortgage fraud, an important credit risk of nonprime mortgage lending, which, they said, could lead to "a problem that could have as much impact as the S&L crisis". 




 Despite this, the Bush administration actually prevented states from investigating and prosecuting predatory lenders by invoking a banking law from 1863 "to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative." 




The Financial Crisis Inquiry Commission reported in January 2011 that: "... mortgage fraud... flourished in an environment of collapsing lending standards and lax regulation. The number of suspicious activity reports – reports of possible financial crimes filed by depository banks and their affiliates – related to mortgage fraud grew 20-fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. One study places the losses resulting from fraud on mortgage loans made between 2005 and 2007 at $112 billion.


"Predatory lending describes unfair, deceptive, or fraudulent practices of some lenders during the loan origination process."Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities."




Fed Chair Ben Bernanke stated in an interview with the FCIC during 2009 that 12 of the 13 largest U.S. financial institutions were at risk of failure during 2008.

GOP "PLANS"






This was a gift from the Republican Party. These people are not hiding the last Republican president and vice president for nothing. Under Bush, the nation was losing 800,000 jobs a MONTH. Now, just ask yourselves, who was the last Republican president who DIDN’T drag America under a bus?

 

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ENTRUSTING THIS NATION AND OUR ECONOMY TO THE GOP WOULD BE LIKE ENTRUSTING OUR CHILDREN TO CONVICTED CHILD MOLESTERS.


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