Here's proof, as if you really needed it, that ACORN never encouraged and in fact OPPOSED the trend of subprime lending.  Spread the truth and you shall succeed.

http://www.acorn.org/index.php?id=110

There is terror in America.  Terror that leads a 90 year old woman to so fear for the loss of her home of 40 years, that she would be driven to suicide.*  Terror of such magnitude that it can be used to extort $700 billion from an otherwise proud country.  Terror of millions of American workers that fear for losing their jobs after decades of hard work for companies that would ship their jobs overseas.  Terror of mothers that work two jobs but still cannot pay for health care that their sick children need.

This is the terrorism of America- where the cops are taken off the beat so that profiteers eager to sell mortgage contracts are free to prey on the old folks filling their heads with promises that their troubles are over if they just sign on the dotted line.  This is the terrorism of America, where republican plans of health care further deregulate the health care industry leading to costs double what the rest of the world pays, while delivering worse medical statistics compared to most western nations.

This is the terrorism of America that allows a baron class elite 1% of the population control 20% of national income, where even among the top 10% of the nation's wealthy, the income was almost flat for the 90th to 99th percentile, and nearly all the gains went to the top 1%.  Even within this elite, the top one hundredth of that one percent received one fourth of the gains.  In 2005, the average tax return for these 15,000 tax payers reported 25 million of income, while the take for the entire group was $384 billion.**  Cindy McCain and her husband are members of this baronial class of America.

So this is the real terrorism of America that would attempt to scare and distract Americans into electing a member of this baronial class as president, to further cut their taxes and shield their activities from those who would regulate their rapacious feeding on the less privileged.

So if Sarah Palin is interested in unmasking political operatives with links to American terrorists, she need look no further than a McCain staff meeting.

Notes: 

*Addie Polk of Akron, Ohio attempted suicide after repeated attempts by authorities to evict her from her home of 40 years.  No regulator would have approved the $57,000 of debt that Countrywide eagerly saddled her with.  We benefit from the society our elders built for us, and we owe them better.  Addie Polk needed financial counseling, not the lies of easy money from high pressure salesmen eager to convert her home into the financial toxic waste that we must now clean up or suffer global economic disaster.

**These figures from "The Trillion Dollar Meltdown", by Charles R. Morris

It is not true that this is 700 billion that we will never see again- like the money spent in Iraq.  Some economists estimate that when the government eventually sells these assets off that the government will either make or lose 200 billion.  In the Chrysler bailout, the US taxpayer got ever nickel back, with a bit of a profit.  It could be argued that more than 200 billion will be lost, but whatever the number, these assets aren't worth zero.

Last April, I put a PBS video up on YouTube  that explained the sub prime market crisis.  This post attempts to put this crisis into the larger perspective we find ourselves in today.

Ten years ago, you would go to a bank for a home loan, and the banker would decide how good a risk you were because they would be lending you money that came from their depositors' savings accounts.  Banks had rules about how much cash and collateral they had to have to support the loans they had on their books, and the bank or S&L had an interest in making sure the loan was good.

Enter banking industry deregulation in 1999 when republicans in congress rammed through repeal of the Glass Stegal Act.   What this did was allow investment banks  (which were not regulated) to aggressively compete with the banks for this business.  Instead of requiring 20 percent down they would offer 15, 10 and even zero percent down.  They would lend the money to the home buyer, then turn around and sell the debt as a security.  This "securitization" of debt meant that they would pool a thousand loans together so that if one defaulted, the risk would be spread out.  Just like people bought Treasury and municipal bonds, they would buy these mortgage backed securities.   Instead of liability on their balance sheets, they recorded it as a profit generating asset.  You'll also hear these mortgage backed securities refered to as CDOs.

The financial industry has trillions of dollars of these credit instruments floating around, and financial banks had no requirements to be conservative with the risks they took with loans.  Most owe 30 times more money than what they actually own.  They call this "highly leveraged".  It makes the person seem very sophisticated and clever to be able to magnify the power of their money so much.  I know a few dirt farmers that would put it a different way.  They'd say these boys were in hock up to their eyeballs.

Interestingly, many in congress viewed this with great suspicion and noted that if an institution walked like a bank and talked like a bank then it should be regulated like a bank.  Loans being issues with little concern for the risk of not being repaid bore great resemblence to the Japanese real estate asset bubble of the 90s.  Unfortunately, the Federal reserve  was under the control of a laissez faire  economist that believed that financial market players were smarter than government bureaucrats.  This fed Chairman- Alan Greenspan- refused to regulate the financial banks, and the republican congress blocked legislation that would have regulated these markets. 

There are trillions of dollars of these mortgage backed debt instruments that are in part held by investment banks.  Today, with  housing prices going down and owners defaulting on their loans, the value of those debt securities go down. Today, there are few buyers of many of these exotic debt instruments including, but not restricted to the mortgage backed securities.  No one knows what they are really worth, and because no one will trade them, they have become illiquid assets 

Because the amount of money an investment bank can borrow is based on what their assets are worth, they cannot borrow as much money as they used to be able to do.  This means they cannot make the profits they used to.  Goldman Sachs for example reports their profits for the last quarter are down 70%.  When other companies begin to doubt your ability to repay loans, they demand even more collateral and proof of the worth of your assets.  It would have been possible for Lehman to strengthen their balance sheets last year by selling some of their stock last year when they gave every appearance of being an impregnable bank.  They refused to, taking the risk that they could bluff their way through it.  Last weekend, they were so far gone that no one wanted to buy them.  Merrill Lynch had a similar exposure on their balance sheets and knew they were next, so they opted to merge with BA before they met the same fate. 

It is not true that all of these illiquid assets are mortgage backed, and it is also not true that they are worthless.  Some of these loans were for houses whose real value is one half of what they were appraised at.  In other cases the loans will be fully repaid with interest.

What the media is not discussing is that this securitization of debt was extended to all forms of credit and the crisis should not be viewed as a real estate asset bubble but a general credit asset bubble.  This shall be covered in an upcoming post.  It is astounding the games that these financial geniuses were playing with money. 

References:  (Don't take my word for all of this)

A great book on this is "The Trillion Dollar Meldown: Easy Money, High Rollers, and the Great Credit Crash", Charles R. Morris  $9.99 if you want it now and have a kindle, $10 for some used copies on Amazon.

The Money Party (6):
Meltdown Perpetrators Position Themselves

Meet the New Boss - Robin Hood in Reverse
U.S. Secretary of the Treasury Henry Paulson
WikiCommons

"A Cascade of Ruin"

Michael Collins

(Wash. DC)  Well, they finally did it.  The Money Party exposed the nauseating underbelly of first world finance.  It's a cross between a Ponzi scheme and a complex math puzzle, all geared to let those in charge rake off as much money as they can, whenever they can, while they leave us out in the cold.  Unfortunately, this time their greed and lack of control has the world poised for a systemic economic meltdown.

M. Collins: The Money Party (4)
Money Party to Citizens: Drop Dead!

Tens of millions are just a lost job away from homelessness.
Mission accomplished for The Money Party. (Nathan Rein CC)

"The FBI is investigating every level of the conspiracy that it believes perpetuated the housing boom..." TimesOnline Jan. 31, 2007

Michael Collins
"Scoop" Independent News
Washington, DC

Now they've done it. The Money Party road show just hit a speed bump at 90 mph and that speed bump was us. There are no more "booms" to hype. No more schemes to hook investors into the stock market. The high tech boom is dead and biotech turned into road kill thanks to a president who talks to God and believes that evolution is just "a theory."

All they had left was the housing bubble. Ram home prices up by flooding the market with buyers. Get them in that home anyway you can. The finance guys will figure it out. We saw "interest only" mortgages to sell people more home than they could afford. And the highly "recommended" adjustable rate mortgages that mature in record time plus other schemes were there to qualify those who should have bought less for more than they'd ever hoped.

The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the [Mortgage Bankers] association said. Payments are considered delinquent if they are 30 or more days past due.

The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released Thursday [TODAY]. * * * The association's survey covers more than 45 million home loans nationwide.

the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.

Late payments [of subprime adjustable rate mortgages] jumped to a record high of 18.81 in the third quarter, up from 16.95 percent in the second quarter.

The percentage of subprime adjustable-rate mortgages that entered the foreclosure process soared to a record of 4.72 percent in the third quarter. That was up from 3.84 percent in the second quarter.

I see millions of families trying to live on incomes so meager that the pall of family disaster hangs over them day by day. * * * I see one-third of a nation ill-housed, ill-clad, ill-nourished.

1:06 PM EST, November 29, 2007 Florida today suspended withdrawals from a state investment fund [Florida State Board of Administration (SBA)] after cities, counties and school boards -- fearful of the fund's financial stability -- withdrew $3.5 billion in just one day.

The State Board of Administration -- the governor, attorney general and chief financial officers -- voted unanimously to at least temporarily halt a run on the fund, which has reported withdrawals totaling $10 billion in the past several weeks. That's more than one-third of the fund's assets of $28 billion.

Since reaching $202,600 in May, the median Broward condo price has fallen steadily, dipping to $174,600 last month before settling at $159,300 in October -- the lowest since the Florida Association of Realtors began tracking condo sales in January 2005.

''We probably haven't seen the bottom yet,'' said Richard Barkett, CEO of the Realtor Association of Greater Fort Lauderdale.

David Dabby, a real estate analyst in Coral Gables, attributed the drop to the high number of apartment properties that were converted to condos. Conversions ''flooded'' the market and hurt prices, he said.

Sales of luxury homes and condos in particular have remained strong, driven now by the weak dollar, which makes real estate more attractive to foreign buyers.

''Anything above $2.5 million is selling well,'' said Gus Rubio, senior vice president for real estate firm Coldwell Banker in Miami. ``Anything above $4 million is selling even better over last year.''

Meanwhile, median prices for single-family houses in both counties remained virtually flat at $354,000 in Broward and $354,800 in Miami-Dade, according to the Florida Association of Realtors figures.

The nation's subprime-mortgage crisis is prompting Florida cities, counties and agencies to pull billions of dollars out of a state-run investment fund.
* * *
Governments and agencies typically take money intended to pay for such basics as teacher salaries or road repairs and invest it in the short-term state fund so they earn interest before the bills come due.
* * *
The agency that made the investments, the State Board of Administration [Florida SBA], released a statement late Wednesday saying the fund was safe and continues to pay interest. The agency also promised to produce a plan to make the fund safer.

The subprime investments, which total as much as $6 billion, are part of an overall fund that stood at $27 billion before the withdrawals began.
* * *
Agencies that have pulled money include Orange schools, $438 million; Orange County, $370 million; Polk County, $300 million; Seminole County, $200 million; Osceola County schools, $160 million; Volusia County, $152 million; and the Greater Orlando Aviation Authority, $57 million.

About 1,000 cities, counties, school districts and assorted agencies across Florida have placed their money in accounts that [Florida] SBA invests and manages on their behalf. The agency was not able to provide information Wednesday about how much each agency has remaining in the fund.
* * *
[Florida] Gov. Charlie Crist[R] said Wednesday that he was aware of the run and added that he might have "more of the full faith and credit of the state support it [the account] to stem these concerns."

A special meeting of the State Board of Administration will be held on November 29, 2007, at 11:30 a.m. in the Cabinet meeting room in the Capital.