Our # 1 story is about how Fannie and Freddie were the root cause of the collapse of the mortgage market which led to the financial crisis. Article #2 lays out the coming fate of the EU and it isn’t good.
1. Facts show Fannie, Freddie led mortgage market to the collapse
"We are delighted to participate in this historic event, and we are particularly proud that a substantial portion of the $8 billion commitment will directly benefit lower income Americans," Countrywide Financial President Angelo Mozilo said at a July 8, 1992, press conference.
"We look forward to the rapid fulfillment of this commitment so that Countrywide can sign another record-breaking agreement with Fannie Mae," Mozilo finished.
Mozilo's almost 20-year-old quote is relevant again thanks to the uproar New York Mayor Michael Bloomberg caused last week when he criticized Occupy Wall Street's view of the financial crisis.
Bloomberg said, "IT WAS NOT THE BANKS THAT CREATED THE MORTGAGE CRISIS. IT WAS, PLAIN AND SIMPLE, CONGRESS, WHO FORCED EVERYBODY TO GO AND GIVE MORTGAGES TO PEOPLE WHO WERE ON THE CUSP. ... THEY WERE THE ONES WHO PUSHED FANNIE AND FREDDIE TO MAKE A BUNCH OF LOANS THAT WERE IMPRUDENT, IF YOU WILL."…
….That same year, at the direction of the Congress, the Department of Housing and Urban Development began setting "affordable" mortgage goals for the agencies.
Countrywide was a growing force in the mortgage industry when it partnered with Fannie in 1992. BUT AFTER MOZILO'S FIRM SECURED A STEADY GOVERNMENT BUYER FOR THEIR LOANS, BUSINESS EXPLODED. REVENUES WENT FROM $92 MILLION IN 1992, TO $860 MILLION IN 1996, TO $2 BILLION IN 2000. BY 2004, THEY WERE THE NATION'S LARGEST MORTGAGE LENDER.
The secret to Countrywide's success was no mystery: They shredded standard industry lending practices, giving home loans to virtually anybody who asked. FANNIE MAE NOT ONLY KNEW THIS, FANNIE REWARDED IT.
IN 2000, THE FANNIE MAE FOUNDATION HONORED COUNTRYWIDE FOR "OUTSTANDING ACHIEVEMENT" IN THE INDUSTRY. …
….In his 1993 Nobel Prize lecture, economist Douglass North said, "IF THE INSTITUTIONAL FRAMEWORK REWARDS PIRACY, THEN PIRATICAL ORGANIZATIONS WILL COME INTO EXISTENCE; AND IF THE INSTITUTIONAL FRAMEWORK REWARDS PRODUCTIVE ACTIVITIES THEN ORGANIZATIONS -- FIRMS -- WILL COME INTO EXISTENCE TO ENGAGE IN PRODUCTIVE ACTIVITIES."
From 1992 through the height of the housing bubble, Fannie Mae and Freddie Mac used their monopoly position in the mortgage securitization industry to reward firms like Countrywide for making bad bets in the housing market. COUNTRYWIDE'S SUCCESS WAS A SIGNAL TO OTHER MARKET PARTICIPANTS TO LOWER THEIR STANDARDS AS WELL.
Wall Street banks are not blameless for the financial crisis. BUT THEY WERE ONLY RESPONDING TO THE INCENTIVES SET UP BY THE FEDERAL GOVERNMENT. Ignoring this history will help no one
Fannie and Freddie, Chris and Barney, they are the ones the OWS should be protesting against
2. Is The EU About To Become A Thing Of The Past?
IT'S BEEN CLEAR FOR SOME TIME THAT THE EUROPEAN UNION IS IN DEEP TROUBLE. But now even its own leaders admit something shocking: The EU, and its currency the euro, may soon be a thing of the past.
The EU has had a troubled existence since the euro was first rolled out on Jan. 1, 1999. Sure, the EU has advantages — a single currency, one giant market, freedom of movement for a well-educated workforce, all benefits. Still, it's impossible to have an economic union based on rules no one follows. And that's exactly what's happened in the EU.
UNDER THE 1993 MAASTRICHT TREATY, NO EU COUNTRY WAS ALLOWED TO RUN A BUDGET DEFICIT OF MORE THAN 3% OF GDP OR ISSUE PUBLIC DEBT IN EXCESS OF 60% OF GDP. This was to be the bedrock of the EU's financial stability.
In recent years, Greece, Ireland and Portugal have all run deficits over 10% of GDP. Worse, the debts of Greece, Italy, Ireland, Portugal and Spain average 112% of GDP. In short, THE COUNTRIES ON THE EU'S PERIPHERY HAVE USED MEMBERSHIP AS A WAY TO REDISTRIBUTE WEALTH FROM EUROPE'S RICH NORTH TO ITS POORER SOUTH.
For a while it worked. But now the debts are enormous, and the amounts needed to bail out the peripherals from their profligacy are so large that citizens in countries such as Germany are saying "no more." By some estimates, as much as $4 trillion will be needed — a number that would bankrupt the EU….
The reason QE’s haven’t caused massive inflation is that the US currency as bad as it may be is still a better bet and the Euro.