Timeline of the Lending Crisis

Just found this full timeline of the events that led to the current financial crisis.

Quote of the day: Bailout and redistributions

To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

Art Laffer, Wall Street Journal

The Bailout Negotiations

Apparently, there was a hidden camera at the recent White House bi-partisan negotiations on the bailout bill. Here's the footage:

Fannie Mae, a major contributor to Obama's campaign

The corrupt Government-controlled Fannie Mae and Freddie Mac contributed to top Democrats campaign. More, 15 of the top 25 recipients were on the committees that were overseeing their activity. Here are just the first 4 beneficiaries:

1. Christopher Dodd (chairman of Senate banking committee): $133,900
2. John Kerry: $111,000
3. Barack Obama: $105,849
4. Hillary Clinton: $75,550

How did Fannie Mae and affirmative action bring the mortgage mess?

If you're still wondering who's guilty for the credit problems, it's not the free market, or greedy bankers, or Bush. It's, like I repeatedly said, the Government and its crazy "diversity" principles. Just read this article from September 30, 1999 in New York Times: Fannie Mae Eases Credit to Aid Mortgage Lending. Actually, I'll post it in its entirety, since it's way too prophetic. A good read is also Peter Wallison's article in today's Wall Street Journal, Blame Fannie Mae and Congress for the Credit Mess.

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

The mortgage situation is the market correcting a Government failure

People should be reminded as often as possible that it's Government regulation that created the mortgage mess.
As Walter Williams reiterates it in Stubborn Ignorance:

Many politicians and pundits claim that the credit crunch and high mortgage foreclosure rate is an example of market failure and want government to step in to bail out creditors and borrowers at the expense of taxpayers who prudently managed their affairs. These financial problems are not market failures but government failure. The Community Reinvestment Act of 1977 is a federal law that intimidated lenders into offering credit throughout their entire market and discouraged them from restricting their credit services to low-risk markets, a practice sometimes called redlining. The Federal Reserve Bank, keeping interest rates artificially low, gave buyers and builders incentive to buy and build, thereby producing the housing bubble. Lenders were willing to make creative interest-only loans, often high-risk "no doc" and "liar loans," in order to allow people to buy more housing than they could afford. Of course, with the expectation that housing prices will continue to rise, it was no problem for lenders and borrowers but housing prices began to fall, leaving some people with negative home equity and banks in trouble.

The credit crunch and foreclosure problems are failures of government policy. In fact, what we see now is a market correction to foolhardy government policy. Congress' move to bailout lenders and borrowers who made poor decisions will simply create incentives for people to make unwise decisions in the future. English philosopher Herbert Spencer said, "The ultimate result of shielding men from the effects of folly is to fill the world with fools."

Why aren't people buying CFL bulbs?

There was an article in USA Today, The shape of lights to come? Not everyone's buying it, which discusses the reasons why despite all mandates and publicity people are still refusing to buy CFL bulbs. Here are a few reasons:

• They don't start out at full brightness. The bulbs can take up to a minute to reach full glow.
• They're temperature-sensitive. If it gets much below 30 degrees, they won't start up very quickly. CFL bulbs also burn out quicker if they're in a hot environment such as inside a light fixture. If you put it in an enclosed fixture, maybe it will last 3,000, not 10,000
• One size does not fit all. The more light a CFL puts out, the bigger it must be. The CFL equivalent of a 60-watt bulb is tiny. The 120-watt equivalent is bigger and won't fit in many lamps and fixtures
• Many CFL bulbs don't work well with dimmer switches and three-way light fixtures. When used with a dimmer switch, CFL bulbs typically will dim to about 20% of their full intensity and then cut out. When used in a three-way light fixture, many CFL bulbs will pop, hiss and buzz.

The article doesn't refer to the environmental hazards of having a mercury-laden hot bulb break in your house. Or to the hassle of disposing of CFL bulbs.
I see this as a basic matter of choice. Currently, it's estimated that 10% of households have CFL bulbs. Congress is now mandating everybody to use these bulbs. It's not enough that they want to tell you what school to go to, what food to eat and what car to drive, now they tell you how to light up your house.