Busted: Bankers and The Global Economy

July 9, 2008

Securitized Loans and Economic Whiplash

U.S. citizens have known for years that the U.S. government is involved directly in home loans. This is done chiefly through Freddie Mac and Fannie Mae. What may have been assumed is that the government is simply involved in old-fashioned business of old-fashioned home loans, while profiting from making ordinary interest on those loans.

These “for profit agencies” were set up by the federal government with a special role. They buy large pools of mortgage loans made by banks and other lenders, attach a guarantee that the loans will be repaid and then sell securities backed by the future payments on those mortgages. The federal government of the United States supports, backs and profits from sell securities back by mortgages that these agencies purchase.

Bankers are not alone in having destroyed the economy along with adversely affecting the global economy. This is part and parcel of why the U.S. government and the quasi-governmental Federal Reserve have refused to speak against securitized loans. They are playing the same game as commercial bankers while profiting directly from the same kind of securities that bankers have used in promoting the subprime and alt-a loan market.

“The housing market can not recover unless Fannie and Freddie are out there actively securitizing home mortgages.” That is the view of professional mortgage advocates in the marketplace and the words of Jaret Seiberg, financial services analyst for the Stanford Group, a U.S. research firm.

The U.S. government isn’t in the old-fashioned mortgage business at all. Just like you can buy U.S. Treasury Bonds, you can buy U.S. backed mortgage securities. Contrary to what American citizens have been led to believe, bankers feel that the only way that a large enough profit can be generated is through the sale of loan securities. The system and banker types are addicted to them.

The agencies have had trouble operating under the old rules of order. Because of new accounting rules, it is suspected that Fannie and Freddie will need to raise more capital to stay in operation. They anticipate suffering more losses in the future and capital is one cushion against those losses. What losses? Bad loans, internal graft and incompetence are the cause of Fannie and Freddie losses. The history of these agencies is clear to see.

Both agencies have reportedly lost 60% of their value in the market. This puts them in a really tight spot. The resulting fear and excuse is that banks will have their primary source of funding for making home loans choked off. How about doing business the old way before the government involved themselves?

The theory of fear dictates that any lack in these agencies would severely restrict the pool of potential home buyers, causing home price declines to accelerate from the record drop seen in the last year. That would make it tougher for the economy to rebound anytime soon, once again emphasizing the hinge of the American economy is placed on rising home prices and the possibility of creating new loans in the banking system.

The real tragedy is that professionals and politicians are convinced that profiting through the use of the fractional reserve, in essence, creating money out of thin air, while collecting interest worth several times times the cost of a house is not enough to make them profitable. Bull cookies. Lending authorities have a simple problem with expectations. What is worse is that taxpayers are on the hook.



  1. The crisis has its roots in the U.S. housing boom that began early in the decade right after the dot-com meltdown. Low interest rates allowed home buyers to take out larger loans, giving them money to bid up home prices and ultimately buy “more home” than they could truly afford. You can get more information about home buyers which I browsed on internet can fetch you help.

    Comment by homebuyers121 — July 9, 2008 @ 10:53 am

  2. Thanks, I needed to hear the truth !

    Comment by kadadygah — August 2, 2008 @ 7:43 pm

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