It Is, Now, Time To Stop Digging

Harry Tru­man told an inter­viewer, Merle, Miller, recounted by him in his book Plain Speak­ing, that “When they start talk­ing about ‘the peepul this’ and ‘the peepul that,’ well, hang on to your wallet!”

I think that warn­ing also applies to any time Bar­ney Frank and Max­ine Waters become stri­dent in their defense of any pol­icy hav­ing to do with mort­gages, hous­ing, or bailouts from the U.S. Treasury.

The New York Times is report­ing that now the F.H.A., the Fed­eral Hous­ing Author­ity, is in dan­ger of fail­ing and may require a tax­payer bailout.

What does the com­edy team of Frank and Waters have to say about that? The New York Times reports:

Bar­ney Frank, the Mass­a­chu­setts Demo­c­rat who is chair­man of the House Finan­cial Ser­vices Com­mit­tee, said in an inter­view that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a pol­icy.”

“F.H.A. has stepped into the void left by the pri­vate mar­ket,” Rep­re­sen­ta­tive Max­ine Waters, Demo­c­rat from Cal­i­for­nia, said at the hear­ing. “Let’s be clear; with­out F.H.A., there would be no mort­gage mar­ket right now.”

That’s what they say. What does the Inspec­tor Gen­eral of the Depart­ment of Hous­ing and Urban Devel­op­ment have to say about it?

The New York Times reports:  As the num­ber of loans has soared, ran­dom qual­ity con­trol checks have decreased sharply, F.H.A. staff mem­bers say. Mr. Dono­hue, the inspec­tor gen­eral, cited numer­ous exam­ples of orga­nized fraud in tes­ti­mony to Con­gress ear­lier this year.

“They need to stop tak­ing bad loans in the door,” he said in an inter­view. “They’re tak­ing on all this vol­ume, they have to have very active under­writ­ing stan­dards.”

We had a hous­ing bub­ble and the hous­ing mar­ket in gen­eral grew to be over­priced. Every­body involved was print­ing money. The real­tors, the home buy­ers, the mort­gage writ­ers, like Coun­try­wide, the peo­ple at Fan­nie and Fred­die and Coun­try­wide who bought, pack­aged, and sold secu­ri­ties backed by the shaky mort­gages which prob­a­bly weren’t going to get paid, the rat­ing agency that rated them AAA, the traders who sold those “secu­ri­ties,” the peo­ple who sold credit default swaps to insure those secu­ri­ties, and the leg­is­la­tors get­ting large cam­paign con­tri­bu­tions from Chase, City, Coun­try­wide, AIG, Fan­nie, Fred­die, and the rest of the whole pan­theon of fast buck artists which was sell­ing what turned out to be a vaporous mist which van­ished at the first small puff of wind.

I bought a lit­tle shot­gun dou­ble in New Orleans in 1996 for $32K. In 2005 I got a let­ter from my insur­ance agent telling me I should upgrade my cov­er­age since my house was by then worth around $140K. I didn’t do it because I KNEW that was wrong. From 32 to 140 in 9 years? Come on. I knew that was a blip and couldn’t last (the fact that I should have done it, con­sid­er­ing what – Kat­rina — was com­ing but that doesn’t change the fact that I knew that was non­sense. If I knew it why didn’t the peo­ple whose busi­ness it was to know it?

They did know it, but they were all mak­ing so much money so fast that they pre­tended they didn’t. And what hap­pened when the bub­ble burst? Did the bankers, traders, pack­agers, and mar­keters who were deal­ing in mist give the money back? Nope. The United States gov­ern­ment bor­rowed it.

And now, before they dig out from the last binge, what’s on their agenda?

They want to do it again.

We’re in a hole. Isn’t it time we stopped dig­ging? The entire Times story is HERE. What The World Eco­nomic Forum thinks of our cur­rent finan­cial pic­ture is HERE.