Bailout: Let's Not Forget How We Got Into This Mess

Congress has a convenient way of twisting the truth about how this country got into the mortgage mess.

Those who cannot remember the past are condemned to repeat it.

As the 1999 New York Times article, Fannie Mae Eases Credit To Aid Mortgage Lending, notes, this entire situation started as far back as 1999. Here are a couple of excerpts from the article:

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 (emphasis added).

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 (emphasis added). 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 (emphasis added) and felt pressure from stock holders to maintain its phenomenal growth in profits....

Extending easy credit to those that can't pay will continue to lead to further stress.

In short, I am not certain the bailout package from Congress addresses the issue occurring in the money markets. Maybe on a short term basis, but likely not a long term fix. Broadening FDIC insurance is a good step as well as temporarily altering the mark-to-market FAS 157 accounting rule. The unfortunate aspect of this entire situation is our Congressional representatives do not seem to grasp what are the real structural problems. One only needs to look at the amount of "pork" amendments added to this bailout bill.

The markets and our economy are resilient and will get through this. One thing is certain though, incredible investment opportunities are being presented to investors.

Source:

Fannie Mae Eases Credit To Aid Mortgage Lending By: Steven A. Holmes, The New York Times, September 30, 1999

Comments

[i8myfinanci...:]

Love this article! The truth is finally coming out, and I wish it were more widespread. The people of this country have the right to know, but few are willing to do the research to find out. The fact is America has a bad habit of buying things we cannot afford. This shows the eventually downfall in that kind of financial irresponsibility. I could not have said it better myself. I think it is time for all Americans to reevaluate certain ideas about the American dream, and for God's sake, try to get it right this time! It is a shame our leaders allowed this to happen in the first place. There was a reason these people could't get a loan! When you can't afford it, you shouldn't buy it. Government officials are supposed to protect the people, not make a way for them to destroy themselves. I think the government just made a bigger mess for the people to clean up. The bailout isn't so much for the people who bought homes they couldn't afford, it's more bailing the government out of a very bad mistake. I think they should pay for what they have done here! I will be voting this year based on who voted nay on this bailout bill. I hope enough other folks get the message and vote likewise. The whole thing reeks of politics and pandering! I agree with Obama on one thing, and one thing ONLY, it is indeed time for change.

2008 Oct 02 01:50 PM