Smoking Gun: FannieMae Knew Exactly What it Was Doing

So, it's one thing to think that our country's major financial institutions pursued flawed lending strategies because they did not understand the risks.  It's another if they pursued those strategies knowing that they were increasing the risk profiles to unacceptable levels.  That would be criminal, right?

Wait until you read this PowerPoint presentation.  I've seen something like this for a long time as it's your standard executive board briefing on the state of a business.  And this one is actually very well done.  And that is exactly the problem.  The executives at FannieMae knew what they were doing and did it anyway.

Is anyone listening?  Has our governmental and regulatory system gone insane?  Are we becoming a puppet third-world society?  Unfortunately, the evidence is adding up to one answer:  Yes, yes and yes.

Here's the presentation.

"Fog a mirror, get a loan..." CalculatedRisk Nails It

CalculatedRisk nails the issue of why the current Treasury programs and proposals are designed to fail when it comes to the real estate market.  TARP, TALF, 4.5%, etc... they won't have the impact on the RE market that everyone is hoping for (Hope is not a strategy!).  Why?  Credit is not the issue.  Lending standards are.  Deleveraging is not occuring because of the rate levels.  It is occuring because we are withdrawing from an era of excessively loose lending without regard to repayment ability.

My favorite passage:

One of the tragedies of the housing bubble was that some people were enticed to buy a home before they were really ready to be homeowners, and others to extend themselves too far. Many of these people are now soured on the wonders of homeownership, and they will not be buyers for an extended period of time.

Amen, brother!  Interesting read here.

If investors started this, why are we bailing them out?

From a great NYT article: "“Investors said, ‘I don’t want to be in equities anymore and I’m not getting any return in my bond positions,’ ” said William T. Winters, co-chief executive of JPMorgan’s investment bank and a colleague of Ms. Masters on the team that invented the first synthetic. “Two things happened. They took more and more leverage, and they reached for riskier asset classes. Give me yield, give me leverage, give me return."

Why are we bailing these guys out again?

Excellent overview of how the risk models failed us from former LTCM counsel.

This is the best explanation of why the risk modeling on Wall Street is inadequate for the job and is a great way to understand why this crisis is escalating. I am still waiting for a cogent article that outlines that even if the regulators and internal risk management teams had adequate models, they probably still would've been thwarted from managing the risk because of typical corporate politics. Everyone who has worked at a large corporate knows that the revenue producing side of the business wields the greatest power when it comes to arguments about managing risk at the margins. It's clear that internal risk management teams were ineffectual in trying to stop the credit structuring teams when they were pulling in abnormal amounts of revenue.

Mike Masnick is a genious: best review of the market crisis yet.

Mike Masnick the prolifically talented founder and contributor over at Tech Dirt, nails it. He has a long post that reviews many of the moving parts involved with the subprime crisis up to today's market blow out.
Read it and understand why we are living in a complex world that requires complex analysis to achieve correct answers. And then thank Mike for taking the time to help unwind the knotted cord.

This is disgusting. FRE & FNM's gov't control

Amazingly sad article in the Washington Post that demonstrates just how ineffectual our government has become. I fear that our society has deteriorated to the point of no return. Has the U.S. become Italy?

Subprime bottom?: ``There's an extreme bidding war right now.''

Interesting article from Bloomberg today talking about how the bottom-feeders are...uh...feeding now. The prices are horrible, but people are starting to talk about how they can buy a house that will repay itself in 10 years.

The Single Most Important Post About the Housing Crisis

There is a good reason that newspapers are, and will continue to lose out to blogs in terms of viewership. Generally the quality of blogs is low, but I just read a post that may be the single most important piece of reading to truly understand why the subprime mess has exploded into a national crisis. The post comes from Bill Burnham's blog "Burnham's Beat", a source I usually read to get the latest on happenings in the world of venture capitalists.
But in a turn that demonstrates why blogs are destined to be a superior information source, Bill apparently did some consulting work for Fannie Mae back in the day. His inside look into the machinations and, more importantly, motivations that drove the Fannie Mae executives and their business model is fascinating. This is inside baseball and this is definitely not stuff you get from the media (okay, maybe sometimes from Gretchen Morgensen at NYT).
I think his post unearths the prime mover of the subprime fiasco.
It's a difficult technical read, but I think it's important if you really want to understand what got the stone rolling downhill for our real estate market. Critical thinkers should enjoy it.
Thanks Bill!