The housing debacle began when mortgages for the poor were mandated by Congress. The Democrats were the major force behind expanding mortgages for those who could not afford them.
Fannie Mae and Freddie Mac, now called Fraudie Mae and Fonie Mac, are bankrupt because these government sponsored corporations guaranteed sub-prime mortgages, more or less.
These stinko mortgages were made to look good by packaging them as securities, so they were sold all over the world. Like cocaine dealers, the financial managers got high on their own supply, keeping a lot of the CMOs (mortgage securities) and generating that much more in fees.
Worst of all, insurance or swaps were sold to back these stinko mortgages turned into stinko securities. The more the institution lied about the swaps, the more fees and bonuses they invented. Earned is not quite a precise term for this fraud. They gave themselves billions in bonuses for defrauding everyone.
Where did these fraudulent mortgages originate? Among illegals. They got to live in homes for a year or so before being thrown out by the banks. It was the pressure from below that fueled the high home prices. Once the bubble burst, everyone had debt without equity. Mrs. Ichabod and I looked at a foreclosed home (double the size of our hut) now offered for less our home's price a short time ago. We stayed for an hour, chatting with those poor lonely salesmen. No one came in to look. I said, "Prices will go down for another year." You heard it here - financial forecasting done for free. The reason? Mortgage resets will continue through 2009. Foreclosures and other pressures will drive down prices.
Let us recap:
1. Fraudulent loans to illegals and other poor credit risks. NINJA loans - No Income, No Job - Accepted.
2. Government backed agencies buying up the loans.
3. Securities invented to make the mortgages look good. CMOs.
4. Swaps invented to insure these fraudulent mortgages turned into fraudulent securities.
5. Each stage actually leveraged and made worse the poor decisions made at the mortgage approval level. Each stage made it easier to give a mortgage to anyone, including people with criminal records. Each stage awarded bonuses to the most crooked.
