HOW DID THE HOUSING CRISIS DEVELOP?

July 3, 2009

How did the housing crisis develop and who was responsible? It's basically pretty simple and the reason is all too obvious. Too often, reporters get so bogged down in their own attempt to explain a particular situation that they bore their readers. We're going to give to the "bullet points", some of the major names of those involved, plus links for you to do your own research if you don't believe what you're about to read. We also recommend that you watch CNBC's special "House of Cards" the next time it plays in your area or on demand at Hulu.com.

Some of the major names you need to blame are:

Members of Congress Barney Frank, Maxine Waters, Nancy Pelosi, Chris Dodd.

Other Federal government players: Fed Chairman Ben Bernanke; Christopher Cox Chairman of the SEC and SEC regulators.

Main Players: Fredrick Rains of Freddie Mac; Angelo Mozilo former CEO of Countrywide Mortgage; investment banks/bankers and hedge funds who conspired to create an investment vehicle known as Collateralized Debt Obligations (CDO) made up of "TOXIC" sub-prime mortgages packaged and fraudulently rated AAA by underwriters; AIG.

Reason: GREED! Plain and simple greed! The accumulation of obscene amounts of money as "salary, bonus, stock options" that were thrown at the top players in this "game".

This is what happened. The Congressional players mentioned earlier wanted to expand their voter base. They correctly figured that if they could play to the disenfranchised, a huge and previously ambivalent and non-voting portion of our population, they could add tremendous numbers to their constituency.

Now, how to get this group onboard? Answer: Let's make sure they can "live the American dream" by becoming homeowners. We'll make it next to impossible for anyone to be turned down for a mortgage. We'll even let people with no documented income qualify.

Now, we need to get others to buy into the scheme. That's where Freddie Mac and Fredrick Rains enters the picture. Promise him big bonuses for buying up these toxic mortgages and one major player is on the team. Now, get the word out to mortgage brokers, investment bankers and let them "play around" with this worthless paper to make it look like an investment opportunity.

The investment boys/girls came up with the CDO idea for marketing these toxic "assets". These CDOs were sold to pentions, mutual funds, etc. and they were off - making huge amounts of money for themselves in the process.

Now, to make sure they didn't feel the sting when things turned bad (and they knew they would). They bought insurance from AIG to insure that they would be paid when things eventually went in the toilet.

Now, most homeowner's have lost most if not all of the equity they had built over years of faithfully paying their monthly mortgage payment. The bankers and investment bunch have collected 10's of millions of dollars in "bonuses", which basically bankrupted many of their companies. Many of their firms have now been rescued by the Federal government at taxpayer's expense and taxpayers have also rescued AIG, who had to pay off on the insurance policies when the CDOs became worthless.

When are government officials going to actually help out homeowners? Never, unless, homeowners demand that this issue be seriously addressed. Will Congress and the President listen? Probably not until their hand if forced. The Federal and State governments are in desperate need of funds. They intend to find it anywhere they can.

Support for the nonsense going on in Washington and in many State Capitals (attention California) has to stop. They cannot continue to spend and ignore the underlying issue if citizens don't fund their folly. Elected officials who don't get the message soon will find themselves outside the club after the next chance voters have to throw the bums out!

A mere fraction of the "stimlus package" devoted to housing could have arrested the housing meltdown and quickly turned the economy around. Now, we've paid off all the cronies and insiders, own automobile companies, insurance companies and things are NOT getting better.

Mr. President and members of Congress, please require all holders of mortgages to immediately do the following:

• Decrease the principal to realistically reflect current market prices;
• Allow homeowners to enter into fixed-rate mortgages, regardless of balance owed, with a monthly payment not to exceed 25% of the family's net income, including property taxes and insurance.

Want more specifics? Check the links below:

How CDOs are to blame:
http://marketplace.publicradio.org/display/web/2008/10/03/cdo/

Angelo Mozilo
http://www.sec.gov/news/press/2009/2009-129.htm

http://www.nytimes.com/2009/06/05/business/05insider.html

Franklin Raines and Freddie Mac
http://seattletimes.nwsource.com/html/businesstechnology/2004358433_webraines18.html (Raines)