Interesting Facts
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Interesting Questions
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1. On September 7, 1787 the United States
Constitution gave the federal government the power to
extend credit to American consumers.
In 1938, Congress created the Federal National
Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac) in
1940. They were privatized in 1968. Today,
(September 17, 2008) taxpayers have injected 200
billion dollars into these “government sponsored”
private sector corporations to prevent them from
collapsing. The savings and loan crisis of the 1980s
was a 286 billion dollar (in today’s dollars) disaster.
Today, the entire private sector mortgage “industry”
with bankruptcies, bailouts, foreclosures and plunging
home values is another disaster.
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1. If the federal government always had the power
to loan debt free money to consumers for the
purchase of homes, why do we have an
unnecessarily expensive and unstable private
sector home mortgage “industry”?
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2. Executives and CEOs in the private sector home
mortgage “industry” are paid huge salaries, bonuses
and lush severance packages even when they are fired
(as was the case with Fannie Mae and Freddie Mac).
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2. Why doesn’t the government have an agency to
loan debt free United States Notes for the
purchase of homes? This system would be
completely stable and it would cost a small fraction
of present private sector financial disaster. Fannie
Mae and Freddie Mac are not government
agencies. They “government sponsored”
(whatever that means) private sector corporations
with stockholders. Their CEOs make multi-million
dollar salaries and executives are also highly paid
relative to government bureaucrats who could do
exactly the same job. This fact explodes the
preposterous myth that the private sector is always
more cost effective than the public sector.
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3. In order to avoid tying up their capital, private sector
mortgage lenders amortize their loans in a way that
requires the borrower to pay mostly interest in the
beginning of the repayment period. This means that if
a borrower is forced to sell the home in the beginning
of the repayment period, most of the money goes to
interest and very little is paid on the debt.
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3. Why don’t we have a government funded and
administered home mortgage system where the
debt is repaid immediately with a small charge
added to the monthly payment for the
administration of the system? The government is
not out to make a profit, thus, there is no need to
get a quick return on invested capital. Workers in
this agency would be paid according to the GS civil
service job schedule. Unlike the current private
sector system, nobody would get unjustifiably rich
and nobody would be unfairly exploited. If this
system had been in place since 1938 when Fannie
Mae was created, the current home mortgage
“industry” debacle would have never happened.
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4. One of the reasons for the current disastrous
mortgage meltdown is the private sector practice of
giving mortgages in amounts that the borrowers could
not repay.
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4. Why would lenders make loans that the
borrowers couldn’t repay? Was there no credit
check? Why do the conservatives blame the
borrower when they can’t repay their mortgage?
Why wasn’t the mortgage application rejected, as
would have been the case before the “industry”
was deregulated? The answer is given in fact
number 5.
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5. After John McCain’s financial advisor Phil Gramm s
deregulation, lack of government oversight permitted
Wall Street banks to bundle risky mortgages into
supposedly safe “mortgage backed securities” and sell
them to investors. The seller didn’t care if the borrower
could afford to repay the mortgage because the
investor assumed the risk. And more mortgages meant
more money for the lenders and the bundlers. This
was a guaranteed future disaster with brutal
consequences for the unwary borrower. Conservatives
sneer and blame the borrower for taking the mortgage.
Liberals and populists are outraged at the widespread
human suffering and economic disruption caused by
this deregulation of the mortgage “industry.”
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5. Who is responsible for letting this deregulation
happen? Why did rating agencies give AAA
ratings to “mortgage backed securities” that any
idiot knew would eventually become worthless.
Who had the bright idea to sell these “products”
around the world and infect the global financial
system with what has been called a “debt virus.”
Why should the taxpayers pick up the pieces of a
mess we didn’t create?
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6. Conservatives blame do-gooder liberals and
Democrats for the current mortgage meltdown. They
say liberals and Democrats, with government
regulations, “forced the mortgage companies to give
mortgages to low income people who didn’t deserve a
mortgage.” I guess the conservative’s point is that
trying to do good is a bad thing.
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6. Why would being “forced to give mortgages to
low income people” cause lenders to write
mortgages with balloon payments and rate resets
that they knew the borrowers couldn’t afford? Did
liberals and Democrats force lenders to require
prepayment penalties that trapped borrowers in
mortgages they couldn’t repay as home values
plummeted when the housing bubble burst? Why
was there a housing bubble? Who caused the
housing bubble? Where were the regulators?
What role did home appraisers play in inflating the
bubble? Why did many “experts” and analysts
deny there was a housing bubble until it burst?
Would proper regulation and oversight have
prevented the bubble and the disaster that
followed when it burst? Yes. If the idea was to
get low-income people to buy and own homes, why
weren’t they given lower fixed interest
rates?
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7. Somehow, because of “excesses in the housing
market”, the credit markets “froze up” causing a “credit
crunch” meaning the private sector banks, despite
“trillions of dollars sitting on the sidelines,” refused to
lend money into the economy. This credit crunch
threatens to cause a recession with widespread
business failures and layoffs. When it was assumed
that the federal government (taxpayers) would assume
the risk of the bad loans and use taxpayer money to
bail out failing banks, money suddenly flowed into the
stock market.
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7. Is it economic blackmail when credit markets
“freeze up” and only loan money into the economy
after a taxpayer bail out? Do some people make
enormous amounts of money when a credit crunch
causes the equity markets to plunge 6, 7, or 8
hundred points only to suddenly rebound 300
points when credit becomes available? Do the
people who make huge amounts of money from
this “market volatility” actually produce anything of
value? No. Since the efficiency of an economic
system is based on worker productivity per capita,
wouldn’t large numbers of non-productive people
taking huge amounts of money out of the
economic system make that system extremely
inefficient? The ratio of non-productive to
productive people in our economy has risen
dramatically since the “financial services sector”
became dominant. Will the enormous government,
business and personal debt, created by financial
services “industry,” ultimately destroy the
American economy?
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8. Ever since the presidency of Jimmy Carter,
politicians, pundits, economists, businessmen,
investors and conservative academics have been
telling us government regulation of business and
finance is bad. They said deregulation and free
markets are good for the economy.
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8. Does the current economic situation
(9-18-2008) and a 9.5 trillion dollar national debt
prove that all the cheer leading for deregulation
and free markets was nothing but irresponsible,
self-serving, selfish nonsense?
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9. John McCain and his economic advisor Phil Gramm
were the leaders and strong supporters of the
deregulation, free market movement in Congress. Now
McCain denounces the Wall Street misbehavior and the
resultant economic problems for which he and the other
deregulators are largely responsible. He now calls for
reregulation.
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9. Is John McCain’s newfound enthusiasm for
regulation dishonest and hypocritical? Can we
really believe he will be a regulator if he is elected
president?
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10. A prominent conservative Republican politician, a
very aggressive deregulator, said the subprime
meltdown happened because “mortgages were given
out like candy.” He had no further comment on the
matter.
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10. Does “giving mortgages out like candy,” mean
a failure of regulatory oversight? Did the
originators, bundlers, appraisers, speculators and
rating agencies, acting together, make huge
amounts of money because they were “giving
mortgages out like candy?”
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11. Conservatives say regulation kills jobs and cutting
regulation produces economic growth and a sound
economy. We have been deregulating since the 1970s.
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11. If we have been cutting regulations since the
1970s, why are we having all these economic
problems? Many politicians, including the
president, now admit that we are having “tough
economic times.” Why don’t they give us a precise
and complete explanation of why we are having
tough economic times? This is part of their job.
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12. Investors and businessmen threaten to move jobs
overseas to slave wage “developing countries”
because they don’t like America’s regulatory structure.
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12. When businessmen and investors threaten to
move jobs to slave wage “developing countries”
when they demand deregulation and don’t get
their way, is this economic blackmail? Are
American workers powerless in the face of these
threats?
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13. A famous and popular American president said:
“The government can’t create jobs.”
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13. Is it true that “the government can’t create
jobs”? No. In fact, the Naval Aircraft Factory did
aeronautical research and produced airplanes for
the U.S. Navy from 1917 until the closing stages of
World War II. In addition to this, thousands of
contracts are put out to the private sector for many
different kinds of work including private security
work in Iraq. George W. Bush created many
private and public sector jobs when he sent our
military to invade Iraq.
Using debt free U.S. Notes, the federal
government could legally start up and operate
virtually any type of business. These businesses
could handily compete with the private sector and
put the profits into the treasury and/or use the
money to pay down the national debt and/or put
the money into the social security and Medicare
“trust funds.” The profits could even be used to
provide universal health care for American
workers.
Can the government create jobs? Yes.
Absolutely.
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14. Our current home mortgage system is ridiculously
and stupidly complex. Banks don’t make loans, they
originate loans, and then, for some unknown reason,
they sell them. Fannie Mae, Freddie Mac, and banks
borrow money so they can buy these loans. Then they
put them in bundles (“securitize” them) and sell them to
investors who feed off the interest. Greedy banks
(originators), in order to maximize profits, sold
mortgages to people who couldn’t afford to repay
them. These risky loans were then “bundled” and sold
to investors around the world who assumed the risk.
When borrowers defaulted, the securities become
worthless.
Now the banks won’t loan money to Fannie or Freddie
or anybody else. This is just like 1931 when the banks
caused the Great Depression.
Now, we are told, this “credit crunch” will destroy the
entire global financial system if we don’t give the banks
700 billion tax dollars. Meanwhile, the banks are sitting
on trillions of dollars of cash that they won’t lend! This
is a shakedown pure and simple. Somehow, the fact
that this is extortion of the American taxpayer has
managed to escape the notice of the politicians, and
the “experts” in the media. They tell us “this is just like
1931 (true) and we have no choice but to cough up the
cash” (not true).
The private sector mortgage system is designed to
make a few people at the top unjustifiably, very rich and
to extract the maximum amount of money from the
borrower. The business model for the entire mortgage
“industry” is: maximum debt equals maximum profits.
But, homebuyers can service only a finite amount of
debt. Greedy lenders and investors pushed the system
to the breaking point. Beyond that point is the
mortgage market meltdown and the credit crunch that
we taxpayers are told we have to clean up with our 700
billion dollars. (9-22-08).
This current crisis and the resultant taxpayer rip-off is
the reason why loaning money for interest (usury)
is condemned in both the Old and New
Testaments of the Bible.
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14. Compared to a totally government-
administered mortgage finance system, the current
private sector system is an exercise in stupidity
and avarice. The government is not out to make a
profit, thus, there is no need for a quick return on
invested capital. With a government-administered
system, funded with United States Notes, the
mortgage debt would be repaid immediately in
equal monthly payments with a small charge
added for the administration of the system.
Workers in this agency would be paid according to
the GS civil service job schedule. Unlike the
current private sector system, nobody would get
unjustifiably rich and nobody would be unfairly
exploited. If this system had been in place since
1938 when Fannie Mae was created, the current
home mortgage “industry” debacle would have
never happened and homebuyers would have
been saved billions or possibly trillions of dollars of
interest.
Why have our politicians never informed the
American people that this system could have and
should have been in place since 1938?
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