and Jim Johnson, and the enabling politicians and policy clowns including but not limited to Senator Dodd, Bill and Hillary Clinton, Barack Obama, Congressman Barney Frank, and Treasury Secretary Robert Rubin, that used Fannie and Fred to support pet causes and make contributions to Democrat candidates. Oops, both Raines and Johnson are on Obama’s economic advisory team. Please explain to me why these guys are not in jail in the cell next to Ken Lay! See more gory detail at Investor’s Business Daily, that shows this mess is the making of Democrat politicians and their failed policy.
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Poltergeist as Model of Mortgage Meltdown
Recent Hidden Gems recounts mortgage meltdobnw as real life example of movie Poltergeist…
The extremely short version of the story is that people who absolutely knew better sold mortgages to homebuyers who may or may not have understood (some did, some didn’t) that they weren’t ever going to be able to pay back the money. The mortgages were re-packaged in complex ways and sold as investment vehicles. Of course, according to all the models, which were based on the historic rates of borrowers repaying their mortgages, the financial instruments created should have worked out just fine. As it turns out, the history of loan repayments in this country was a completely inappropriate template for these models. That history was based on mortgages provided when far higher standards were employed to determine the creditworthiness of the borrowers. In 2004 and 2005, loans were being made to hundreds of thousands of people who simply never would have qualified for a mortgage ever before. Logic would have been a far better guide than the history of a different caliber of borrower, of course, but there was way too much greed going around for anybody to check in with logic by 2005.
I tell this story poorly. “The Giant Pool of Money” tells it in riveting fashion.
Ultimately, the mortgage-backed instruments were buried in Wall Street’s balance sheets and laid there for a few years. Which brings us back to Poltergeist. [Spoiler alert.] The answer to Dana’s question was that the ghosts had re-awakened because the greedy developer had built suburbia right on top of their graves. So, too, have the ghosts of those mortgage-backed securities, buried under the thin layer of dirt that is a fabricated balance sheet, now re-awakened to take revenge on their creators. And they are bringing down all of the houses of Wall Street as well.
I won’t torture the metaphor any further, except to say this. Although there’s a lot of apparent carnage at the moment, the only entities that will be destroyed are those Wall Street firms and banks most closely associated with the mortgages. The rest of America’s companies — and the ones we like to invest in here at Hidden Gems — are going to survive, just as the innocent family in Poltergeist walked away.