- All politicians lie, at all levels, from both parties (and the Independents and "secondary" parties). To wit (and I could go much further back in history, and deeper down the level of elected official, but this will at least get you started):
- "This is the biggest tax cut in our nation's history."
- "You can keep your health care plan and your doctor."
- "I did not have sexual relations with that woman."
- "Read my lips: no new taxes."
- All Presidents blame their predecessor for everything that goes wrong during their administration, and they've begun taking credit for everything that goes right under the subsequent administration. There are some kernels of truth in that, but most of it is BS, and it's self-serving at best.
- If the Democrats win control of the House, the Senate, or both, the world as we know it will not end. Nor will it end if they don't. You'll still have your family, your home, your health and your puppies. (Or kitties, if you're a cat person - and if you are, I love you anyway.)
- Increasingly, each party, once it regains control of the House, the Senate, the White House, or any combination thereof, spends most of its political capital trying to undo whatever the previous House, Senate or Administration did. (Some of this is okay in terms of bad policies, but much of it has become about nothing more than undoing the previous legacy, like little kids who win at a playground game suddenly deciding to re-write the rules because, hey, they won.) And they do it because we not only let them, we encourage them. It's time to move forward, and to break the cycle of doing and undoing the same old stuff.
- Journalism is dead. All media reporting is biased. We choose our outlets to affirm us, not to inform us. If you want the truth, research relentlessly, fact-check suspiciously, and go to source documents when they're available. Take time to read them fully. Do it with an open mind. Check your bias at the door. Be willing to have your mind changed.
- Nazis are Nazis, Hitler was Hitler, the Mafia is the Mafia, fascists are fascists. Just because you're a member of one party or the other doesn't necessarily mean you fall into one of those groups. Similarly, the overwhelming majority of Republicans are not racist, sexist, anti-Semitic, or evil, but a small number undoubtedly are. At the same time, a small number of Democrats undoubtedly are racist, sexist, anti-Semitic or evil, though the overwhelming majority of Democrats are not. If you claim otherwise, you're painting with too broad a brush.
- Everyone should vote their conscience, and if they do, there is no wrong in the way they vote. So don't try to claim that if someone votes for candidates you oppose that those voters are wrong, bad, evil, Nazis, racist, sexist, anti-Semitic, fascist, or that they should be ashamed of themselves, or shouldn't be able to live with themselves, or sleep at night. Bash all the candidates you want, but if you value your right to vote, respect everyone else's. Be glad they exercised their hard-fought right to vote in the first place, and don't denounce them because they don't see the world as you see it. Our brothers, sisters, mothers, fathers, grandparents and ancestors didn't fight on the battlefield or in the suffrage or civil rights movements to earn us the right to vote Democrat or Republican; they fought to secure us the right to vote as we choose. Group-think only exists within Communism, and even then it's not voluntary. So embrace our differences and understand that what unites us is far greater than what divides us.
- Social media has gotten way out of hand. So pledge to avoid the memes (I'm tempted to embark on a mission to correct every misinformed or just plain false meme I see on social media, but I won't; I don't want to alienate my friends, and I don't have that much free time), the extreme, over-the-top name-calling (see the sixth bullet point above), and the extreme rhetoric. Stick to the facts. Keep calm. Self-medicate if you need to. Remember that it's better to remain silent and be thought a fool, than to open one's mouth (or keyboard) and remove all doubt, and that we rarely regret what we didn't say.
- Political rhetoric has gotten out of hand as well. Don't let that justify stooping to the level of a Donald Trump or a Maxine Waters. What-aboutism is a dangerous disease, and if you don't innoculate yourself against it, you risk atrophy of the soul.
- As a friend once said, no one is as bad as you think they are, and no one is as good as you think they are.
- At the end of the day, Democrat or Republican, liberal or conservative, white or black, male or female, gay or straight, young or old, Christian, Jew, Muslim or atheist, we are all Americans. It's high time we started acting like it again.
Monday, November 5, 2018
I Hold These Truths To Be Self-Evident (But Many Apparently Don't)
I'm writing this on election eve, 2018. As you head to the polls tomorrow (or, if you voted early, as you watch the election coverage on TV and follow the myriad social media rants about it), remember these truths:
Thursday, November 1, 2018
My Biggest Mid-Term Nightmare
With less than a week to the 2018 mid-term elections, there's a lot to talk about. The 24/7 cable news cycle is moving fast these days, and it's hard for a busy Curmudgeon to keep up. There's a lot to be said, but I want to cut to the chase and address the most frightening scenario from the mid-terms, at least to me.
No, this election isn't about immigration, illegal or otherwise. It isn't about the 14th Amendment, the First Amendment, the Second Amendment, the Supreme Court, legal abortion, Socialism, the media, rhetoric, protests, or even the current state of the economy, at least not to me.
It's about what happens if we wind up with a Democrat majority in the House, the Senate, or both.
Don't get me wrong; the prospect of that in and of itself does not frighten me. See, I've lived through Democrat majorities in both houses of Congress, Democrats in the White House, and a liberal majority on the Supreme Court. I've lived through elections where the people I voted for lost.
And, you know what? I never cried the next day. I never even got angry. I never believed that life as we know it would end. Heck, I never even worried that our Republic as we know it would end.
No, I just said, "Oh well," hoped for the best, prepared to be disappointed in this policy decision or that, and worked to jump over whatever hurdle was placed in front of me: high taxes, excessive regulations, rapidly rising health care premiums, whatever.
(The same can probably be said for most Republican voters - I've never seen huge marches and protests and general outrage after Democrats took control of the House, the Senate or the White House. I guess that's another distinction between the two parties today. Republicans accept the outcome of the election and move on.)
The worst thing to me isn't the fact that Washington would basically get nothing done for the next two years; we've seen that before. I understand why that's a good thing to Dems: they don't want any aspect of Trump's agenda, be it immigration reform, health care reform, spending cuts, or further tax cuts, to succeed. That's okay, there's still the veto.
The most frightening thing to me isn't Sen. Schumer or Rep. Pelosi having the gavel they so covet. (Actually, Rep. Pelosi, who seems to wax near-orgasmic when talking about the gavel, may not get it even if the Dems win the House. And Schumer spends as much time in front of the camera now as he would if he were Majority Leader. Let's face it, the only thing he loves more than the gavel is the microphone.)
It's not Feinstein as Judiciary Committee Chair. The only Justice likely to leave the bench in the next couple of years is RBG, and I don't think Feinstein could find a more liberal judge to replace her. Besides, the appointment wouldn't be Feinstein's to make. The worst she could do is engineer another hijacking of an appointment.
(A quick aside about Feinstein: even if we accept the premise that she didn't leak Dr. Ford's letter, she at a minimum failed to safeguard it. I work in the area of risk management for credit unions, and their biggest concern these days is cyber-risk, of ensuring the security of their members' data. If my credit union gives my data to a fraudster, it is liable. However, if it doesn't adequately safeguard my data and a hacker gets his hands on it, guess what? The credit union is still liable. Failing to safeguard confidential information is nearly as bad as deliberately releasing it, and makes one no less culpable.)
No, it's Maxine "you're not welcome anywhere, anymore" Waters. But not because she advocates public harassment of anyone you disagree with. Not because she calls for impeachment as frequently as a chain smoker coughs.
It's because she'd be Chair of the House Financial Services Committee.
Why is that my biggest fear, you ask? Well, I'm a finance guy, and I know the importance to the overall health of the economy of the financial sector, and the importance to the country of a healthy economy.
The current chair, Rep. Jeb Hensarling, has an economics degree and has run businesses in the financial sector. Rep. Waters has a sociology degree and, since earning it, has been in politics. She's never worked in the financial sector. (Prior to earning her degree, she was a garment worker, a telephone operator and a teacher - all noble professions, but perhaps not adequate preparation for governing our financial sector.)
The biggest issue is her role in creating the housing crisis that led to the most severe economic downturn in most of our lifetimes, one that put millions out of work, caused thousands to lose their homes, and cost workers and retirees untold sums from their retirement savings.
So sit back, grab a drink, and let the Curmudgeon take you on a history of the true genesis of the housing crisis. (Take a break here, if you need to, and don't keep reading if you just want to take my assertions at face value. But if you want to really understand the housing crisis, read on. This is the Curmudgeon's area of expertise.)
*************************
In the olden days, before I was even a Curmudgeon, lenders kept all the mortgage loans they made on their books. Then, in the 1960s, they began packaging and selling them as mortgage-backed securities (MBS). In the 1980s, investment banks began slicing and dicing the cash flows from mortgages into bonds with different characteristics intended for investors with different needs, and those bonds were called collateralized mortgage obligations (CMOs). I won't burden you with the complexities of these bonds, but I spent most of my career intimately involved in analyzing, buying and selling, managing, and hedging MBS and CMOs. I know the difference between a sticky jump-Z, a residual, and a busted PAC. I've built mortgage prepayment models. I get this stuff.
Initially, virtually all MBS and CMOs were issued by the Government National Mortgage Association (GNMA, or Ginnie Mae), a government agency backed by the full faith and credit of the U.S. government, which only bought and packaged FHA and VA mortgages; the Federal National Mortgage Association (FNMA, or Fannie Mae), a quasi-agency backed by the implied full faith and credit of the government, which bought "conventional" mortgages; and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac), another quasi-agency backed by the implied full faith and credit of the government and which also bought "conventional" mortgages.
What's important about this?
Ginnie, Fannie and Freddie also had minimum capital requirements as a further backstop against losses.
Now, in the aftermath of the dot-com recession of 2000-01, Fed Chairman Alan Greenspan's Fed cut short-term interest rates to 1%, a previously unheard of level. That made mortgages very cheap - as low as 5-6%, which sounds high today but was unheard of until 2002. And the Greenspan Fed held rates at 1% longer than they should have. (For those of you lamenting that the Fed today is raising rates too fast, pay attention, and be careful what you wish for. Rates held artificially low for too long inflate bubbles.)
What resulted was a housing bubble of mammoth proportions. But it wasn't just cheap mortgages that were the problem. No, it was exacerbated by a handful of Democrat legislators who decided to erode the safety of the traditional, conventional mortgage, and put taxpayers at risk by loosening the standards for what kind of mortgages Fannie and Freddie could buy, all in the name of a social engineering experiment that attempted to alter the course of an immutable economic measure.
That measure is the homeownership rate. Throughout the 1980s and early 1990s, it remained range-bound at around 64%. Why not higher? Some people can't afford to buy a home, for example those just starting their careers. Some people shouldn't be homeowners - they don't have the financial wherewithal to make a mortgage payment and pay for the upkeep and insurance on a home.
This data series is naturally mean-reverting, meaning that there will always be about 35% of the population that can't afford a home, and shouldn't be trying to until they have the means. (That may sound heartless, but losing a home because you couldn't afford it in the first place is hardest on the homeowner, who loses their place of residence and suffers a major hit to their credit rating.) If you do something to artificially increase a mean-reverting series above its mean, there's going to be an inevitable and painful correction. Supply and demand rule. (Proof: after the correction that resulted from the housing crash, guess what the homeownership rate is today? About 64%.)
Beginning in 1995, the homeownership rate began to rise. This resulted from the Greenspan Fed cutting short-term rates to 3% in the wake of the 1990-91 recession, and again holding them there too long, which made mortgages historically cheap at that time. But then, in the early 2000s, Congress got involved, and made matters worse in the name of increasing homeownership.
First, they allowed mortgage lenders to dramatically relax their lending standards. They were able to make loans with no down payment, or even for more than the purchase price of the home. They didn't have to require proof of income or assets. They didn't have to meet total debt-to-income ratios. They didn't have to require PMI.
In other words, lenders were allowed to make loans for more than the value of the house, to people who didn't have the income to make the payments, who had no other assets, who had huge amounts of credit card and auto loan debt, and who didn't pay for PMI. They did this by structuring loans such that the borrower only paid interest for the first few years, then interest and principal payments would kick in. Or loans where the borrower paid no interest initially, then a rate of interest above the market rate kicked in. In both cases, those borrowers often found themselves unable to make those new, higher payments, and they'd default.
That kind of lending activity was crazy, but that alone wasn't sufficient to tank the economy and threaten the financial system. At that time, Fannie and Freddie couldn't buy those loans. The lenders couldn't hold them on their books beyond the ability of their capital to absorb the losses (and who in their right mind would want to hold those loans in portfolio anyway?). So they packaged them and sold them as MBS and CMOs.
But these were so-called private-label bonds. That meant that the issuer wasn't Fannie or Freddie, it was a mortgage company like Countrywide Mortgage or an investment bank like Bear Stearns, two firms who failed spectacularly in 2008. So the risk was isolated to those lenders and investment bankers who made or securitized or invested in private-label paper.
Then, Maxine Waters, Chris Dodd and Barney Frank stepped in. Dodd had a bachelor's degree in English Literature, and was Chair of the Senate Banking Committee. Frank had a degree in government, and chaired the House Financial Services Committee. Both were career politicians. Neither ever worked in the financial sector.
Dodd, Frank and Waters decided to try to increase the homeownership rate - a noble social cause for someone who's clueless about economics and mean reversion - by allowing Fannie and Freddie to buy the crap loans that lenders were now allowed to make, again thanks to the senseless relaxation of lending requirements by this triumvirate of morons. (The homeownership rate peaked at 69% in 2004, which proved unsustainable.)
Barney Frank went so far as to say, "When it comes to increasing the homeownership rate, I'm willing to gamble with the taxpayers' money." Folks, any politician who states a willingness to gamble with the taxpayers' money has abrogated his or her fiduciary duty to we the people, and should be run out of Washington post-haste. But Frank and his two compatriots did just that - they gambled with our money, and we lost. They didn't.
When Fannie and Freddie were allowed - even instructed - to buy these subprime mortgages, the volume mushroomed. The housing bubble ballooned, as more and more people bought houses they couldn't afford, while Fannie and Freddie supplied the liquidity to buy those loans. More investment banks bought and sold the crappy bonds that Fannie and Freddie were issuing. The ratings agencies slapped triple-A ratings on those bonds, because hey, they were issued by Fannie and Freddie. (And the ratings agencies themselves had their own corrupt conflicts of interest going on, but that's another story.)
The result was a catastrophe that we all remember, all too well. It wasn't the fault of investment banks, though they played a role. It wasn't the fault of predatory lenders, though they played a role. It wasn't the fault of real estate developers and builders, though they played a role. (So did thousands upon thousands of supposedly poor, unsuspecting borrowers who willingly and knowingly lied about their incomes in order to buy a McMansion that they knew they couldn't really afford.)
The genesis was the social experiment conducted by Chris Dodd, Barney Frank, and Maxine Waters at the taxpayers' expense. (I'll also lay blame at the feet of Republican lawmakers and President Bush, who let it all happen.)
Dodd is no longer in the Senate. Frank is no longer in the House. Neither was voted out; both retired.
Maxine Waters is still in the House, and she's poised to become the next Chair of the Financial Services Committee. Her total cluelessness about all things financial isn't the only thing that bothers me, nor is her role in creating the most recent financial crisis.
Just recently, she issued an ominous warning to banks and investment firms, telling them that she's going to hold that Chairmanship, and that when she does, "I'm going to do to you what you did to us."
Except she did it to us, not them. She paved the way for the housing collapse to happen. The banks and investment banks just did what she allowed, and even encouraged, them to do.
Even with all that, I'm not too worried. President Trump will still be able to veto any stupid thing she tries to do, whether it's increased regulations that would stifle growth, or relaxed regulation that would inflate another bubble.
But even if she does hold that position, and is able to somehow create another catastrophe for the U.S. economy, I won't lose sleep. I may move my retirement assets to cash. Or I may short the market, as I did in 2008, when I was able to earn a hefty return from the tanking market. I sure as hell won't take out a subprime mortgage loan to leverage myself into more house than I can afford.
Having said that, there are a lot of unsuspecting people out there who don't understand their finances, and might make bad decisions on the basis of Congress creating stupid financial rules. Just as Congress created the savings and loan crisis of the late 1980s, Congress - led by Maxine Waters and her ilk - created the housing crisis. Maxine Waters chairing the Financial Services Committee is the scariest thing about a "blue wave" that would result in the House changing hands, and it's reason enough for me to vote red in these mid-terms.
No, this election isn't about immigration, illegal or otherwise. It isn't about the 14th Amendment, the First Amendment, the Second Amendment, the Supreme Court, legal abortion, Socialism, the media, rhetoric, protests, or even the current state of the economy, at least not to me.
It's about what happens if we wind up with a Democrat majority in the House, the Senate, or both.
Don't get me wrong; the prospect of that in and of itself does not frighten me. See, I've lived through Democrat majorities in both houses of Congress, Democrats in the White House, and a liberal majority on the Supreme Court. I've lived through elections where the people I voted for lost.
And, you know what? I never cried the next day. I never even got angry. I never believed that life as we know it would end. Heck, I never even worried that our Republic as we know it would end.
No, I just said, "Oh well," hoped for the best, prepared to be disappointed in this policy decision or that, and worked to jump over whatever hurdle was placed in front of me: high taxes, excessive regulations, rapidly rising health care premiums, whatever.
(The same can probably be said for most Republican voters - I've never seen huge marches and protests and general outrage after Democrats took control of the House, the Senate or the White House. I guess that's another distinction between the two parties today. Republicans accept the outcome of the election and move on.)
The worst thing to me isn't the fact that Washington would basically get nothing done for the next two years; we've seen that before. I understand why that's a good thing to Dems: they don't want any aspect of Trump's agenda, be it immigration reform, health care reform, spending cuts, or further tax cuts, to succeed. That's okay, there's still the veto.
The most frightening thing to me isn't Sen. Schumer or Rep. Pelosi having the gavel they so covet. (Actually, Rep. Pelosi, who seems to wax near-orgasmic when talking about the gavel, may not get it even if the Dems win the House. And Schumer spends as much time in front of the camera now as he would if he were Majority Leader. Let's face it, the only thing he loves more than the gavel is the microphone.)
It's not Feinstein as Judiciary Committee Chair. The only Justice likely to leave the bench in the next couple of years is RBG, and I don't think Feinstein could find a more liberal judge to replace her. Besides, the appointment wouldn't be Feinstein's to make. The worst she could do is engineer another hijacking of an appointment.
(A quick aside about Feinstein: even if we accept the premise that she didn't leak Dr. Ford's letter, she at a minimum failed to safeguard it. I work in the area of risk management for credit unions, and their biggest concern these days is cyber-risk, of ensuring the security of their members' data. If my credit union gives my data to a fraudster, it is liable. However, if it doesn't adequately safeguard my data and a hacker gets his hands on it, guess what? The credit union is still liable. Failing to safeguard confidential information is nearly as bad as deliberately releasing it, and makes one no less culpable.)
No, it's Maxine "you're not welcome anywhere, anymore" Waters. But not because she advocates public harassment of anyone you disagree with. Not because she calls for impeachment as frequently as a chain smoker coughs.
It's because she'd be Chair of the House Financial Services Committee.
Why is that my biggest fear, you ask? Well, I'm a finance guy, and I know the importance to the overall health of the economy of the financial sector, and the importance to the country of a healthy economy.
The current chair, Rep. Jeb Hensarling, has an economics degree and has run businesses in the financial sector. Rep. Waters has a sociology degree and, since earning it, has been in politics. She's never worked in the financial sector. (Prior to earning her degree, she was a garment worker, a telephone operator and a teacher - all noble professions, but perhaps not adequate preparation for governing our financial sector.)
The biggest issue is her role in creating the housing crisis that led to the most severe economic downturn in most of our lifetimes, one that put millions out of work, caused thousands to lose their homes, and cost workers and retirees untold sums from their retirement savings.
So sit back, grab a drink, and let the Curmudgeon take you on a history of the true genesis of the housing crisis. (Take a break here, if you need to, and don't keep reading if you just want to take my assertions at face value. But if you want to really understand the housing crisis, read on. This is the Curmudgeon's area of expertise.)
*************************
In the olden days, before I was even a Curmudgeon, lenders kept all the mortgage loans they made on their books. Then, in the 1960s, they began packaging and selling them as mortgage-backed securities (MBS). In the 1980s, investment banks began slicing and dicing the cash flows from mortgages into bonds with different characteristics intended for investors with different needs, and those bonds were called collateralized mortgage obligations (CMOs). I won't burden you with the complexities of these bonds, but I spent most of my career intimately involved in analyzing, buying and selling, managing, and hedging MBS and CMOs. I know the difference between a sticky jump-Z, a residual, and a busted PAC. I've built mortgage prepayment models. I get this stuff.
Initially, virtually all MBS and CMOs were issued by the Government National Mortgage Association (GNMA, or Ginnie Mae), a government agency backed by the full faith and credit of the U.S. government, which only bought and packaged FHA and VA mortgages; the Federal National Mortgage Association (FNMA, or Fannie Mae), a quasi-agency backed by the implied full faith and credit of the government, which bought "conventional" mortgages; and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac), another quasi-agency backed by the implied full faith and credit of the government and which also bought "conventional" mortgages.
What's important about this?
- All three agencies have the explicit or implicit backing of the U.S. government, and that means you, the taxpayer.
- All three bought high-quality, relatively safe mortgages.
Ginnie, Fannie and Freddie also had minimum capital requirements as a further backstop against losses.
Now, in the aftermath of the dot-com recession of 2000-01, Fed Chairman Alan Greenspan's Fed cut short-term interest rates to 1%, a previously unheard of level. That made mortgages very cheap - as low as 5-6%, which sounds high today but was unheard of until 2002. And the Greenspan Fed held rates at 1% longer than they should have. (For those of you lamenting that the Fed today is raising rates too fast, pay attention, and be careful what you wish for. Rates held artificially low for too long inflate bubbles.)
What resulted was a housing bubble of mammoth proportions. But it wasn't just cheap mortgages that were the problem. No, it was exacerbated by a handful of Democrat legislators who decided to erode the safety of the traditional, conventional mortgage, and put taxpayers at risk by loosening the standards for what kind of mortgages Fannie and Freddie could buy, all in the name of a social engineering experiment that attempted to alter the course of an immutable economic measure.
That measure is the homeownership rate. Throughout the 1980s and early 1990s, it remained range-bound at around 64%. Why not higher? Some people can't afford to buy a home, for example those just starting their careers. Some people shouldn't be homeowners - they don't have the financial wherewithal to make a mortgage payment and pay for the upkeep and insurance on a home.
This data series is naturally mean-reverting, meaning that there will always be about 35% of the population that can't afford a home, and shouldn't be trying to until they have the means. (That may sound heartless, but losing a home because you couldn't afford it in the first place is hardest on the homeowner, who loses their place of residence and suffers a major hit to their credit rating.) If you do something to artificially increase a mean-reverting series above its mean, there's going to be an inevitable and painful correction. Supply and demand rule. (Proof: after the correction that resulted from the housing crash, guess what the homeownership rate is today? About 64%.)
Beginning in 1995, the homeownership rate began to rise. This resulted from the Greenspan Fed cutting short-term rates to 3% in the wake of the 1990-91 recession, and again holding them there too long, which made mortgages historically cheap at that time. But then, in the early 2000s, Congress got involved, and made matters worse in the name of increasing homeownership.
First, they allowed mortgage lenders to dramatically relax their lending standards. They were able to make loans with no down payment, or even for more than the purchase price of the home. They didn't have to require proof of income or assets. They didn't have to meet total debt-to-income ratios. They didn't have to require PMI.
In other words, lenders were allowed to make loans for more than the value of the house, to people who didn't have the income to make the payments, who had no other assets, who had huge amounts of credit card and auto loan debt, and who didn't pay for PMI. They did this by structuring loans such that the borrower only paid interest for the first few years, then interest and principal payments would kick in. Or loans where the borrower paid no interest initially, then a rate of interest above the market rate kicked in. In both cases, those borrowers often found themselves unable to make those new, higher payments, and they'd default.
That kind of lending activity was crazy, but that alone wasn't sufficient to tank the economy and threaten the financial system. At that time, Fannie and Freddie couldn't buy those loans. The lenders couldn't hold them on their books beyond the ability of their capital to absorb the losses (and who in their right mind would want to hold those loans in portfolio anyway?). So they packaged them and sold them as MBS and CMOs.
But these were so-called private-label bonds. That meant that the issuer wasn't Fannie or Freddie, it was a mortgage company like Countrywide Mortgage or an investment bank like Bear Stearns, two firms who failed spectacularly in 2008. So the risk was isolated to those lenders and investment bankers who made or securitized or invested in private-label paper.
Then, Maxine Waters, Chris Dodd and Barney Frank stepped in. Dodd had a bachelor's degree in English Literature, and was Chair of the Senate Banking Committee. Frank had a degree in government, and chaired the House Financial Services Committee. Both were career politicians. Neither ever worked in the financial sector.
Dodd, Frank and Waters decided to try to increase the homeownership rate - a noble social cause for someone who's clueless about economics and mean reversion - by allowing Fannie and Freddie to buy the crap loans that lenders were now allowed to make, again thanks to the senseless relaxation of lending requirements by this triumvirate of morons. (The homeownership rate peaked at 69% in 2004, which proved unsustainable.)
Barney Frank went so far as to say, "When it comes to increasing the homeownership rate, I'm willing to gamble with the taxpayers' money." Folks, any politician who states a willingness to gamble with the taxpayers' money has abrogated his or her fiduciary duty to we the people, and should be run out of Washington post-haste. But Frank and his two compatriots did just that - they gambled with our money, and we lost. They didn't.
When Fannie and Freddie were allowed - even instructed - to buy these subprime mortgages, the volume mushroomed. The housing bubble ballooned, as more and more people bought houses they couldn't afford, while Fannie and Freddie supplied the liquidity to buy those loans. More investment banks bought and sold the crappy bonds that Fannie and Freddie were issuing. The ratings agencies slapped triple-A ratings on those bonds, because hey, they were issued by Fannie and Freddie. (And the ratings agencies themselves had their own corrupt conflicts of interest going on, but that's another story.)
The result was a catastrophe that we all remember, all too well. It wasn't the fault of investment banks, though they played a role. It wasn't the fault of predatory lenders, though they played a role. It wasn't the fault of real estate developers and builders, though they played a role. (So did thousands upon thousands of supposedly poor, unsuspecting borrowers who willingly and knowingly lied about their incomes in order to buy a McMansion that they knew they couldn't really afford.)
The genesis was the social experiment conducted by Chris Dodd, Barney Frank, and Maxine Waters at the taxpayers' expense. (I'll also lay blame at the feet of Republican lawmakers and President Bush, who let it all happen.)
Dodd is no longer in the Senate. Frank is no longer in the House. Neither was voted out; both retired.
Maxine Waters is still in the House, and she's poised to become the next Chair of the Financial Services Committee. Her total cluelessness about all things financial isn't the only thing that bothers me, nor is her role in creating the most recent financial crisis.
Just recently, she issued an ominous warning to banks and investment firms, telling them that she's going to hold that Chairmanship, and that when she does, "I'm going to do to you what you did to us."
Except she did it to us, not them. She paved the way for the housing collapse to happen. The banks and investment banks just did what she allowed, and even encouraged, them to do.
Even with all that, I'm not too worried. President Trump will still be able to veto any stupid thing she tries to do, whether it's increased regulations that would stifle growth, or relaxed regulation that would inflate another bubble.
But even if she does hold that position, and is able to somehow create another catastrophe for the U.S. economy, I won't lose sleep. I may move my retirement assets to cash. Or I may short the market, as I did in 2008, when I was able to earn a hefty return from the tanking market. I sure as hell won't take out a subprime mortgage loan to leverage myself into more house than I can afford.
Having said that, there are a lot of unsuspecting people out there who don't understand their finances, and might make bad decisions on the basis of Congress creating stupid financial rules. Just as Congress created the savings and loan crisis of the late 1980s, Congress - led by Maxine Waters and her ilk - created the housing crisis. Maxine Waters chairing the Financial Services Committee is the scariest thing about a "blue wave" that would result in the House changing hands, and it's reason enough for me to vote red in these mid-terms.
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