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Political news--August & September of 08
Saving the Banking Industry
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Summary of the current market bubble collapse--Nobel Lauret Stiglitz
Free Market Meltdown--explained
RAISING THE FEDERAL DEBT
HOUSING BUBBLE FIX--fed second mortgages--jk
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Social and Economic Evolution Out of Control--jk
Saving the Banking Industry
Old Fashioned Cronyism

Wall Street Journal page 1 store also at http://online.wsj.com/article/SB121681776929477089.html?mod=hps_us_whats_news

 

The Feds must shore up the banks, if they fold they will suck we will be in another great depression.  Don’t assume that our Neoliberal Republicans and the fellow-travelers Democrats are doing this to save your home from foreclosure.  It is about saving their banking supporters--jk.

 

Housing Bill Will Extend
Federal Role In Markets

By DAMIAN PALETTA and JAMES R. HAGERTY
July 24, 2008; Page A1

 

WASHINGTON -- A sprawling bill that reaches deep into the U.S. housing industry is close to becoming law, in what will likely stand as the federal government's most expansive effort to stabilize the mortgage and financial markets.

The bill, which began seven months ago as a modest attempt to help struggling homeowners, will now likely touch a vast array of borrowers, lenders, and investors: from owners in Colorado facing foreclosure to community banks in California and investment banks on Wall Street.

The package could also come at a significant cost to the U.S. government, which would be authorized to invest billions of dollars in troubled mortgage giants Fannie Mae and Freddie Mac, as well as insure up to $300 billion in refinanced mortgages. As a result of the bill, Congress will raise the national debt ceiling to $10.6 trillion from $9.8 trillion. It will also give Fannie Mae and Freddie Mac a new, tougher regulator.

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The legislative effort began in earnest after the Christmas recess with a measure to help roughly 500,000 homeowners avoid foreclosure. Since then, several of the country's most influential financial institutions, including Bear Stearns Cos., Countrywide Financial Corp. and IndyMac Bancorp, either collapsed or were sold at fire-sale prices.

Lawmakers and the Bush administration cobbled together a legislative response that became more ambitious at each turn, culminating with the rescue plan for the twin mortgage giants. The bill temporarily increases the Treasury Department's potential line of the credit to Fannie Mae and Freddie Mac from $2.25 billion to an unlimited amount. It would allow the government to bulk up regulation of Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks -- something critics of those institutions have been pushing for more than a decade.

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Fannie, Freddie and the FHA accounted for about 90% of U.S. home mortgages originated in the second quarter, the highest level in at least 50 years and up from 49% a year earlier, according to Inside Mortgage Finance, a trade publication. Fannie and Freddie buy home loans from lenders, turn those loans into mortgage-backed securities and sell the bulk of the securities to other investors. The FHA insures lenders and loan investors against losses on defaults. 

The legislation provides a federal backstop for the two companies, a move prompted by broad worries that both might falter, a scenario that would cripple the housing market and envelop other financial institutions. Buyers of bonds issued by Fannie and Freddie range from small community banks to foreign central banks.

The biggest boost for homeowners is a program that would allow the FHA to back the refinancing of as much as $300 billion in home loans for distressed borrowers. Under this plan, the lender or investor holding the mortgage would have to accept at least a 15% write-down in the value of the previous loan. The new mortgage would then receive federal backing.

Mark Zandi, chief economist at Moody's Economy.com, said the legislation doesn't provide any miracle cure for the housing market, but a defeat "would have been catastrophic." He still expects the average nationwide house price to fall another 10% or so between now and next April or May. Then he expects prices to bottom out and begin a gradual recovery. He expects that about 1.25 million American households will lose their homes to defaults in both 2008 and 2009.

 

 

 

 

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Teddy Roosevelt's advice that, "We must drive the special interests out of politics. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being. There can be no effective control of corporations while their political activity remains."