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Monday, July 14, 2008

Not Just a Sub Prime Problem…Sub Prime Mortgage Brokers Not to Blame

Many months ago, when everyone was calling this a sub prime mortgage meltdown, I predicted that the problem went far beyond sub prime. I very clearly stated that our two Government Sponsored Enterprises (GSE), Fannie Mae and Freddie Mac, would have the same if not more foreclosures, suffering financial losses that could bankrupt them.

In my guest posts on, “The Credit Crisis - Subprime Mortgages and Various Idiots”, posted February 9, 2008, I said,

“All players will eventually have to revalue and report their asset positions and write downs, but until it all comes out in their reports, we will not know the actual extent of the damage. We know that Fannie Mae delayed their reporting, and when delay was no longer an option, they reported write downs of almost two billion dollars with much more to come. Freddie Mac also will report billions in write downs and the so called safe, government-supervised buyers of conventional loans are racking up their losses as well. This is not and has not been just a sub prime crisis as we are being led to believe”.
In this same article, a commentary on a piece written by Richard Whitmark (Mr. Whitmark passed away shortly after publishing his article) he stated,

“The banks are not forthcoming with any detailed information on their true positions, making it difficult for anyone to assess what the future really holds. Uncertainty is holding the financial and real estate markets in a huge vacuum, where it is difficult to function normally”.
Not only are the banks not “forthcoming” with detailed or accurate information, our government officials and regulators are not either. We continue to get rhetoric from our Federal Reserve (who are they anyway), our Treasury Department, the SEC or even the Executive Branch of our government.

The questions to be answered are:

What is really happening here?
What is the real state of our banking industry?
How bad is our economy?
Part of the answer appears in a New York Times article, “U.S. Weighs Takeover of Two Mortgage Giants” authored by STEPHEN LABATON and STEVEN R. WEISMAN,: July 11, 2008.

The two mortgage giants are Fannie Mae and Freddie Mac.

The article says in part which confirms my earlier statements,

“The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt”.
Since the beginning of this crisis sub prime mortgage brokers have been blamed - no accused of selling bad loan products to unqualified borrowers. In essence it was claimed - it was the sub prime mortgage broker and the sub prime programs that led to the “mortgage meltdown” which burst the housing bubble. I again want to prove otherwise.

What is really happening here? My finger points at our government asking lenders to “make homeownership available to all Americans”. My finger points at our Federal Reserve Bank (Fed), a privately owned company, which, when created by Woodrow Wilson in 1934, gained total control of our currency and economy. Here is a quote from Woodrow Wilson.

“I am a most unhappy man.

I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit.

Our system of credit is concentrated. The growth of the nation, therefore, and all of our activities are in the hands of a few men.

We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men”.

In another quote he wrote,

“Some of the biggest men in the United States, in the field of commerce and manufacture are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive that they had better not speak above their breath when they speak in condemnation of it”.

Woodrow Wilson, President of the United States, 1913-1921

My finger also points at Wall Street who I believe has some measure of control over the Fed.

How, you might ask, does Wall Street have any influence over The Fed? Possibly, by virtue of the fact that the Chairmen of the Boards of both J.P. Morgan and Lehman Bros. sit on the Board of The Federal Reserve Bank of New York.

In an article published on July 30, 1930, by McFadden, titled Basis of Control of Economic Conditions, and taken from the book, “Secrets of the Federal Reserve by Eustace Mullins, McFadden wrote,

“This control of the world business structure and of human happiness and progress by a small group is a matter of the most intense public interest. In analyzing it, we must begin with the internal group which centers itself around J.P. Morgan Company. Never before had there been such a powerful centralized control over finance, industrial production, credit and wages as is at this time vested in the Morgan group... The Morgan control of the Federal Reserve System is exercised through control of the management of the Federal Reserve Bank of New York”.
In chapter five, “The House of Rothschild”, Mullins quotes another article published in 1911,

the following from McClure's Magazine, August 1911, "The Seven Men" by John Moody:

"Seven men in Wall Street now control a great share of the fundamental industry and resources of the United States. Three of the seven men, J.P. Morgan, James J. Hill, and George F. Baker, head of the First National Bank of New York belong to the so-called Morgan group; four of them, John D. and William Rockefeller, James Stillman, head of the National City Bank, and Jacob H. Schiff of the private banking firm of Kuhn, Loeb Company, to the so-called Standard Oil City Bank group... the central machine of capital extends its control over the United States... The process is not only economically logical; it is now practically automatic."32
Footnote 32: John Moody, "The Seven Men", McClure's Magazine, August, 1911, p. 418

Note: Eustice Mullins has devoted almost his entire lifetime to the research of The Federal Reserve. He has spent countless hours at the Library of Congress and references most of his quotes from other periodicals and books as this one above.
The link “Secrets of the Federal Reserve” takes you to his entire book on line, free. It is worth the read. It is published on a site that I know very little of and do not necessarily agree with all of its’ positions or writings. Mullins book was published in hard copy and is reprinted on this site.

Another interesting quote taken from this chapter of Mullin’s book made by Mayer Anselm Rothschild,

“Permit me to issue and control the money of a nation and I care not who makes its laws”.

How interesting it is to see that J. P. Morgan in 1911, exerted control over our economy and government, again in 1930, it was recognized that J. P. Morgan “controlled” the Fed via control of the Federal Reserve Bank of New York and in 2008, Jamie Dimon, Chairman and CEO of J.P. Morgan still represents (controls possibly) the Fed as a board member. This may answer how the Fed so quickly and secretly, approved the funding of $55 Billion to J.P Morgan for the purchase (bailout) of Bear Stearns.

Who really owns the Fed?

Fannie Mae and Freddie Mac seem to be bankrupt. The N.Y. Times article continues to say,

“Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers”.
A conservatorship would in effect put both entities directly under the control of the government or in all probability, the privately held Federal Reserve.

The article goes on to say,

“The officials involved in the discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in a crisis situation. But in recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans”.

The government officials seem to be contradicting themselves. If they don’t feel like they are in trouble then why the concern? It has been reported that Freddie Mac is $5 Billion dollars in the red, meaning their debts exceed their assets by that amount. In reality, they do not have money available to lend.

Here are additional excerpts from the article,

“In recent weeks, the companies have spiraled downward, undermined by declining confidence in their future and shaken by sharp declines in their assets as the housing markets have continued to slide and foreclosures have risen”.

In the last week alone, Freddie has lost 45 percent of its value, and Fannie is off 30 percent. Expectations of default at the companies have also risen; it costs three times as much today to buy insurance on a two-year Fannie bond as it did three years ago.”

But the government continues to reassure everyone that Fannie and Freddie are ok. Yet more facts disclosed by the N. Y. Times say,

“Despite repeated assurances from regulators about the financial soundness of the two institutions, financial markets have concluded that by some measures they are deeply troubled.

"Freddie, for instance, is technically insolvent under fair value accounting rules, in which the company puts a market value on assets as if it had to sell them now”.

Yet, Fed Chairman Bernanke said,

“………Fannie and Freddie “are well-capitalized in the regulatory sense” but added that they, and other major financial institutions, needed to raise their capital levels further”.

If Fannie and Freddie are “well capitalized” while losing share value at an unprecedented rate - hence liquidity - then what of those “other” financial institutions? If he is making a comparison then it leads me to believe that the “other” financial institutions are in trouble as well, possibly insolvent, emphasizing my earlier question of how bad the economy really is.
Other concerns raised were quoted in the article.

“On Thursday, the rapid sell-off of shares of Fannie Mae and Freddie Mac came after a former central banker made comments that the companies might not be solvent, and an analyst at UBS issued a report critical of Freddie Mac”.
To sum this all up, as my title says, this was not just a sub prime problem. Sub prime accounted for about 12% of all mortgages while Fannie and Freddie account for almost half of the mortgages.

Manipulated, contrived and conceived, it does not appear to be a “free market” meltdown. Too much is happening with no real signs of any stabilization or recovery other then optimistic, “feel good” statements by many. The truth is, as I have said before, the worst is yet to come, so fasten your seat belts as this is going to be one rough ride.

At least now perhaps, mortgage brokers can be somewhat vindicated from the total blame they have taken. It cannot serve to repair the industry or put the hundreds of thousands back to work but it can take the cloud off of many who have been wrongly tainted and accused.

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