The Perfect Storm

This was the perfect storm. Clinton, encourages riskier mortgages, there’s an understanding there’s no risk associated with dodgy loans the banks are forced into from a CRA perspective because Fannie/Freddie and the secondary market will take the bad loans, the Fed kept rates too low for too long leaving an abundance of cheap money to lend in the markets, Fannie/Freddie expand their portfolios and load up on crap, the Democats stiff arm reform because Fannie/Freddie are lining their pockets (and the Republicans didn’t push hard or vocally enough), the insurers avoided oversight by not technically insuring the commercial banks default risk on these mortgages (60 Minutes had a piece on this aspect last week, “credit default swaps”) but selling these products without the proper reserve required when the banks came calling, people stopped paying mortgages they couldn’t afford, and then the dominoes fell.

Banks have assets on their books that they are unsure of (either individual loans or securitized packages of loans), so they’re holding onto their cash in the event the marking to market (thanks FASB) hits their portfolios hard, they’re not lending to the general public, nor each other, and now the market is illiquid until the clowns in Washington figure out what to do (after they’re done pointing fingers). In the interim, “Joe Six-pack” is tired of watching his 401 go down the toilet and moving funds into safer investments that don’t hold stocks which is causing the market to continue to search for a bottom.

As far as my Clinton comment, this isn't the rant of a right wing nutjob, hit the NY Times here: http://query.nytimes.com/gst/fullpage.html?res=9c0de7db153ef933a0575ac0a96f958260&sec=&spon=&&scp=1&sq=Fannie%20Mae%20Eases%20Credit%20To%20Aid%20Mortgage%20Lending%20&st=cse