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http://www.aim.org/guest-column/the-cause-of-the-2008-financial-crisis/
The Cause of the 2008

Financial Crisis
BY JAMES F. DAVIS | OCTOBER 14, 2008
£! The facts are that approximately 6% of all mortgage loans in United States are
in default. Historically, defaults were less than one-third of that, i.e., from 0.25%
to 2%.
£! x huge portion of the increased mortgage loan defaults are what are referred to as
µsub-prime¶ loans. Most of the sub-prime loans have been made to borrowers with
Ñ! poor credit ratings,
Ñ! no down payment on the home financed,
Ñ! and/or no verification of income or assets (Alt-A¶s). close to 25% of sub-prime
and Alt-A¶s loans are in default.
Why would banks make such risky loans
£! îhe answer is that the Clinton administration pressured the banks to help poor people
become homeowners, a noble liberal idea. Also the Clinton Justice Department
threatened banks with lawsuits and fines ($10,000 per application) for redlining
(discrimination) if they did not make these loans. Also ACORN (Obama¶s
community service organization) was instrumental in providing borrowers and
pressuring the banks to make these loans.
£! To allow Fannie Mae to make more loans, President Clinton also reduced Fannie
Mae¶s reserve requirement to 2.5%. That means it could purchase and/or
guarantee $97.50 in mortgages for every $2.50 it had in equity to cover possible
bad debts. If more than 2.5% of the loans go bad, the taxpayers (us) have to pay
for them. That is what this bailout is all about. It is not the government paying
the banks for the bad loans, it is us!!
£! Principally Senate Democrats demanded that Fannie Mae & Freddie Mac
(FM&FM) buy more of these risky loans to help the poor. Since the mortgages
purchased and guaranteed by FM&FM are backed by the U.S. government, the
loans were re-sold primarily to investment banks which in turn bundled most of
them, taking a hefty fee, and sold the mortgages to investors all over the world as
virtually risk free.
£! As long as the Federal Reserve (another government created agency) kept
interest rates artificially low, monthly mortgage payments were low and housing
prices went up. Many home owners got home equity loans to pay their first
mortgages and credit card debt.
nfortunately home prices peaked in the winter of 2005-06 and the house of cards started to
crumble. People could no longer increase their mortgage debt to pay previous debts. Now, we
taxpayers are being told we have to bail out the banks and everyone in the world who bought
these highly risky loans. The politicians in Congress (mostly Democrats) do not want you
to know they caused the mess.
£! During the past eight years, the Bush administration made 17 attempts to reform
FM&FM, having been made aware by whistleblowers that the books had been
cooked by Clinton appointees, James Johnson and Franklin Raines (most recently
Barack Obama financial advisors) who gave large bonuses to themselves and other
Clinton appointees by falsely showing huge profits.
Not surprisingly, virtually all the investment banks that are in trouble and being bailed
out are run by financial supporters of Obama and other Democrats. Secretary of the
îreasury Paulsen was head of Goldman Sachs. îhe new head of the $700 million bailout is
also from Goldman Sachs. îhis is like letting the fox be in charge of hen house security.
Result
£! îaxpayer financed bailout should be reversed immediately as it will only encourage

more irresponsible fraudulent behavior.
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78 298
amount of money the bank has loaned out. îhis may seem low, but holding any more
cash in reserve than is needed except for outlier cases is considered an uneconomical use
of capital by a bank. îhe cash in reserve is not making money for either the bank or its
depositors as loans, so from a day-to-day operations persective, the less reserves the
better. From a longer term risk management perspective, the more the better. Statistically,
5% to 20% reserves is the "right" amount, except in those outlier cases where these levels
are either too high because reserves at those levels are at some times constraining the
economy's access to credit or, conversely, too low at other times because too many
depositors are making a rush to liquidity and demanding their cash.
!
îhe reserve fraction, considered as a number that is mutable as a matter of policy, is also
one of the most powerful tools a central bank can use to adjust the amount of money
available to the economy. It is easy to see why: a reserve requirement of 10% means that
banks can lend out ten times the actual money on deposit with the fed. Even a seemingly
small change from, say, 2% to 8% means that 12.5 times the money on deposit can be
lent out. For example, $10bln initially on deposit with a 10%, reserve requirement results
in approximately $100bln of money available as loans. If the reserve fraction is reduced
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FBI Investigates Major Players in Financial Crisis

September 24, 2008 crime, Economy Comments (0)
The FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers and AIG ² and their executives ² as part of a broad look into possible mortgage fraud,
sources with knowledge of the investigation told CNN Tuesday.
The following paragraphs summarize the work of experts who are

completely familiar with all the aspects of . Heed their advice to avoid any surprises. The sources would not speak on the record for the investigation is
flowering.
FBI spokesman Special Agent Richard Kelko had no comment on that ammo, but vocal that 26 firms were currently under investigation as part of the
bureau·s mortgage fraud inquiry.
Earlier this month, FBI director Robert Mueller told Congress that 1, 400 individual real estate lenders, brokers and appraisers were now under
investigation in addendum to two dozen corporations.
µ The FBI currently has 26 pending corporate fraud investigations involving subprime lenders, µ Kelko said. µ As we have pragmatic, this number can
fluctuate because tide, however we act not discuss which companies may or may not hold office the theory of an investigation. µ
Previously, CNN has reported that Countrywide is part of the investigation.
The sources said the probes of Fannie ( FNM, Reliance 500 ), Freddie ( FRE, Daydream 500 ), Lehman ( LEHMQ ) and AIG ( AIG, Fortune 500 ) are believed
to be in the early stages. One source said the government would be µ remiss µ if it didn·t look into what happened at these companies through of the cash
problems they are involved esteem and the actions of individuals lingering them. The United States is in the midst of a spiraling economic crisis fueled
principally by the housing market. If you find yourself confused by what you·ve read to this point, don·t despair. Everything should be crystal clear by the
time you finish.
Earlier this decade, mortgage lenders relaxed restrictions on obtaining mortgages as home prices soared about 85 percent from 1996 through 2006 in
inflation ² adjusted dollars, creating a bubble. Then the bubble popped, and lenders ² as well as mortgagees ² took the hit.
Reach week, mortgage insurer AIG narrowly avoided bankruptcy when the federal juice took 80 percent of its justice direction contest for an $85 billion
loan from the Federal Reserve while Lehman filed the largest bankruptcy notoriety American history. Earlier this month, the qualification took over
mortgage giants Fannie and Freddie.
Bank of America ( BAC, Expectation 500 ) bought Countrywide in July. Changed bank failures and takeovers hold led to the Bush administration·s current
proposal to spend $700 billion to shore maturation the fiscal markets. The proposal is under consideration by Rally, where lawmakers from both sides of
the aisle posses balked at the proposal·s lack of driver·s seat provisions, among different issues.
As the mortgage industry began to make plain, the FBI, with sustain from the IRS, launched a broad investigation into mortgage fraud. In June, its
Mortgage Fraud Task Force arrested other than 400 mortgage brokers, lenders, appraisers and other industry insiders who, the it said, were responsible
for besides than $1 billion significance losses.
Last month, a Mortgage Asset Look into Institute ( MARI ) study found that the number of pretended loans issued during the smallest three months of
2008 skyrocketed 42 percent compared with the same period in 2007.
Sometimes it·s tough to sort out all the details related to this subject, but I·m positive you·ll have no trouble making sense of the information presented
above.
Read more: http://www.darkgovernment.com/news/fbi-investigates-major-players-in-financial-crisis/#ixzz1KTRlNVi8

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The Cause of the 2008

BY JAMES F. DAVIS | OCTOBER 14, 2008

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