The People Responsible for Fannie Mae and Freddie Mac

It was a wise man who noted that the only corporate structure more insidious than a government-sponsored monopoly is a government-sponsored and investor-owned monopoly. In the end, as Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) have now so painfully proved, trying to serve the master of public policy while generating returns for investors will lead to disaster.

Fannie and Freddie collapsed because they were part and parcel of the widespread gross financial misconduct that has taken place in the United States over the past decade. It's easy to miss this fact, but the reality is that too many people were making too much money pumping up the housing market. In 2005, the Office of Federal Housing Enterprise Oversight (OFHEO), the erstwhile regulator of the two, attempted to limit their use of off-balance sheet entities to groom earnings. In the end, it didn't, because, as one reform-minded politician admitted, Congress was afraid of undermining the housing boom.

Some are more culpable than others
As part of the conservatorship, the Department of the Treasury has demanded that Daniel Mudd and Richard Syron, the CEOs of Fannie and Freddie, respectively, step down. Certainly, at the time of a corporate collapse, those in charge have to bear some responsibility. But Mudd and Syron came into their roles when the great pillaging was well in process.

At some point not too long from now, the nation's attention is going to turn from the immediate players to those who benefitted the most, shouted down the skeptics, and/or stood by as Fannie and Freddie deviated from their core business in the name of growth and/or mission. These people are keeping a low profile right now, until the taxpaying public starts paying attention to something else. As taxpayers, we don't particularly enjoy our role in this relationship, and we're hopeful over the longer term that the following folks cease to enjoy theirs.

Franklin Raines
Fannie Mae was always a political beast, but it reached its elbow-swinging heights during the time when former Clinton administration budget director Franklin Raines sat in the CEO chair. Under Raines' leadership, Fannie overstated earnings by a stunning $10.6 billion, all the while paying Raines and his senior management team massive bonuses.

It was under Raines' management that Fannie morphed from being a company in a sleepy business -- issuing debt to buy mortgages from lenders -- into a far more risky and exciting one: buying up mortgages and holding them, thus capturing the spread between its borrowing costs (which were lower than anyone's other than the federal government's) and the interest rate received. It was a great business, except that it had nothing to do with Fannie's charter. According to a May 2006 report from OFHEO, Raines became obsessed with keeping earnings per share as high as possible and motivated management to achieve that goal by setting up a bonus system that rewarded increasing earnings per share (EPS).

The thing is: Any company can hit an EPS number if it doesn't worry about little things like accounting rules, debt levels, and risk factors. All told, Raines pulled in some $90 million between 1998 and 2003, the majority from bonuses. And when OFHEO began to ask uncomfortable questions, Raines actively lobbied Congress to cut its funding. In April, Raines agreed to disburse $24 million for his role in the accounting "errors."

Timothy Howard
Former Fannie Mae CFO Timothy Howard is another major player who is probably cowering in a corner somewhere. For all of the expletives and derogatory names thrown at former Enron CFO Andrew Fastow, he at least stayed around to take his punishment. Inmate No. 14343-179 pleaded guilty to fraud and is serving a six-year prison term. Howard, on the other hand, saw the writing on the wall -- largely because he was the author -- and got out of Dodge.

As Fannie's CFO from 1990 to 2005, Howard signed off on the financials that overstated the company's earnings by $10.6 billion from 1998 to 2004. His reward? A cool $14 million in salary and $16.8 million in bonuses during the period -- bonuses based on the earnings plan that Raines set up. 

While Howard was not the only person at Fannie guilty of constructing fraudulent financial statements quarter after quarter, as CFO he is most responsible for the integrity of said statements. Whether he left early enough to avoid culpability remains to be seen. However, we've heard through the low-security-prison grapevine that Fastow is lonely these days and wouldn't mind talking shop with a fellow former CFO.

Barney Frank
The House Financial Services Committee chairman and Democratic congressman from Massachusetts has long been a proponent of both Fannie and Freddie, assuring the public that their mission to encourage home ownership outweighed the distortive risks they brought to the market, and that the federal government was not, in fact, on the hook for their liabilities. In fact, it seems clear now that Frank had no idea of just how poor a grasp Fannie and Freddie had on their lines of business. As recently as Aug. 25 he told Money magazine, "Fannie and Freddie are better off than the market thinks. ... Part of the problem is rumormongering by short-sellers."

What's more, though Frank will blame past political opponents for failing to further regulate the mortgage market by banning products such as subprime loans, the fact of the matter is that the very presence of Fannie and Freddie incentivized brokers to overstate the creditworthiness of borrowers and then pass on that risk to the federal government, all while being cheered for helping more people "realize the American Dream." While we can all agree (I hope) that mortgage markets only function when -- as Frank told Money, banks "do not lend money to people who can't pay it back" -- Frank's ideology in this case blinded him for decades to the realities of the marketplace and the operations at these companies, leading him to stonewall realistic reform efforts that might have helped us avoid the current calamity.

Angelo Mozilo
There's good reason for Angelo Mozilo to hide under a desk these days. Few, if any, extracted more personal profit from the credit bubble than the CEO and founder of Countrywide Financial. Mozilo's talking points always borrowed heavily from the propaganda of our government-sponsored enterprises (GSEs). Countrywide liked to pretend that it was performing some kind of public service -- "breaking down barriers" -- by making homes more "affordable" to the average (or subaverage) wage earner. Unfortunately, as speculation drove home prices to ridiculous levels across the U.S., "affordability" came to be the code word for gimmicky, high-interest subprime loans lavished on the riskiest of borrowers in order to get them into a mortgage that would soon be bundled and shipped off to the suckers on Wall Street.

Unfortunately for borrowers and investors in Countrywide's mortgage paper, the American Dream of home ownership quickly morphed into a nightmare. Default rates surged, followed by the inevitable foreclosures, and mortgage paper backed by Countrywide loans became as valuable as post-bubble, dot-com stock options. Countrywide was only spared the ignominy of bankruptcy when its longtime sugar daddy, Bank of America (NYSE: BAC  ) , stepped in to take it out.

As captain of this sinking ship, CEO and founder Mozilo was, for a time, very vocal in defending his company's legacy. But like so many others in America's great housing bubble, talk was one thing, and actions were another. As the housing bubble began peaking in 2003 and 2004, through the period when Countrywide's risky lending fell apart, Mozilo engaged in one of history's greatest stock dumps, selling more than $480 million worth of shares, according to the tally of insider filings on secform4.com. This graph tells the tale.

Alan Greenspan
If not the boldest of the group, then at least the most public, Greenspan, the man many are now blaming for the housing bubble (there were a brave few that piped up years ago), has refused to go quietly into his well-padded retirement. The man charged with providing the country with a financial voice of reason fell far short, so much so that it might be comical if it weren't so tragic.

Greenspan's denial of the possibility of a housing bubble has been widely derided in the past year, but a single statement could be excused as human error. However, a quick scan shows that this wasn't a single event. He also promoted the adoption and expansion of adjustable-rate mortgage (ARM) products in early 2004, when short-term rates were at or near historic lows. That same year he claimed, "securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending." And separate themselves they did, ceasing to perform any kind of due diligence as to the ability of borrowers to pay for the homes they were buying.

Now retired from his role as the nation's monetary conscience, Greenspan continues to espouse his, er, theories on the financial crisis through editorials in which he denies any culpability for the events of the past three years. He is also applying his experience and insight as an advisor for Paulson & Company, a hedge fund which cashed in on billions of dollars by calling the collapse of the subprime mortgage market that Greenspan helped create.

An ignominious list
To be sure, there were many more complicit in this mess, including consumers who bought more house than they could afford. And though we have to move forward now, let's hope no one forgets what's happened here.

Thanks for listening.

None of the authors of this article -- Bill Mann, Seth Jayson, Tim Hanson, Keith Beverly, and Nate Weisshaar -- owns shares of any company mentioned. Bank of America is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (41) | Recommend This Article (111)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 10, 2008, at 4:34 PM, aamire wrote:

    What about shareholders? Are they responsible for anything?

  • Report this Comment On September 10, 2008, at 4:41 PM, mikeybbb wrote:

    It was a wise man who noted that the only corporate structure more insidious than a government-sponsored monopoly is a government-sponsored and investor-owned monopoly run by people who want to privatize it.

  • Report this Comment On September 10, 2008, at 4:44 PM, MikeW92103 wrote:

    We might also add to the list Bill Gross of PIMCO. They loaded up on GSE debt, then talked down the stock, and demanded that the Government step in and do something. Something, which, not coincidently, put several $B into their pockets on Monday.

  • Report this Comment On September 10, 2008, at 4:48 PM, mikeybbb wrote:

    In fact, this happened during an administration that wants to privatize anything they can. Regarding the former owners, i.e., the shareholders, this was a classic bust-out a la Goodfellas. Once the criminals step in, they churn it up and walk away.

  • Report this Comment On September 10, 2008, at 4:55 PM, mikeybbb wrote:

    With the advent of the opening-up of the internet, supply-chain software, etc., over the past decade, business interests have been involved in an optimization frenzy.

    As it has become more and more difficult to increase profits by implementing better and better business practices, cost cutting, etc., profit seekers have turned more and more to victimizing the head-in-the-sand public. Thus prices have risen, salaries have fallen, and the middle class has been decimated.

  • Report this Comment On September 10, 2008, at 5:00 PM, mikeybbb wrote:

    As the implementation of any sort of business ethics has steadily declined in the never ending litany of more profits at any cost, the environment has become ripe for fascist methodologies. This includes the entire compendium of dirty trick mob practices - not the least of which is the classic bust-out. Look to the bulging pockets of mortgage brokers if you want to understand these financial contretemps. And remember the money always moves up.

  • Report this Comment On September 10, 2008, at 9:03 PM, kyddfool wrote:

    Will the federal law kick in to prosecute these guys as it did with Ennron, Worldcom and Martha Stewart?

    A time to pay is on the horizon and these and all the rest who participated in this housing fiasco need their faces in the papers and their names printed on billboards - from coast to coast!

  • Report this Comment On September 10, 2008, at 10:22 PM, bretco wrote:

    This is all so disgusting. Can't we get the TMF community to press legislators to investigate these clowns with great vigor and punish the perps, setting an example that would discourage future activities that defraud the investing public in such horrorific manner?

  • Report this Comment On September 11, 2008, at 12:55 AM, undera wrote:

    Lets not forget the fool in the house, George W. Bush who signed into law the American Dream Downpayment Act in 2003 and added the Zero-Down payment Initiative in 2004. Where the Fool leads- Corporate America will not be far behind.

  • Report this Comment On September 11, 2008, at 11:03 AM, ziq wrote:

    Interesting article, not just over-simplified "free market good, government bad" rants you sometimes find on Fool.

  • Report this Comment On September 11, 2008, at 10:16 PM, pauldescartes wrote:

    "Lets not forget the fool in the house, George W. Bush who signed into law the American Dream Downpayment Act in 2003 and added the Zero-Down payment Initiative in 2004. Where the Fool leads- Corporate America will not be far behind."

    The President signs the bills, he doesn't write them. So, who where all the fools who wrote the bill? Democrats and Republicans are responsible for this mess.

    What's more Fool, why not hold the people who bought more house than they could afford *more* accountable?

    Now, let us get to the good part of this question- the punishment. I say no white collar prison for anyone found guilty of criminal illegality. Put their butt's in general population at Sing Sing. Being used as receptacles for hard-up prisoners should serve as a nice deterrent for any would-be bilker.

  • Report this Comment On September 11, 2008, at 11:35 PM, yarbtly wrote:

    Forced to work within Congress' Community Reinvestment Act requirements, bank regulators had their hands tied in controling the poor underwriting. In fact, regulators were forced to persuade banks to find innovative ways to approve morgage loans to low and moderate income borrowers. Statistic were kept to show how well banks were doing. "Second look" committees were recommended to find ways to make loans that didn't meet the banks normal underwriting standards..

    No credit history, bring in some rents checks or electric bills too show what a good credit risk you were. No downpayment, no problem and we will roll the closing cost into the loan.

    Congress decided everyone had the right to own a home regardless of their financial circumstances and they got their wish.

    Former bank examiner

  • Report this Comment On September 12, 2008, at 3:18 PM, hermitinvestor wrote:

    Anders,

    You forgot Chris Dodd, who was the Barney Frank of the Senate.

  • Report this Comment On September 13, 2008, at 12:08 PM, Keeg013 wrote:

    And Schumer from NY. He is another blood sucking leech who feeds well at the expense of the middle class

  • Report this Comment On September 13, 2008, at 5:42 PM, Insiderman1 wrote:

    You guys are totally forgetting Pres. Clinton and Bush, along with former HUD secretary Andrew Cuomo, who senselessly expanded low-income and minority home ownership. They gave HUD (the wolf) the keys to the henhouse (FNMA, FHLMC) when they gave GSE oversight to HUD. Now, FHFA will maintain GSE oversight while HUD will continue to oversee fair lending practices.

    http://www.hud.gov/offices/hsg/gse/gse.cfm

  • Report this Comment On September 14, 2008, at 8:28 AM, XMFShirKi wrote:

    The SEC graph link is broken, would be happy to see the details.

    Thanks,

    -Shiri

  • Report this Comment On September 15, 2008, at 8:41 AM, Bimmer325 wrote:

    I'm wondering if Greenspan didn't take an approach different from the one outlined here. I recall many a hearing before Congress during which he warned politicians about the dangers of looming debts and the complacent behavior of those positioned to make corrections. Could it be that he left the country a great lesson about debt management and fiscal responsibility in the hope that future leaders and perhaps the US population will finally move to rethink the immediate-gratification consumption-driven frenzy that grips our nation?

  • Report this Comment On September 15, 2008, at 12:33 PM, sharkbark wrote:

    Wouldn't it be easier to discount ever mortgage in arrears, determine what the mortgagee can pay and re-amortize the loan based upon todays value of the real estate?

    Isn't that what financing does? Create an income based for a lender based upon a promise to pay?

    Wouldn't it be better to spread the loss of interest over many years, rather than claim the loss now? That's what they're all doing, isn't it?

    This whole mtg crisis was created by the banking industry but they're too greedy to deal with it gracefully!

    Explain to me, how I'm wrong, because I really think I'm right. I feel like I'm outside the box and everyone else is still inside on this one.

  • Report this Comment On September 15, 2008, at 1:14 PM, sharkbark wrote:

    I'm sick of hearing the consumer get blamed for this! Oh your bad... you bought more house than you could afford... shame on you! These people are a small part of the problem. And honestly, I'd rather pay taxes to bail those people out than see all these companies get bailed out. Ofcourse, bailing the companies out saves jobs. But so would refinancing all these rotten people who got caught up on the housing market nonsense.

  • Report this Comment On September 15, 2008, at 6:41 PM, Stagewalker wrote:

    It seems to me that there is blame to go around. My question, though goes back to the beginning. Who invented the ARM? Who approved it? Who promoted it? Who failed to regulate it?

  • Report this Comment On September 15, 2008, at 8:42 PM, Teskel123 wrote:

    I know all these guys and they are sitting in their $10m Hamptons houses laughing at everybody that bought the garbage they packaged for the last eight years.

  • Report this Comment On September 16, 2008, at 6:01 AM, menefer wrote:

    I'm surprised no one mentions President Bush in who caused this mess. He wanted to increase home ownership, not by raising wages and creating good jobs but by eliminating down payments and borrowing rules. You know rules like having to qualify. Read his speech from 2002 and you will agree. It is on the White House website. http://www.whitehouse.gov/news/releases/2002/06/20020618-1.h...

  • Report this Comment On September 16, 2008, at 11:43 AM, lagos7777 wrote:

    What about the government ? ? They share no blame ??

  • Report this Comment On September 16, 2008, at 1:40 PM, Ironbob wrote:

    You can try to pin this one on Bush but it's a lie. Probably the Lucifer of all lies ever perpetrated. This is just another liberal fiasco laid at the door of conservatives. The FACTS are pretty straight forward. This boondoggle was created by FDR. It was privatized by LBJ and then later on looted and pillaged by Clinton cronies. I can't believe intelligent people would even have the nerve to pin any of this on Greenspan who warned us months ago to beware of the housing bubble. You want a list of bandits, start with Harold Ickes and move to Jamie Gorelik. Sorry guys but blaming this on Bush is about as juvenile as it gets.

  • Report this Comment On September 16, 2008, at 1:42 PM, Ironbob wrote:

    "I can't afford my home and it's George Bush's fault!" Talk about cry babies.

  • Report this Comment On September 16, 2008, at 1:46 PM, jaywilliam wrote:

    I was practically yelling it for the past 5 years: "There's no such thing as a free lunch!" Everyone take 2 demerits and go back to your Econ 101 class. During the Tech bubble of the 90's didn't we learn the trap of vapor wealth? The problem is that many Wall Street Execs, Bankers and Feds are so caught up in their instruments and become so removed from real wealth generation; it's short term greed run amock; skimming a million here and a million there truns into a billion here and a billion there. Bastards.

    (And I used to think that Brittany Spears was the most overrated? Alan Greenspan, congratulations on your new title! You were all talk and no action)

  • Report this Comment On September 16, 2008, at 3:12 PM, Vjklander wrote:

    It would be nice if all these Washofascists would give Ron Paul his due. He correctly foretold of this crisis and he was booed off the stage. He was right all along. I believed him and made a ton of money investing on that premise. Now, why don't all you blabbermouths shut up and listen to the remedy Dr. Paul has also espoused all along.

    Return to the gold standard.

    Shutter the Fed.

    Get CongressCritters out of the economy.

  • Report this Comment On September 16, 2008, at 3:56 PM, Ironbob wrote:

    I would except Ron Paul is a proven idiot.

  • Report this Comment On September 16, 2008, at 4:22 PM, 231545 wrote:

    If you're worried about the future consider that TWO former Fannie Mae CEO's are working for Obama.

    They are Frank Raines (compensation from Fannie: $100 million) and James Johnson.

    Republicans may make mistakes (sometimes criminal) but even if they did a perfect job in every way, they would be vilified by the left. There is just too much money and power at stake for those that know and want to profit from the system rather than work for the American people.

    This entire fraudulent system is finally collapsing, but these guys still made their money, expect much more of the same if Obama is elected.

  • Report this Comment On September 16, 2008, at 6:06 PM, larose501 wrote:

    Nice article but you artfully left out this very important and relevant information.

    http://www.newsweek.com/id/159092

    Glass-Steagall was one of the many necessary measures taken by Franklin Delano Roosevelt and the Democratic Congress to deal with the Great Depression.

    Investment banks were the aggressors (lobbyiest). In April 1998, Sandy Weill's Travelers, which owned Salomon Smith Barney, merged with Citicorp. The following year, Congress passed and President Clinton signed the Financial Services Modernization Act of 1999, known as the (Phil) Gramm-Leach-Bliley Act. This law effectively deleted the prohibition on commercial banks owning investment banks and vice versa. This was the beginning of America’s financial demise.

    Also people really should stop blaming consumers. Consumers don’t approve their own loans and the percentage that guide their own loan selection is probably less than 5%.

  • Report this Comment On September 16, 2008, at 6:44 PM, 231545 wrote:

    Investors Business Daily has an informative article here:

    http://www.ibdeditorials.com/IBDArticles.aspx?id=30637078927...

  • Report this Comment On September 17, 2008, at 10:06 AM, marbry wrote:

    One cannot overlook the contributions to this process by Senator Phil "nation of whiners" Gramm.

  • Report this Comment On September 17, 2008, at 12:12 PM, PayItBackward wrote:

    Especially funny in light of the above article are Barney Frank's latest comments on the bailout of AIG: "I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it."

    Enough said!

  • Report this Comment On September 18, 2008, at 1:55 AM, Jim720 wrote:

    "Also people really should stop blaming consumers. Consumers don’t approve their own loans and the percentage that guide their own loan selection is probably less than 5%."

    Whether they're approved for a loan or not, that does not matter. What does matter is personal responsibility.

  • Report this Comment On September 23, 2008, at 1:12 PM, Leopards wrote:

    Great synopsis of the Fannie/Freddie disaster. However, I believe you left out one major contributor - Jamie Goerlick who served as general counsel for five years during which time she took home $26 million (as general counsel!). One of the primary responsibilities of a general counsel is fraud protection on which she clearly did not do a very good job. You may recall that Goerlick served in the Reno Justice Department and was a principal architect of building the "wall" between the FBI and CIA which contributed to many of the intelligence failures we suffered in the late 1990's and early 2000's, including 9/11. Guess what she is doing now? She sits on the 9/11 Commission. Talk about a conflict of interest! This is a good example of why Washington is such a cess pool.

  • Report this Comment On September 23, 2008, at 3:37 PM, robertf36009 wrote:

    Add to all of this the greed at the top. Dirty Harry Reed's Nevada land deals along with sweet heart deals for other politicians. Energy reform bills that ban developement of nuclear power and off shore drilling and oil revenue sharing while the value of Nancy Pelosie's green energy stocks soar. No wonder we can't get any good solutions from these people they are all lining thier pockets at our expense. We have got to bring back Glass Steagull and the Uptick rule. In addition we should enact legislation forbidding politicians from participating in any of the markets while they are in office and for three years after they leave office.

  • Report this Comment On September 29, 2008, at 6:06 PM, sammoxie wrote:

    29 Sep 08 Mon

    I just called Kennedy,Kerry, MA Reps Tierney, Tsongas with my suggestion.

    Demand all Wall St moguls & Freddie/Fannie execs, Raines, Gorlick to put their ill-gotten gains from 2003-2007 into an escrow account for the same 5 yrs of Baillout plan.

    They forfeit their millions to us taxpayers if bailout faIls.

    Make a list of top 10 names at firms and estimate of millions of salaries,bonuses,stock sales, etc. and

    confront them with escrow idea.

    My idea will resonate with MAIN ST.

    Sam Burlington, MA

  • Report this Comment On October 12, 2008, at 9:42 PM, macc60 wrote:

    I'm somewhat confused by some of the posts, so please clarify a couple of things for someone without a finance background. Although some of the legislation that has been passed in the past 6 years or so inceased the opportunity of homeownership for low income, riskier consumers ...is that the entire reason NINA loans and other creative mortgages were developed? I thought that as the Fed Chairman continued to lower the interest rate, Wall Street looked elsewhere for low risk investment and began to devour the mortgage backed securities? As the need for more and more of these securities increased didn't the mortgage brokers start selling loans to riskier and riskier customers just to satisfy the needs of the investor? I guess it didn't hurt that some of these mortgage brokers were making $10,000 a loan. So I guess my question is did these loans get made to satisfy the government's requirement to give homeownership to these risky people or were so many loans made because so many people were making so much money off these mortgage backed securities. It seemed that alot of the folks making these loans didn't really care what happened down the line...is that right? Also can someone address the ratings these trunches were given...someone told me the inappropriately high ratings for these were also a problem. And a statement, not a question...Frank Raines has nothing to do with the Obama campaign.

  • Report this Comment On October 19, 2008, at 10:41 AM, RFW4U wrote:

    Answer to macc60

    The confusion that you express comes from the way of looking at the issue. It is not an EITHER/OR, it is a BOTH/AND.

    The impetuous of the issue was the changing (CHANGE is GOOD???) how banks issued mortgages to help low income folks into home ownership.

    Once in place, the banks issued these type of mortgages to all. Who is "low income" when having to show level of income is not required to get the mortgage.

    On your statement "... Frank Raines has nothing to do with the Obama campaign."

    Is a contradiction to this Washington Post article stating "... Barack Obama's presidential campaign seeking his (Raines) advice on mortgage and housing matters."

    Raines may not be a "paid advisor", but he all ready got $90 mil, he does need to be "paid".

    In July, Mr. Raines was interviewed by Anita Huslin, a business reporter for the Washington Post.

    "In the four years since he stepped down as Fannie Mae's chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself," Ms. Huslin's story began. "He has shaved eight points off his golf handicap, taken a corner office in Steve Case's D.C. conglomeration of finance, entertainment and health care companies and, more recently, taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing matters."

  • Report this Comment On December 30, 2008, at 5:37 PM, journeywithme wrote:

    Some very interesting comments posted. I didn;t think about the rating aspect.. good point. I guess as an individual investor trying to navigate these muddy waters... you really have to do your Due Diligence.

    I'm new on my investment journey; does anyone think that now may be a good time to buy?

    Be well.

    http://www.ourstockmarketjourney.blogspot.com/

  • Report this Comment On December 30, 2008, at 6:34 PM, halftide wrote:

    In my opinion the article wants to pick on individuals but doesn’t concentrate on the ideological cause of the breakdown of the financial market. It is nice reading if you want to be mad at someone. The wheels came off Fanny Mae and Freddy Mak for good reason. The reason was that good business practices were not being followed and this perversion was being actively encouraged across a wide range of interconnected regulations. To blame these guys is like saying “ BAD shark!!” The “Government” and body politic was insidiously manipulating and appearing to protect/reward companies for taking actions which would under free market scrutiny have been quickly punished. This manipulation for political purposes began slowly under the Carter Administration (possible earlier) and evolved for years along with the justifying “FOOLISH LOGIC” for the more foolish and the more foolish incentives. The PC defense was raised to new heights. In the ideological frenzy what happened is analogous to chumming or slowly increasing the temperature in the pot to boil the frog. Telling the frog that he was uncaring and insensitive if he sensed or was concerned that the heat was rising is the creative use of the ad hominem logical fallacy . This ill-logic has now evolved enough to be pretty transparent.

    This recession is NOT a failure of good business practices. It is a failure of directed government manipulation of the financial markets for political purposes. Do not take this assertion as a blanket condemnation of regulation which imposes additional costs on business for the good of the public. However, if there is a lesson to be learned then it is that the economic system is extremely fragile and built on leverages and manipulations of good practices can have bad consequences with astounding multipliers.

    We don’t fix this problem by ignoring the cause and concentrating on the correlations. Sharks and opportunists are attracted by…Gosh gee wiz!.....opportunities. They are not bad it is just what they do. The Government for political purposes, perhaps unintentionally, put everything of value in play, including the village milking cow and created an artificial huge opportunity and guess what the misdirected political manipulation attracted. We have a choice, we can protect the ad hominem fallacy and concentrate on blaming the Sharks or truly understand the problem so that the lesson can be registered indelibly.

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