I’ve kept a running log over the past few years, with some history included, updated to 2011. Sometimes, it helps to have a long view on how we got to where we are today. A bit long-winded, but worth the read. Share with your friends.
A 100 Year History of the US Banking and Home Mortgage Industry
1929 During the decade of the 20’s stock markets were driven higher as Commercial banks loaned purchasers money to leverage the purchase of stocks. In October, the house of cards implodes when price dips put purchasers “upside-down†on their stock loans. The stock market falls 90% driving the country into a decade long depression. The stock market does not set a new high for 25 years.
1933 Glass-Steagall act separates Investment banks and Commercial banks into separate business venues. Excessive Commercial exposure to the Investment community was hypothesized as a root cause of the 1929 crash. On April 5th, FDR made it a criminal act for US citizens to own gold.
1938 Fannie Mae is chartered as a semi-independent agency to purchase loans from banks in the secondary market increasing home ownership. These loans are re-packaged and sold to investors. Over the next 70 years it grows to be the largest and most influential mortgage entity in America.
1961 John Kennedy takes office and brings with him a host of Boston, (i.e. Keynesian), economists. The idea that the country can run large deficits without systemic harm to the economy becomes standard government operating principle.
1965 The DJIA stalls at 1,000 and does not surpass this psychological barrier until 1982.
1968 Democrat Congress votes Government-Sponsored-Entity, (GSE), status to Fannie Mae, backing mortgages with implied faith and credit of the US Government.
1970 Freddie Mac is chartered by Congress with the Emergency Home Finance Act of 1970 to provide competition to Fannie Mae. Democrat Congress votes GSE status to Freddie Mac, backing mortgages with implied faith and credit of the US Government.
1980 The Carter administration liberalizes rules governing Savings & Loans, allowing them to operate more like Commercial banks.
1983 Thirty-five percent of the nation’s S&L’s are unprofitable. By 1995, over a thousand S&L’s will be bankrupted.
1987 On October 23, (Black Friday), the Dow falls 23% in one day. The crash was largely blamed on new automated program trades in a declining market. Drexel Burnham Lambert creates the first Collateralized Debt Obligation, (CDO). Until CDO’s, you could only insure the amount of debt outstanding, but the new CDO allows banks to “wager†on synthetic debts.
1989 Resolution Trust Corporation is created by the Federal government to purchase insolvent Savings & Loans. The move stops a credit crisis and the government sells all assets at no loss to the taxpayer.
1997-98 The Asian currency crisis starts by the depreciation of currencies of several Asian nations, including South Korea, Indonesia, and Thailand. To increase liquidity, the US Federal Reserve, (Alan Greenspan), injects billions to the money supply lowering the prime rate to 1%.
1999 After 66 years, the Glass-Steagall act repealed by the Gramm-Leach-Bliley act allowing Commercial banks to operate in the Investment environment again. President Clinton signs into law.
1999 President Clinton pressures Fannie Mae President, Franklin Raines, to lower loan criteria with the goal of increasing home ownership among lower income people, (NYTimes September 30, 1999). Low credit hurdles plus low interest rates forced by the Fed, fuel an historic inflation of home prices from 2001-2007 and creates the “subprime†market for loans.
2002 Superior Bank, headed by Penny Pritzker fails due to shady loan practices. Ms. Pritzker goes on to become Barak Obama’s campaign finance chairman.
2002 Senate Banking Chairman Chris Dodd gains a “sweetheart mortgage†from CountryWide Financial for a vacation home in Delaware.
2005 Congressional efforts to reverse the runaway growth of Fannie Mae and Freddie Mac are subverted by democrats, including; Chris Dodd, (Senate Banking Committee Chairman), Barak Obama, and Barney Frank, (Chairman of the House Financial Services Committee). The three were the highest recipients of contributions from Fannie Mae.
2006 Federal Reserve, (Bernanke), ceases reporting of M3 money supply. M3 is the total of liquid, (cash), assets known as M1 and intermediate assets, (savings), known as M2 plus the sum of very large and longer term assets, (e.g. homes).
2006 Home prices are inflating at a rate of 16% per year and existing homeowners tap into equity for loans for increased purchasing power. M3 estimates sky-rocket although unreported by official sources.
2007 Stock market peaks at 14,400 as average housing prices fall 4% in the face of increasing interest rates and insolvent homeowners. On October 31st, Meredith Whitney issues a scathing report on the mismanagement at Citigroup, questioning its solvency.
2008 All major Wall Street Investment banks fail in a liquidity crisis driven by complex loan instruments and a lack of trust in each other’s’ asset quality. These insolvent loans of the past 10 years have been packaged, divided, and repackaged again into untraceable securities that will never be unraveled, (CDO’s). The credit crisis weaves throughout all countries and economies. Repackaged mortgage securities sold to European governments create crisis in Iceland, Spain, Greece, Portugal, and Ireland. The stock market falls below 8,000. Congress passes, against opposition of the people, a $700 Billion bail-out plan to purchase toxic assets from banks and add capital to the banking system, (TARP). Details of TARP are not released to the public for review. Fannie Mae and Freddie Mac are taken over by the Federal government putting $5 Trillion in debt onto the Federal balance sheet. The turmoil sweeps Barak Obama into the Presidency with both legislative bodies controlled by Democrats.
2009 Wall Street pays bonuses exceeding $1 Million each to over 5,000 people. Profits for the year exceed $61 Billion, (WSJ November 14, 2010). Unemployment in the US hits 9.7% by July. DJIA bottoms at 6400.
2010 Unemployment in the US is 10.6% in January.
2010 Federal judges put a halt to home foreclosures when it is discovered that bankers have fraudulently processed documents. The Federal Reserve, (Bernanke), initiates “QE2†to purchase $650 Billion of US Treasuries from Goldman-Sachs in an attempt to force bankers to loan out the TARP monies rather than buy Treasuries themselves. Since TARP, bankers have taken the zero-interest money from the government, (in exchange for worthless assets as collateral), and bought secure US Treasuries that were paying 2-3%. Salaries and bonuses on Wall Street set new records. Public discontent with all political entities brings “Tea-Party†Republicans into the House of Representatives, eliminating the Democrat majority.
2010 The global debt crisis and computer-driven stock trades drive market down 900 points in a few minutes on May 6th. Total market swing hits a record of 1,010 points in a single day crushing public investor confidence in the fairness of the stock market.
2011 Unemployment in the US is 9.8% in January. Approx. 35% of homeowners are upside-down in home equity as prices continue their slide. Median home price falls from $250k in 2007 to $160k in 2011, a 35% drop, removing $18 Trillion in net worth from American homeowners. Wall Street salaries and bonuses have another blow-out year. On February 19th, Federal Prosecutors drop charges against Angelo Mozilo, Chief Executive of CountryWide Financial. (see 2002)
2011 Losing a Federal Court decision, the Federal Reserve releases details of TARP payouts under the Freedom of Information Act. A web of faux-hedge funds financed by TARP is uncovered and it is revealed that many foreign countries and companies received TARP bailout money. The news is largely unreported except in, (the April 28th), Rolling Stone Magazine. Standard & Poor’s issues a “Negative Outlook†on US Treasury debt, a historic first.
