Friday October 10, 2008
"A lot of Europeans wonder: Why are Americans so crazy, they keep reelecting this guy?” Well the answer is, we don’t! They keep stealing these elections! And they stole it in 2000, they stole it in 2004, and they’re all set up to steal it again!" - Robert F. Kennedy Jr. on BBC Television Newsnight.
On Friday at 6pm and 10pm Eastern Time, BBC America will bust open the story of the systematic attack on US voters that could easily cost Barack Obama the White House. (Watch the promo below)
Or watch it, beginning Friday night, at www.Gregpalast.com.
http://www.youtube.com/watch?v=YinIF6L4Y9Y
Newsnight investigative reporter Greg Palast travels from the Native pueblos of New Mexico to the war-zone of the 8 Mile neighborhood of Detroit to meet some of the three million voters who have been disappeared by a GOP campaign draining voter rolls of the poor, the dark-skinned, the defenseless.
In Detroit, Palast is bounced out of the local McCain headquarters - housed under the black flag (literally) of foreclosure profiteers. We meet Robert Pratt, a union worker, who fears he will lose his home - and his vote.
Are the Republicans turning a economic devastation into an electoral bonanza?
BBC Reporter Palast follows the path of investigation laid out by civil rights attorney Robert F. Kennedy Jr. - encountering along the way the Republican Party lawyers, funders - and Karl Rove. The GOP charges that the Democrats have registered five million fraudulent voters, a claim backed by a recent US government report.
Palast meets the report's author - who claims her words were turned upside down. And they went to court to stop her from speaking out.
Democrats don't have clean hands either, as Palast discloses: from the Acoma Pueblo, we find Natives (almost all Democrats) who've had their ballots illegally junked by local Democrats.
But whichever party attacks the poor, it's McCain that's the winner.
Newsnight is the British Broadcasting Corporations premier current affairs show. Broadcast earlier this week in London, it exposed the story of the mass purge of voters in Colorado, re-reported in the New York Times.
The show will be repeated 8am Eastern on Sunday.
********* Greg Palast and Robert F. Kennedy Jr. are co-authors of "Steal Back Your Vote" the investigative comic book and voter guide - available at StealBackYourVote.org. Jesse Jackson says "download it - and fight back."
Funding for the investigations was provided by the Nation Institute/Puffin Foundation.
With all the huffing, and puffing, going on in Congress over the Bailout, I decided to check to see who my Congressman was and I have become quite surprised at what I found. Although we may all know that Dianne Feinstein , and Barbara Boxer are strong women Democrats holding down the Senate, I was dismayed to find out however, that my Congressmen (Split District, so there are two in my area) are Republican, and have been voting "No" on some important legistlation to protect consumers and job creation and the lke.
Luckily the legistlation still passed, but the fact that they tried to defeat it, has given me pause, and has reminded me that the Congressmen, and Assembly persons in your local towns can have a more profound affect on what goes on in Washington from within your own city and neighborhoods, more so than Barck Obama can. Because remember, even if Barack wins the White House, if the House falls to a Republican majority in 2010, he'll have to contend with gridlock.
Hence, I am encouraging everyone to take a minute and visit the following website "Roll Call" and make sure you know who is your Congressman. With only a few clicks you can then check to see how they have been votin. You might be surprised.
Vision
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Congressman for District 22 (Lancaster, Bakersfield and Ridgecrest, CA)Kevin McCarthy - (R)
Congressman for District 22 (Lancaster, Bakersfield and Ridgecrest, CA)
Kevin McCarthy - (R)
House Votes Y=Yes/N=No
Passed Making supplemental appropriations for job creation and preservation, infrastructure investment, and economic and energy assistance for the fiscal year ending September 30, 2009 09/26/2008 Voted N
Passed Renewable Energy and Job Creation Tax Act of 2008 09/26/2008 Voted N
Passed Alternative Minimum Tax Relief Act of 2008 09/24/2008 Voted Y
Passed Making appropriations for the Department of Homeland Security for fiscal year ending September 30, 2008 09/24/2008 Voted Y
Passed Credit Cardholders Bill of Rights Act of 2008 09/23/2008 Voted N
Passed No Child Left Inside Act of 2008 09/18/2008 Voted N
Passed Commodity Markets Transparency and Accountability Act 09/18/2008 Voted N
Passed National Capital Security and Safety Act 09/17/2008 Voted Y
Passed Comprehensive American Energy Security and Consumer Protection Act 09/17/2008 Voted N
Passed To amend the Internal Revenue Code of 1986 to restore the Highway Trust Fund balance 09/11/2008 Voted Y
Website: kevinmccarthy.house.gov
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Congressman for District 25 (Barstow, Palmdale and Santa Clarita, CA) Howard Mc Keon - (R)
Congressman for District 25 (Barstow, Palmdale and Santa Clarita, CA)
Howard Mc Keon - (R)
Passed Credit Cardholders Bill of Rights Act of 2008 09/23/2008 Voted Voted N
Passed No Child Left Inside Act of 2008 09/18/2008 Voted Y
Website: mckeon.house.gov
Washington, D.C. Office: 2351 Rayburn House Office Building, District of Columbia 20515-0525 Phone: (202) 225-1956 Fax: (202) 226-0683 Santa Clarita Office: (more district offices)
A credit default swap (CDS) is a credit derivative contract between two counterparties, whereby the "buyer" or "fixed rate payer" pays periodic payments to the "seller" or "floating rate payer" in exchange for the right to a payoff if there is a default[1] or "credit event" in respect of a third party or "reference entity".
If a credit event occurs, the typical contract either settles by delivery by the buyer to the seller of a (usually defaulted) debt obligation of the reference entity against a payment by the seller of the par value ("physical settlement") or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation, typically determined in an auction ("cash settlement").
A credit default swap resembles an insurance policy, as it can be used by a debt holder to hedge, or insure against a default under the debt instrument. However, because there is no requirement to actually hold any asset or suffer a loss, a credit default swap can also be used for speculative purposes and it is not generally considered insurance for regulatory purposes.
Credit default swaps are the most widely traded credit derivative product[2] and the Bank for International Settlements reported the notional amount on outstanding OTC credit default swaps to be $42.6 trillion[3] in June 2007, up from $28.9 trillion in December 2006 ($13.9 trillion in December 2005) and by the end of 2007 there were an estimated USD 45[3] to 62.2[4] trillion worth of Credit Default Swap contracts.
In the US, the Office of the Comptroller of the Currency reported the notional amount on outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March, 2008.
A CDS contract is typically documented under a confirmation referencing the credit derivatives definitions as published by the International Swaps and Derivatives Association.[5] The confirmation typically specifies a reference entity, a corporation or sovereign that generally, although not always, has debt outstanding, and a reference obligation, usually an unsubordinated corporate bond or government bond. The period over which default protection extends is defined by the contract effective date and scheduled termination date.
The confirmation also specifies a calculation agent who is responsible for making determinations as to successors and substitute reference obligations, and for performing various calculation and administrative functions in connection with the transaction. By market convention, in contracts between CDS dealers and end-users, the dealer is generally the calculation agent, and in contracts between CDS dealers, the protection seller is generally the calculation agent. It is not the responsibility of the calculation agent to determine whether or not a credit event has occurred but rather a matter of fact that, pursuant to the terms of typical contracts, must be supported by publicly available information delivered along with a credit event notice. Typical CDS contracts do not provide an internal mechanism for challenging the occurrence or non-occurrence of a credit event and rather leave the matter to the courts if necessary, though actual instances of specific events being disputed are relatively rare.
CDS confirmations also specify the credit events that will give rise to payment obligations by the protection seller and delivery obligations by the protection buyer. Typical credit events include bankruptcy with respect to the reference entity and failure to pay with respect to its direct or guaranteed bond or loan debt. CDS written on North American investment grade corporate reference entities, European corporate reference entities and sovereigns generally also include restructuring as a credit event, whereas trades referencing North American high yield corporate reference entities typically do not. The definition of restructuring is quite technical but is essentially intended to respond to circumstances where a reference entity, as a result of the deterioration of its credit, negotiates changes in the terms in its debt with its creditors as an alternative to formal insolvency proceedings (i.e., the debt is restructured). This practice is far more typical in jurisdictions that do not provide protective status to insolvent debtors similar to that provided by Chapter 11 of the United States Bankruptcy Code. In particular, concerns arising out of Conseco's restructuring in 2000 led to the credit event's removal from North American high yield trades.[6]
Finally, standard CDS contracts specify deliverable obligation characteristics that limit the range of obligations that a protection buyer may deliver upon a credit event. Trading conventions for deliverable obligation characteristics vary for different markets and CDS contract types. Typical limitations include that deliverable debt be a bond or loan, that it have a maximum maturity of 30 years, that it not be subordinated, that it not be subject to transfer restrictions (other than Rule 144A), that it be of a standard currency and that it not be subject to some contingency before becoming due.
Sellers of CDS contracts will give a par quote (see par value) for a given reference entity, seniority, maturity and restructuring e.g. a seller of CDS contracts may quote the premium on a 5 year CDS contract on Ford Motor Company senior debt with modified restructuring as 100 basis points. The par premium is calculated so that the contract has zero present value on the effective date. This is because the expected value of protection payments is exactly equal and opposite to the expected value of the fee payments. The most important factor affecting the cost of protection provided by a CDS is the credit quality (often proxied by the credit rating) of the reference obligation. Lower credit ratings imply a greater risk that the reference entity will default on its payments and therefore the cost of protection will be higher.
The swap adjusted spread of a CDS should trade closely with that of the underlying cash bond issued by the reference entity. Misalignments in spreads may occur due to technical minutiae such as specific settlement differences, shortages in a particular underlying instrument, and the existence of buyers constrained from buying exotic derivatives. The difference between CDS spreads and Z-spreads or asset swap spreads is called the basis.
To give an example, ABC Corporation may have its credit default swaps currently trading at 265 basis points. In other words, the cost to insure 10 million euros of its debt would be 265,000 euros per annum. If the same CDS had been trading at 170 basis points a year before, it would indicate that markets now view ABC as facing a greater risk of default on its obligations.
There are two competing theories usually advanced for the pricing of credit default swaps. The first, which for convenience we will refer to as the 'probability model', takes the present value of a series of cashflows weighted by their probability of non-default. This method suggests that credit default swaps should trade at a considerably lower spread than corporate bonds.
The second model, proposed by Darrell Duffie, but also by Hull and White, uses a no-arbitrage approach.
Under the probability model, a credit default swap is priced using a model that takes four inputs:
If default events never occurred the price of a CDS would simply be the sum of the discounted premium payments. So CDS pricing models have to take into account the possibility of a default occurring some time between the effective date and maturity date of the CDS contract. For the purpose of explanation we can imagine the case of a one year CDS with effective date t0 with four quarterly premium payments occurring at times t1, t2, t3, and t4. If the nominal for the CDS is N and the issue premium is c then the size of the quarterly premium payments is Nc / 4. If we assume for simplicity that defaults can only occur on one of the payment dates then there are five ways the contract could end: either it does not have any default at all, so the four premium payments are made and the contract survives until the maturity date, or a default occurs on the first, second, third or fourth payment date. To price the CDS we now need to assign probabilities to the five possible outcomes, then calculate the present value of the payoff for each outcome. The present value of the CDS is then simply the present value of the five payoffs multiplied by their probability of occurring.
In the 'no-arbitrage' model proposed by both Duffie, and Hull and White, it is assumed that there is no risk free arbitrage. Duffie uses the LIBOR as the risk free rate, whereas Hull and White use US Treasuries as the risk free rate. Both analyses make simplifying assumptions (such as the assumption that there is zero cost of unwinding the fixed leg of the swap on default), which may invalidate the no-arbitrage assumption. However the Duffie approach is frequently used by the market to determine theoretical prices. Under the Duffie construct, the price of a credit default swap can also be derived by calculating the asset swap spread of a bond. If a bond has a spread of 100, and the swap spread is 70 basis points, then a CDS contract should trade at 30. However owing to inefficiencies in markets, this is not always the case. The difference between the theoretical model and the actual price of a credit default swap is known as the basis.[citation needed]
Like most financial derivatives, credit default swaps can be used to hedge existing exposures to credit risk, or to speculate on changes in credit spreads.
Credit default swaps can be used to manage credit risk without necessitating the sale of the underlying cash bond. Owners of a corporate bond can protect themselves from default risk by purchasing a credit default swap on that reference entity.
For example, a pension fund owns $10 million worth of a five-year bond issued by Risky Corporation. In order to manage the risk of losing money if Risky Corporation defaults on its debt, the pension fund buys a CDS from Derivative Bank in a notional amount of $10 million that trades at 200 basis points. In return for this credit protection, the pension fund pays 2% of 10 million ($200,000) in quarterly installments of $50,000 to Derivative Bank. If Risky Corporation does not default on its bond payments, the pension fund makes quarterly payments to Derivative Bank for 5 years and receives its $10 million loan back after 5 years from the Risky Corporation. Though the protection payments reduce investment returns for the pension fund, its risk of loss due to Risky Corporation defaulting on the bond is eliminated. (However, the fund still faces counterparty risk if Derivative Bank becomes insolvent and cannot honor the CDS contract). If Risky Corporation defaults on its debt 3 years into the CDS contract, the pension fund would stop paying the quarterly premium, and Derivative Bank would ensure that the pension fund is refunded for its loss of $10 million (either by taking physical delivery of the defaulted bond for $10 million or by cash settling the difference between par and recovery value of the bond). Another scenario would be if Risky Corporation's credit profile improved dramatically or it is acquired by a stronger company after 3 years, the pension fund could effectively cancel or reduce its original CDS position by selling the remaining two years of credit protection in the market.
Credit default swaps give a speculator a way to profit from changes in a company's credit quality. A protection seller in a credit default swap effectively has an unfunded exposure to the underlying cash bond or reference entity, with a value equal to the notional amount of the CDS contract.
For example, if a company has been having problems, it may be possible to buy the company's outstanding debt (usually bonds) at a discounted price. If the company has $1 million worth of bonds outstanding, it might be possible to buy the debt for $900,000 from another party if that party is concerned that the company will not repay its debt. If the company does in fact repay the debt, you would receive the entire $1 million and make a profit of $100,000. Alternatively, one could enter into a credit default swap with the other investor, by selling credit protection and receiving a premium of $100,000. If the company does not default, one would make a profit of $100,000 without having invested anything.
It is also possible to buy and sell credit default swaps that are outstanding. Like the bonds themselves, the cost to purchase the swap from another party may fluctuate as the perceived credit quality of the underlying company changes. Swap prices typically decline when creditworthiness improves, and rise when it worsens. But these pricing differences are amplified compared to bonds. Therefore someone who believes that a company's credit quality would change could potentially profit much more from investing in swaps than in the underlying bonds, although encountering a greater loss potential.
The U.S. federal income tax treatment of credit default swaps is uncertain.[7] Commentators generally believe that, depending on how they are drafted, they are either notional principal contracts or options for tax purposes,[8] but this is not certain. There is a risk of having credit default swaps recharacterized as different types of financial instruments because they resemble put options and credit guarantees. In particular, the degree of risk depends on the type of settlement (physical/cash and binary/FMV) and trigger (default only/any credit event).[9] If a credit default swap is a notional principal contract, periodic and nonperiodic payments on the swap are deductible and included in ordinary income.[10] If a payment is a termination payment, its tax treatment is even more uncertain.[11] In 2004, the Internal Revenue Service announced that it was studying the characterization of credit default swaps in response to taxpayer confusion,[12] but it has not yet issued any guidance on their characterization. A taxpayer must include income from credit default swaps in ordinary income if the swaps are connected with trade or business in the United States.[13]
Warren Buffett famously described derivatives bought speculatively as "financial weapons of mass destruction." In Berkshire Hathaway's annual report to shareholders in 2002, he said, "Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses--often huge in amount--in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)." The same report, however, also states that he uses derivatives to hedge, and that some of Berkshire Hathaway's subsidiaries have sold and currently sell derivatives with notional amounts in the tens of billions of dollars.[14] Berkshire Hathaway, with a market capitalization of $196 billion[15], certainly does have enough equity to collateralize or guarantee these contracts.
The market for credit derivatives is now so large, in many instances the amount of credit derivatives outstanding for an individual name is vastly greater than the bonds outstanding. For instance, company X may have $1 billion of outstanding debt and there may be $10 billion of CDS contracts outstanding. If such a company were to default, and recovery is 40 cents on the dollar, then the loss to investors holding the bonds would be $600 million. However the loss to credit default swap sellers would be $6 billion. When the CDS have been made for purely speculative purposes, in addition to spreading risk, credit derivatives can also amplify those risks. If the CDS were being used to hedge, the notional value of such contracts would be expected to be less than the size of the outstanding debt as the majority of such debt will be owned by investors who are happy to absorb the credit risk in return for the additional spread or risk premium. A bond hedged with CDS will, at least theoretically, generate returns close to LIBOR but with additional volatility. Long term investors would consider such returns to be of limited value. However speculators may profit from these differences and therefore improve market efficiency by driving the price of bonds and CDS closer together.
However CDS premiums can act as a good barometer of company's health. If investors are not sure about a firm's credit quality they will demand protection thus pushing up CDS spreads on that name in the market. Equity markets will then draw a cue from the credit markets and push down the stock price based on fear of corporate default. For example the credit spread of Bear Stearns widened significantly in the period immediately prior to being bailed out by the Fed and JP Morgan, providing equity investors with advance warning of impending problems at the company.[citation needed]
In the US, the settlement and processing of a CDS contract is currently the subject of concern by the US Federal Reserve. In 2005, the Federal Reserve obtained a commitment by 14 major dealers to upgrade their systems and reduce the backlog of "unprocessed" CDS contracts. As of January 31, 2006, the dealers had met their commitment and achieved a 54% reduction.[16]
In addition, growing concern over the sheer volume of CDS contracts potentially requiring physical settlement after credit events for names actively traded in the single-name and index-trade market where the notional value of CDS contracts dramatically exceeds the notional value of deliverable bonds has led to the increasing application of cash settlement auction protocols coordinated by ISDA. Successful auction protocols have been applied following credit events in respect of Collins & Aikman (With distinguished employee Pawel), Delphi Corporation, Delta Air Lines and Northwest Airlines, Calpine Corporation, Dana Corporation, Dura Operating Corporation and Quebecor. ISDA is also using a protocol for the settlement of contracts on Fannie Mae and Freddie Mac debt, after these entities were placed in conservatorship.[17]
A new type of default swap is the "loan only" credit default swap (LCDS). This is conceptually very similar to a standard CDS, but unlike "vanilla" CDS, the underlying protection is sold on syndicated secured loans of the Reference Entity rather than the broader category of "Bond or Loan". Also, as of May 22, 2007, for the most widely traded LCDS form, which governs North American single name and index trades, the default settlement method for LCDS shifted to auction settlement rather than physical settlement. The auction method is essentially the same that has been used in the various ISDA cash settlement auction protocols, but does not require parties to take any additional steps following a credit event (i.e., adherence to a protocol) to elect cash settlement. On October 23, 2007, the first ever LCDS auction was held for Movie Gallery.[4]
Because LCDS trades are linked to secured obligations with much higher recovery values than the unsecured bond obligations that are typically assumed to be cheapest to deliver in respect of vanilla CDS, LCDS spreads are generally much tighter than CDS trades on the same name.
They're called "Off-Site Weekends"—rituals of the high-finance world in which teams of bankers gather someplace sunny to blow off steam and celebrate their successes as Masters of the Universe. Think yacht parties, bikini models, $1,000 bottles of Cristal. One 1994 trip by a group of JPMorgan bankers to the tony Boca Raton Resort & Club in Florida has become the stuff of Wall Street legend—though not for the raucous partying (although there was plenty of that, too). Holed up for most of the weekend in a conference room at the pink, Spanish-style resort, the JPMorgan bankers were trying to get their heads around a question as old as banking itself: how do you mitigate your risk when you loan money to someone? By the mid-'90s, JPMorgan's books were loaded with tens of billions of dollars in loans to corporations and foreign governments, and by federal law it had to keep huge amounts of capital in reserve in case any of them went bad. But what if JPMorgan could create a device that would protect it if those loans defaulted, and free up that capital?
What the bankers hit on was a sort of insurance policy: a third party would assume the risk of the debt going sour, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves. The scheme was called a "credit default swap," and it was a twist on something bankers had been doing for a while to hedge against fluctuations in interest rates and commodity prices. While the concept had been floating around the markets for a couple of years, JPMorgan was the first bank to make a big bet on credit default swaps. It built up a "swaps" desk in the mid-'90s and hired young math and science grads from schools like MIT and Cambridge to create a market for the complex instruments. Within a few years, the credit default swap (CDS) became the hot financial instrument, the safest way to parse out risk while maintaining a steady return. "I've known people who worked on the Manhattan Project," says Mark Brickell, who at the time was a 40-year-old managing director at JPMorgan. "And for those of us on that trip, there was the same kind of feeling of being present at the creation of something incredibly important."
Like Robert Oppenheimer and his team of nuclear physicists in the 1940s, Brickell and his JPMorgan colleagues didn't realize they were creating a monster. Today, the economy is teetering and Wall Street is in ruins, thanks in no small part to the beast they unleashed 14 years ago. The country's biggest insurance company, AIG, had to be bailed out by American taxpayers after it defaulted on $14 billion worth of credit default swaps it had made to investment banks, insurance companies and scores of other entities. So much of what's gone wrong with the financial system in the past year can be traced back to credit default swaps, which ballooned into a $62 trillion market before ratcheting down to $55 trillion last week—nearly four times the value of all stocks traded on the New York Stock Exchange. There's a reason Warren Buffett called these instruments "financial weapons of mass destruction." Since credit default swaps are privately negotiated contracts between two parties and aren't regulated by the government, there's no central reporting mechanism to determine their value. That has clouded up the markets with billions of dollars' worth of opaque "dark matter," as some economists like to say. Like rogue nukes, they've proliferated around the world and now lie hiding, waiting to blow up the balance sheets of countless other financial institutions.
It didn't start out that way. One of the earliest CDS deals came out of JPMorgan in December 1997, when the firm put into place the idea hatched in Boca Raton. It essentially took 300 different loans, totaling $9.7 billion, that had been made to a variety of big companies like Ford, Wal-Mart and IBM, and cut them up into pieces known as "tranches" (that's French for "slices"). The bank then identified the riskiest 10 percent tranche and sold it to investors in what was called the Broad Index Securitized Trust Offering, or Bistro for short. The Bistro was put together by Terri Duhon, at the time a 25-year-old MIT graduate working on JPMorgan's credit swaps desk in New York—a division that would eventually earn the name the Morgan Mafia for the number of former members who went on to senior positions at global banks and hedge funds. "We made it possible for banks to get their credit risk off their books and into nonfinancial institutions like insurance companies and pension funds," says Duhon, who now heads her own derivatives consulting business in London.
Before long, credit default swaps were being used to encourage investors to buy into risky emerging markets such as Latin America and Russia by insuring the debt of developing countries. Later, after corporate blowouts like Enron and WorldCom, it became clear there was a big need for protection against company implosions, and credit default swaps proved just the tool. By then, the CDS market was more than doubling every year, surpassing $100 billion in 2000 and totaling $6.4 trillion by 2004.
And then came the housing boom. As the Federal Reserve cut interest rates and Americans started buying homes in record numbers, mortgage-backed securities became the hot new investment. Mortgages were pooled together, and sliced and diced into bonds that were bought by just about every financial institution imaginable: investment banks, commercial banks, hedge funds, pension funds. For many of those mortgage-backed securities, credit default swaps were taken out to protect against default. "These structures were such a great deal, everyone and their dog decided to jump in, which led to massive growth in the CDS market," says Rohan Douglas, who ran Salomon Brothers and Citigroup's global credit swaps division through the 1990s.
By Janet Morrissey Monday, Mar. 17, 2008
Traders work on the floor of the New York Stock Exchange. Richard Drew / AP
Credit default swaps are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. The buyer of the credit default insurance pays premiums over a period of time in return for peace of mind, knowing that losses will be covered if a default happens. It's supposed to work similarly to someone taking out home insurance to protect against losses from fire and theft.
Except that it doesn't. Banks and insurance companies are regulated; the credit swaps market is not. As a result, contracts can be traded — or swapped — from investor to investor without anyone overseeing the trades to ensure the buyer has the resources to cover the losses if the security defaults. The instruments can be bought and sold from both ends — the insured and the insurer.
All of this makes it tough for banks to value the insurance contracts and the securities on their books. And it comes at a time when banks are already reeling from write-downs on mortgage-related securities. "These are the same institutions that themselves have either directly or through subsidiaries invested in the subprime market," said Andrea Pincus, partner at Reed Smith LLP. "They're suffering losses all over the place," and now they face potentially more losses from the CDS market.
Indeed, commercial banks are among the most active in this market, with the top 25 banks holding more than $13 trillion in credit default swaps — where they acted as either the insured or insurer — at the end of the third quarter of 2007, according to the Comptroller of the Currency, a federal banking regulator. JP Morgan Chase, Citibank, Bank of America and Wachovia were ranked among the top four most active, it said.
Credit default swaps were seen as easy money for banks when they were first launched more than a decade ago. Reason? The economy was booming and corporate defaults were few back then, making the swaps a low-risk way to collect premiums and earn extra cash. The swaps focused primarily on municipal bonds and corporate debt in the 1990s, not on structured finance securities. Investors flocked to the swaps in the belief that big corporations would seldom go bust in such flourishing economic times.
The CDS market then expanded into structured finance, such as CDOs, that contained pools of mortgages. It also exploded into the secondary market, where speculative investors, hedge funds and others would buy and sell CDS instruments from the sidelines without having any direct relationship with the underlying investment. "They're betting on whether the investments will succeed or fail," said Pincus. "It's like betting on a sports event. The game is being played and you're not playing in the game, but people all over the country are betting on the outcome."
But as the economy soured and the subprime credit crunch began expanding into other credit areas over the past year, CDS investors became jittery. They wondered if the parties holding the CDS insurance after multiple trades would have the financial wherewithal to pay up in the event of mass defaults. "In the past six to eight months, there's been a deterioration in market liquidity and the ability to get willing buyers for structured finance securities," causing the values of the securities to fall, said Glenn Arden, a partner at Jones Day who heads up the firm's worldwide securitization practice and New York derivative.
The situation is already taking a toll on insurers, who have been forced to write down the value of their CDS portfolios. American International Group, the world's largest insurer, recently reported the biggest loss in the company's history largely due to an $11 billion writedown on its CDS holdings. Even Swiss Reinsurance Co., the industry's largest reinsurer, took CDS writedowns in the fourth quarter and warned of more to come in the first quarter of 2008.
Monoline bond insurance companies, such as MBIA and Ambac Financial Group Inc., have been hit the hardest as they scramble to raise capital to cover possible defaults and to stave off a downgrade from the ratings agencies. It was this group's foray out of its traditional municipal bonds and into mortgage-backed securities that caused the turmoil. A rating downgrade of the monoline companies could be devastating for banks and others who bought insurance protection from them to cover their corporate bond exposure.
The situation is exacerbated by the heavy trading volume of the instruments, the secrecy surrounding the trades, and — most importantly — the lack of regulation in this insurance contract business. "An original CDS can go through 15 or 20 trades," said Miller. "So when a default occurs, the so-called insured party or hedged party doesn't know who's responsible for making up the default and if that end player has the resources to cure the default."
Prakash Shimpi, managing principal at Towers Perrin, downplays this risk, noting that contractual law requires both parties to inform and get approval from the other before selling the CDS policy to someone else. "These transactions don't take place on a handshake," he said. Still, being unregulated, there is no standard contract, no standard capital requirements, and no standard way of valuating securities in these transactions. As a result, Pincus said she wouldn't be surprised to see a surge in litigation as defaults start happening. "There's a lot of outcry right now for more regulation and more transparency," said Pincus.
A meltdown in the CDS market has potentially even wider ramifications nationwide than the subprime crisis. If bond insurance disappears or becomes too costly, lenders will become even more cautious about making loans, and this could impact everyone from mortgage-seekers to municipalities that need money to fix roads and build schools. "We're seeing players in all of those spaces being more circumspect about whose credit they're going to guarantee and what exactly the credit obligation is," said Ellen Marshall, partner at Manatt, Phelps & Phillips LLP.
Shimpi admits a meltdown or even a slowdown in the CDS market would affect the amount and cost of liquidity in the market. However, he dismisses concerns that municipalities and others seeking capital could be left in the dust. "Even if the U.S. takes a hit, there are other markets in the world that have different dynamics, and capital flows are international," he said.
Still, most agree the potential repercussions are far-reaching. "It's the ripple effects, the domino effects" that are worrisome, said Pincus. "I think it's [going to be] one of the next shoes to fall" in the credit crisis. Miller said the subprime debacle, rising unemployment, record-high oil prices, and now CDS market troubles "have all the makings of the perfect storm.... There are some economists who say this could be another 1929 — but I don't believe it," he said. "We have a lot of safeguards built into the system that did not exist in 1929 and 1930." None of them, though, are directly targeted at CDS. On Wall Street, innovators are always ahead of regulators. And that can sometimes have a very steep price.
This article was amended on Monday September 29 2008
In the article below we said that Blythe Masters of JP Morgan developed the credit derivatives which were at the heart of the current financial crisis. We apologise for unfairly failing to give her an adequate opportunity to respond and for making inaccurate personal references about her. The guide to which we referred was a general guide to credit derivatives and not just about those she created; she was 34, rather than 35, when she became chief financial officer of JP Morgan; and she was not working in hospital before having her baby, but viewing financial data to pass the time.
If Warren Buffett is to be believed in his verdict that derivatives are "financial weapons of mass destruction" then Blythe Masters is one of the destroyers of worlds.
British-born Masters is one of the most powerful women on Wall Street and is widely recognised as one of an elite group dubbed the "JP Morgan mafia" that fostered the creation of the complex credit derivatives at the heart of the current crisis ripping through Wall Street. Many of the highly qualified mathematicians and academics who worked on the credit derivatives market in the early days have gone on to run hedge funds and into high-powered jobs at other investment banks, but most of them started out at JP Morgan.
Masters sees things slightly differently. In a brief email exchange with the Guardian, she said: "I do believe CDSs [credit default swaps] have been miscast, much as poor workmen tend to blame their tools."
In 1997, she and a team developed many of the credit derivatives that were intended to remove risk from companies' balance sheets. The idea was to separate the default risk on loans from the loans themselves.
The risk would be moved into an off-balance sheet vehicle. The product was called Bistro, otherwise known as broad index secured trust offering.
In a guide to understanding the instruments she had created, Masters sung their praises: "In bypassing barriers between different classes, maturities, rating categories, debt seniority levels and so on, credit derivatives are creating enormous opportunities to exploit and profit from associated discontinuities in the pricing of credit risk."
Masters was raised in south-east England, where she attended the exclusive King's public school in Canterbury on a scholarship. She got a economics degree from Cambridge, and from the beginning had been attracted to the esoteric world of derivatives. In her spare time, she is a keen horsewoman.
She joined the JP Morgan commodities desk and worked her way up the organisation. At the age of 35 she was appointed chief financial officer of the investment bank, but for the past two years has been head of currencies and commodities. Her focus on the job reached almost comic levels when she famously took her wireless device into the hospital to get quotes on commodity derivatives as she was having a baby.
The banks argued that by trading credit derivatives of the kind pioneered by Masters, they had spread their risk elsewhere and therefore needed lower reserves to protect against loan defaults. Regulators rolled over and the banks loaned ever more. It was a huge success and the market for credit derivatives grew rapidly.
But the instruments might not have much longer. One of the fall-outs from the current crisis is the call that banks should carry their own risk.
People have been asking the question, "How did this happen?"..."Didn't anyone in the White House see this coming?"
In my opinion the answer is "Yes". At least two people did.
I'm speaking of course about the great Bailout of September 2008. Ironically, it was seven years ago, (almost to the day) that our nation faced another national crisis, via the "Cowardice" attack on the Twin Towers. After thousands of innocent lives lost in two military conflicts spanning five years, and still no Bin Laden, one must stop and ask the question how can one President be so unlucky Governing, while the two industries he and his Vice President hail from, fair so well?
What happened to the "New Sheriff" that came to town and swore to capture Bin-Laden "Dead or Alive" during a State of the Union Address? I've seen plenty of Western movies where the Sheriff protected the bad guys, while getting rich, but by the end of the film the towns people usually ran him out of town with his pants around his ankles.
In October of 2002, George Bush made a speech in which he set forth his agenda to increase minority home ownership. Although I find it hard to believe an entire nation of minorities all of a sudden went bad on their home loans just in time to throw the entire economy into a tailspin just two months shy of Bush's exit from power,
If this crisis is a real manifestation of a failed Real estate market, I would attribute it to be the millions of people from all walks of life, who lost there JOBS as a result of the many crooked Corporations, such as Enron, closing their doors or the automotive industries laying off people by the thousands, thus resulting in leaving people high and dry for income to maintain their homes.
However, for the sake of argument Fannie Mae and Freddie Mac were the catalyst for this crisis, the real question for me is whether or not this is a real crisis that has genuinely blown up in Wall Street's face, or might it have been a train wreck set in motion many years ago with Bush at the controls?
Now I am not a conspiracy theorist, but it is fact that that we were led into War with an elaborate scheme chucked full of charts, aerial photos, and weeks of congressional hearings because Bush just knew for sure he could save the world from Weapons of Mass Destruction, while capturing Bin-Laden Dead or alive, in the process.
Seven years later our troops are still stuck in a sand pit several thousand miles away from any hint of Bin-Laden.
Below, is the transcript from a speech Bush presented to the American people from the White House which set off the Fannie Mae and Freddie Mac frenzy in 2002. When you finish reading it, ask yourself these three questions.
How is it that Bush is from an Oil Family, and for the past eight years Oil Companies have made record profits almost every month, with zero effort to bring alternative fuels to market?
How is it that Cheney used to be a Chairman (only stepped down when picked as V.P. ) with Haliburton a Military Defense Contractor, which has profited hand over fist in the Billions for the past five years, since the onset of the War with no bid contracts?
Finally, how is it that for at least nine months the American people were told month , after month, from Chairman of the Federal Reserve Ben Bernanke that the Economy was doing fine...and then all of a sudden on, or about September 11th, 2008 we are told that our economy is near total collapse?
President George W. Bush addresses the White House Conference on Increasing Minority Homeownership at The George Washington University Tuesday, Oct. 15, 2002THE PRESIDENT: …. I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That's what we want. This is -- an ownership society is a compassionate society. More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a homeownership gap. It's a -- it's a gap that we've got to work together to close for the good of our country, for the sake of a more hopeful future. We've got to work to knock down the barriers that have created a homeownership gap. I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause.) … And it's going to require a strong commitment from those of you involved in the housing industry. … I appreciate so very much the home owners who are with us today, the Arias family, newly arrived from Peru. They live in Baltimore. Thanks to the Association of Real Estate Brokers, the help of some good folks in Baltimore, they figured out how to purchase their own home. Imagine to be coming to our country without a home, with a simple dream. And now they're on stage here at this conference being one of the new home owners in the greatest land on the face of the Earth. I appreciate the Arias family coming. (Applause.) We've got the Horton family from Little Rock, Arkansas, here today. … They were helped by HUD, they were helped by Freddie Mac. … Finally, Kim Berry from New York is here. She's a single mom. You're not going to believe this, but her son is 18 years old. (Laughter.) She barely looked like she was 18 to me. And being a single mom is the hardest job in America. And the idea of this fine American working hard to provide for her child, at the same time working hard to realize her dream, which is owning a home on Long Island, is really a special tribute to the character of this particular person and to the character of a lot of Americans. So we're honored to have you here, Kim, and thanks for being such a good mom and a fine American. (Applause.) I told Mel Martinez I was serious about this initiative… And the good news is, Mel Martinez believes it and means it, as well. He's doing a fine job of running HUD, and I'm glad he has joined my Cabinet. (Applause.) And I picked a pretty spunky deputy, as well, Alphonso Jackson -- my fellow Texan. (Applause.) I call him A.J. … I see Rosario Marin, who's the Treasurer of the United States. Rosario used to be a mayor. Thank you for coming, Madam Mayor. (Applause.) She understands how important housing is. … All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners. Owning something is freedom, as far as I'm concerned. It's part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it's safe or not. It brings pride to people, it's a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It's a part of -- it's of being a -- it's a part of -- an important part of America. Homeownership is also an important part of our economic vitality. If -- when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; … Low interest rates, low inflation are very important foundations for economic growth. The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country, it's good for the pocketbook of the country, as well. To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can't make a down payment. They may be qualified. They may desire to buy a home, but they don't have the money to make a down payment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can't cross. And one way to address that is to have the federal government participate. And so we've called upon Congress to set up what's called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers. Secondly, affordable housing is a problem in many neighborhoods, particularly inner-city neighborhoods. … I'm doing is proposing a single-family affordable housing credit to encourage the construction of single-family homes in neighborhoods where affordable housing is scarce. (Applause.) Over the next five years the initiative will provide home builders and therefore home buyers with -- home builders with $2 billion in tax credits to bring affordable homes and therefore provide an additional supply for home buyers. … And we've got to set priorities. And one of the key priorities is going to be inner-city America. … Another obstacle to minority homeownership is the lack of information. You know, getting into your own home can be complicated. It can be a difficult process. I had that very same problem. (Laughter and applause.) Every home buyer has responsibilities and rights that need to be understood clearly. And yet, when you look at some of the contracts, there's a lot of small print. And you can imagine somebody newly arrived from Peru looking at all that print, and saying, I'm not sure I can possibly understand that. Why do I want to buy a home? There's an educational process that needs to go on, not only to explain the contract, explain obligation, but also to explain financing options, to help people understand the complexities of a homeownership market, and also at the same time to protect people from unscrupulous lenders, people who would take advantage of a good-hearted soul who is trying to realize their dream. Homeownership education is critical. And so today, I'm pleased to announce that through Mel's office, we're going to distribute $35 million in 2003 to more than 100 national, state and local organizations that promote homeownership through buyer education. (Applause.) And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that's what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it's important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they're into their new home. It is a -- it is a way to help us meet this dream of 5.5 million additional families owning their home. I'm also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own. … Last June, I issued a challenge to everyone involved in the housing industry to help increase the number of minority families to be home owners. And what I'm talking about, I'm talking about your bankers and your brokers and developers, as well as members of faith-based community and community programs. And the response to the home owners challenge has been very strong and very gratifying. Twenty-two public and private partners have signed up to help meet our national goal. Partners in the mortgage finance industry are encouraging homeownership by purchasing more loans made by banks to African Americans, Hispanics and other minorities.Representatives of the real estate and homebuilding industries, through their nationwide networks or affiliates, are committed to broadening homeownership. They made the commitment to help meet the national goal we set. Freddie Mae -- Fannie Mae and Freddie Mac -- I see the heads who are here; I want to thank you all for coming -- (laughter) -- have committed to provide more money for lenders. They've committed to help meet the shortage of capital available for minority home buyers. Fannie Mae recently announced a $50 million program to develop 600 homes for the Cherokee Nation in Oklahoma. Franklin [Raines], I appreciate that commitment. They also announced $12.7 million investment in a condominium project in Harlem. It's the beginnings of a series of initiatives to help meet the goal of 5.5 million families. Franklin told me at the meeting where we kicked this office, he said, I promise you we will help, and he has, like many others in this room have done. Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. … There's all kinds of ways that we can work together to meet the goal. Corporate America has a responsibility to work to make America a compassionate place. Corporate America has responded. As an example -- only one of many examples -- the good folks at Sears and Roebuck have responded by making a five-year, $100 million commitment to making homeownership and home maintenance possible for millions of Americans. … The non-profit groups are bringing homeownership to some of our most troubled communities. … The other thing Kirbyjon told me, which I really appreciate, is you don't have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else. And I know Kirbyjon. He is what I call a social entrepreneur who is using his platform as a Methodist preacher to improve the neighborhood and the community in which he lives.And so is Luis Cortes, who represents Nueva Esperanza in Philadelphia. I went to see Luis in the inner-city Philadelphia. … But he also understood that a homeownership program is incredibly important to revitalize this neighborhood that a lot of folks had already quit on. … Again, I want to tell you, this is an initiative -- as Mel will tell you, it's an initiative that we take very seriously. … Thank you for coming. May God bless your vision. May God bless America. (Applause.)
President George W. Bush addresses the White House Conference on Increasing Minority Homeownership at The George Washington University Tuesday, Oct. 15, 2002
THE PRESIDENT: …. I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That's what we want. This is -- an ownership society is a compassionate society.
More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a homeownership gap. It's a -- it's a gap that we've got to work together to close for the good of our country, for the sake of a more hopeful future.
We've got to work to knock down the barriers that have created a homeownership gap.
I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause.) … And it's going to require a strong commitment from those of you involved in the housing industry. …
I appreciate so very much the home owners who are with us today, the Arias family, newly arrived from Peru. They live in Baltimore. Thanks to the Association of Real Estate Brokers, the help of some good folks in Baltimore, they figured out how to purchase their own home. Imagine to be coming to our country without a home, with a simple dream. And now they're on stage here at this conference being one of the new home owners in the greatest land on the face of the Earth. I appreciate the Arias family coming. (Applause.)
We've got the Horton family from Little Rock, Arkansas, here today. … They were helped by HUD, they were helped by Freddie Mac. …
Finally, Kim Berry from New York is here. She's a single mom. You're not going to believe this, but her son is 18 years old. (Laughter.) She barely looked like she was 18 to me. And being a single mom is the hardest job in America. And the idea of this fine American working hard to provide for her child, at the same time working hard to realize her dream, which is owning a home on Long Island, is really a special tribute to the character of this particular person and to the character of a lot of Americans. So we're honored to have you here, Kim, and thanks for being such a good mom and a fine American. (Applause.)
I told Mel Martinez I was serious about this initiative… And the good news is, Mel Martinez believes it and means it, as well. He's doing a fine job of running HUD, and I'm glad he has joined my Cabinet. (Applause.)
And I picked a pretty spunky deputy, as well, Alphonso Jackson -- my fellow Texan. (Applause.) I call him A.J. …
I see Rosario Marin, who's the Treasurer of the United States. Rosario used to be a mayor. Thank you for coming, Madam Mayor. (Applause.) She understands how important housing is. …
All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners. Owning something is freedom, as far as I'm concerned. It's part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it's safe or not. It brings pride to people, it's a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It's a part of -- it's of being a -- it's a part of -- an important part of America.
Homeownership is also an important part of our economic vitality. If -- when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; …
Low interest rates, low inflation are very important foundations for economic growth. The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country, it's good for the pocketbook of the country, as well.
To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can't make a down payment. They may be qualified. They may desire to buy a home, but they don't have the money to make a down payment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can't cross. And one way to address that is to have the federal government participate.
And so we've called upon Congress to set up what's called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers.
Secondly, affordable housing is a problem in many neighborhoods, particularly inner-city neighborhoods. … I'm doing is proposing a single-family affordable housing credit to encourage the construction of single-family homes in neighborhoods where affordable housing is scarce. (Applause.)
Over the next five years the initiative will provide home builders and therefore home buyers with -- home builders with $2 billion in tax credits to bring affordable homes and therefore provide an additional supply for home buyers. …
And we've got to set priorities. And one of the key priorities is going to be inner-city America. …
Another obstacle to minority homeownership is the lack of information. You know, getting into your own home can be complicated. It can be a difficult process. I had that very same problem. (Laughter and applause.)
Every home buyer has responsibilities and rights that need to be understood clearly. And yet, when you look at some of the contracts, there's a lot of small print. And you can imagine somebody newly arrived from Peru looking at all that print, and saying, I'm not sure I can possibly understand that. Why do I want to buy a home? There's an educational process that needs to go on, not only to explain the contract, explain obligation, but also to explain financing options, to help people understand the complexities of a homeownership market, and also at the same time to protect people from unscrupulous lenders, people who would take advantage of a good-hearted soul who is trying to realize their dream.
Homeownership education is critical. And so today, I'm pleased to announce that through Mel's office, we're going to distribute $35 million in 2003 to more than 100 national, state and local organizations that promote homeownership through buyer education. (Applause.)
And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that's what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it's important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they're into their new home. It is a -- it is a way to help us meet this dream of 5.5 million additional families owning their home.
I'm also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own. …
Last June, I issued a challenge to everyone involved in the housing industry to help increase the number of minority families to be home owners. And what I'm talking about, I'm talking about your bankers and your brokers and developers, as well as members of faith-based community and community programs. And the response to the home owners challenge has been very strong and very gratifying. Twenty-two public and private partners have signed up to help meet our national goal. Partners in the mortgage finance industry are encouraging homeownership by purchasing more loans made by banks to African Americans, Hispanics and other minorities.
Representatives of the real estate and homebuilding industries, through their nationwide networks or affiliates, are committed to broadening homeownership. They made the commitment to help meet the national goal we set.
Freddie Mae -- Fannie Mae and Freddie Mac -- I see the heads who are here; I want to thank you all for coming -- (laughter) -- have committed to provide more money for lenders. They've committed to help meet the shortage of capital available for minority home buyers.
Fannie Mae recently announced a $50 million program to develop 600 homes for the Cherokee Nation in Oklahoma. Franklin [Raines], I appreciate that commitment. They also announced $12.7 million investment in a condominium project in Harlem. It's the beginnings of a series of initiatives to help meet the goal of 5.5 million families. Franklin told me at the meeting where we kicked this office, he said, I promise you we will help, and he has, like many others in this room have done.
Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. …
There's all kinds of ways that we can work together to meet the goal. Corporate America has a responsibility to work to make America a compassionate place. Corporate America has responded. As an example -- only one of many examples -- the good folks at Sears and Roebuck have responded by making a five-year, $100 million commitment to making homeownership and home maintenance possible for millions of Americans. …
The non-profit groups are bringing homeownership to some of our most troubled communities. …
The other thing Kirbyjon told me, which I really appreciate, is you don't have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else. And I know Kirbyjon. He is what I call a social entrepreneur who is using his platform as a Methodist preacher to improve the neighborhood and the community in which he lives.
And so is Luis Cortes, who represents Nueva Esperanza in Philadelphia. I went to see Luis in the inner-city Philadelphia. … But he also understood that a homeownership program is incredibly important to revitalize this neighborhood that a lot of folks had already quit on. …
Again, I want to tell you, this is an initiative -- as Mel will tell you, it's an initiative that we take very seriously. … Thank you for coming. May God bless your vision. May God bless America. (Applause.)
What would 5.5 million marginal mortgages cost? I dunno ... at, say, $127,000 each, that would be, what, $700 billion?
This might be another case where we would have been better off with a straightforward affirmative action program for Non-Asian Minorities (NAMs) rather than lower standards for everybody. At least, with quotas, you get the best from each race, whereas when you lower standards enough for NAMs to get higher representation, you wind up with lower quality from within each group.
My published articles are archived at iSteve.com -- Steve Sailer
Recently Sarah Palin put her foot in her mouth. She said that because of the "coming success" of the Iraq war, the Republicans have already created change. Oh my God. How astoundingly ignorant for her to say such a thing. For one thing, how can anyone claim "coming success", unless they have some sort of a crystal ball? No one can predict the outcome of a war, unless of course, it is being orchestrated and prolonged for monetary reasons ....hmmmm! Let's see, Haliburton, and other "no bid" military contracts; maintain chaos so that oil prices stay high and Bush and his oil friends continue to make record profits..just guessing.
Or perhaps they already have Bid Laden trapped in a hole in the ground somewhere, and are waiting until the 11th hour to pull him out, like an ace card from up the sleeve, (like they did with Saddam), and then claim victory just in time to get a boost in the polls before election day. Next, exactly what "Change" have the Republicans created in Iraq? The day before the U.S. invaded Iraq under the guise of Operation Iraqi Freedom with the explicit objective to uncover WMD's (which Saddam has since been found NOT to have), the Iraqi people were minding there own business and living normal lives. The only "change" the Republican's seem to have accomplished under this Republican Administration, aside from tripling the cost of gasoline, has been to disrupt the way of life for an entire nation, and bring grief and hardship to all the families involved on both sides of the globe. For anyone to say that "Change" has been created in Iraq as a result of this war is like someone taking a wrecking ball to a neighbor's home, and then taking credit helping them to rearrange their furniture....how absolutely ridiculous!
Indeed what Pastor said in church was wrong. However, to understand why anyone would infer that the America government is responsible for H.I.V./Aides, you must first know something about the Tuskegee Experiments that went unchecked from 1932-1972.. when Pastor Wright was in his youth.
http://www.healthsystem.virginia.edu/internet/library/wdc-lib/historical/medical_history/bad_blood/
For 40 years African-American people were infected and used as guinea pigs for the "NON-treatment" of one of the worse venereal diseases in world history, Syphilis. Many of the men inflicted with this disease were lied to as to what they had, and in some cases, some (who were not even sick) were injected with the Syphilis virus.
Now why would anyone do this? I don't know, but it is very wicked and was perpetrated by our own American government. So now I ask you, if someone you love or in your family was deliberately infected with a debilitating disease and refused treatment and left to die while infecting the rest of your family, how would you feel?
I suspect that you would be angry at the world as well.
So now, here we are with a disease called H.I.V. / Aides, which for some odd reason began as a virus that was predominantly found in the African-American communities of America and ironically, the Black tribes of the African continent in epidemic proportions. But why not England, or Australia. Or how about Budapest where Brothels are legal? Why is there no epidemic there?
Knowing what we now know about the "Experiments" at Tuskegee, it is not far fetched for some to debate that this "Blood Disease" was man made as a result of the research done at Tuskegee, and then planted and allowed to spread among a targeted group of people as a form of genocide.
Now one would say that H.I.V. is not an exclusive "Black" disease, and they would be correct. It is a Blood disease. But you have to also remember, that prior to the 1970's, under the guise of discrimination, it was socially unacceptable and in some states forbidden by law, for Black's to mix with White's, e.g. separate restrooms, diners, water fountains, and of course marraige.
Perhaps there were whites who knew about the secret experiments at Tuskegee and keeping the races separate became "policy". I guess we now know why!
