9.20.2008

Xran Xplains: The Credit Crunch!

Greetings puny Earthlings, Xran here, simplifying the complicated, after they've been complicated by the simple.

The economy is in the news a lot these days, so I've decided to break down the credit-crunch / sub-prime mortgage fiasco to its simplest elements. I have to admit, like all economic issues, it's not as cut and dried as people believe. So this is a big one. (now with updates, Sept. 22, 2008)

1929 was the beginning of Earth's
GREAT DEPRESSION

A lot of people
LOST THEIR HOMES
(Around 40% of mortgages defaulted)

This is
FRANKLIN D. ROOSEVELT
(Democrat)
Pres of USA

He wanted to stop the
FORECLOSURES
So he created new
BUREAUCRACIES
to prevent them
The
BUREAUCRACIES
immediately started a new system called
RED LINING
in major cities
RED LINING
denied mortgage backing in
PREDOMINANTLY BLACK/HISPANIC NEIGHBOURHOODS

Now there were two reasons for this

Reason #1
RACISM
they just didn't want non-whites to own their own homes
Which strikes me as just plain stupid, but I still don't understand you Earthlings

Reason #2
SOCIAL ENGINEERING
using the ideas of men like
LE CORBUSIER
to eliminate the
DOWNTOWN SLUMS
and move people into
NEW STATE RUN MODEL COMMUNITIES

...It didn't work...

Instead it drove out
INVESTMENT IN URBAN AREAS

Created
SUBURBAN SPRAWL
as well as...
URBAN DECAY

and trapped the urban poor into soul crushing & crime ridden
PUBLIC HOUSING

While making
SLUM LORDS
rich building them.

This went on for
DECADES

In the 1990s
BILL CLINTON
Democrat President of the USA
wanted to end
RED LINING

Which is right.
It's an awful business practise that created problems while solving none.

But he did it wrong.
CLINTON
appointed
FRANKLIN RAINES
to head
FANNIE MAE
which backs mortgage loans
to work with
PROFESSIONAL COMMUNITY ACTIVISTS
to pressure
BANKS
to start giving mortgages in poor minority neighbourhoods,

which the banks did gladly because...
FANNIE MAE
made it easy for the
BANKS
to make money off them, no matter the solvency of the borrower because
MONEY
was cheap, thanks to extremely low interest rates
&
FANNIE MAE
bought the mortgages and
BUNDLED
them together to sell as
MORTGAGE BACKED SECURITIES

Meanwhile...
WALL STREET
was looking for new investment opportunities in the wake of
ENRON
& other accounting boondoggles.

Jumped on
MORTGAGE BACKED SECURITIES
because Real Estate is supposed to be reliable and stable, however

THE CHEAP MORTGAGES
were being handed out like candy inspiring
AMATEUR HOUSE FLIPPERS
to start buying, renovating, and selling houses for profit in massive numbers
gentrifying neighbourhoods and ruining a lot of
AFFORDABLE HOUSING
for average people
especially
VISIBLE MINORITIES
who saw their neighbourhoods gentrified
and housing prices went
UP
&
UP
&
UP
Beyond the range of logic
BANKS

kept pumping out the mortgages to
FLIPPERS
because
FANNIE MAE
kept buying and bundling them into securities
&
WALL STREET
kept buying the securities

But things weren't all that rosy.

Housing was
TERRIBLY OVERPRICED

FRANKLIN RAINES
was overstating the earnings of
FANNIE MAE
by
$10,000,000,000

landing
RAINES
a
$50,000,000
bonus
&
promoted reckless loans because
while the
PROFITS
for
FANNIE MAE
were private
THE RISKS
were carried by
THE GOVERNMENT
because
FANNIE MAE
was considered too big to allow to fail

The
PROPERTY FLIPPERS
Accrued massive debts on multiple properties
and needed the housing market to keep
SKYROCKETING
in order to stay solvent

This was all a
HOUSE OF CARDS
that will collapse at the slightest disruption

Then it was
DISRUPTED
(6.4% of mortgage holders defaulted)

Prices held up artificially by
PROPERTY FLIPPERS
collapsed in most areas and with too much debt and not enough assets
they were
FORECLOSED
HEDGE FUNDS
saw the opportunity and
STRUCK
short selling everything like feces tossing chimps
HYSTERIA REIGNED
stockholders start selling frantically

MAKING THINGS WORSE
because the

MORTGAGE BACKED SECURITIES
aren't priced on the value of the properties that the mortgages cover
but are priced on the value the securities market is willing to pay
MAJOR BROKERS
collapsed into bankruptcy
THE MEDIA
screamed
ECONOMIC DOOM
because it will help elect
BARACK OBAMA
who by the way employs
FRANKLIN RAINES
the man who sank
FANNIE MAE
as a top adviser

Shall I predict what will happen next?

A little more
PANIC

A lot of
MEDIA DOOM TALK

Then everything

Will settle down

Probably after the election

Unless...
OBAMA
wins

Then there'll be a real crash to avoid his

HIGHER TAXES

I hope this clears it all up for you.

5 comments:

Woody said...

Fabulous post Xran. A must read as we say here on Earth. Now I see why you are one of the overlords.

zoey said...

xran. amazing. no one explains this stuff as well as you do. thanks.

USpace said...

.
Well done, excellent! It be linked. It’s a shame politicians forced banks starting back in the 80s to give home mortgages to poor people who weren’t credit worthy enough. Then, they just started lending mortgages way beyond many people's credit abilities. That’s where all this mess started. And also that they didn’t regulate Fannie Mae and Freddie Mac like they do other banks.

Alan Greenspan should be exposed for the problems he helped cause by allowing credit quality to be ignored.
Scary, will sanity ever prevail?
.
if money were free
it would have no value
- extreme inflation

.
ignore credit scores
give everyone homes
- like musical chairs

to deny a mortgage
must be due to racism

.
absurd thought -
God of the Universe says
forgive all debts

settle all accounts
no one owes anything

.
absurd thought -
God of the Universe says
make housing costs look cheap

go paint a rosy picture
just get people to sign up

.
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.
Philosophy of Liberty Cartoon
.
Help Halt Terrorism Today!
.
USpace

:)
.

Sean said...
This comment has been removed by the author.
Sean said...

Buy to Let Mortgages