Today's words of wisdom come from Diane Gerdes of The Mortgage Advantage. Thanks to Diane for clarifying what is happening on the national economic scene every week. This week our government is patting itself on the back for passing the Dodd-Frank Financial Reform Bill. However, they missed two major economic components that seem soon to derail any economic progress. Enjoy!
The Economic Cupcake by Diane Gerdes
"The Dodd-Frank Financial Reform bill signed on Wednesday was touted as the most sweeping financial bill since the Glass Steagal Act of 1933. (You remember that law, don't you? It's the one that the banks had repealed in 1999 and was ground zero for the global financial catastrophe). The hefty 2300 page bill signed into law by President Obama is structured to prevent future economic meltdowns. It allegedly gives tools to regulators so they can reel in the banks if they don't behave, but not enough to hurt their profits. The bill did manage to call for nearly 70 study groups, according to CNN Money, to analyze subjects such as fiduciary standards for brokers and analyzing reverse mortgages. It may be years before we feel the full effect of the law.
Two of the most terrifying man-made Frankenstein's living in Uncle Sam's house are Fannie Mae and Freddie Mac, with trillions of dollars in outstanding mortgages that they either own or have backed. The Dodd-Frank Bill did nothing to address their situation: they have cost the taxpayers more than the bail-out banks and auto companies combined.
Both Fannie and Freddie were quasi government entities given quotas for selling mortgages. It was a concoction that bred fraud. For instance, Countrywide Financial Corporation gave loan discounts to employees of Fannie Mae. Fannie and Freddie were both accused of fraudulent accounting practices resulting in huge bonuses for executives of both companies. They funneled campaign contributions to choice government representatives.
The Dodd-Frank Bill was designed to keep Main Street (us) safe from Wall Street (them). But somehow it overlooked the two-headed monster in the cellar... Fannie Mae and Freddie Mac."
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