Michael Capuano´s Heartspeak

The congressman has a bachelor of arts degree and a law degree and has been a career politician since he was 24-years-old. My best guess is that the congressman doesn't know a CDS from an STD. What an unmitigated jackass.

As I've stated in the past, my job is intimately involved in the mortgage and housing industry. CDS/MBS/CMBS, etc. and the housing bubble weren't even possible without Fannie Mae and Freddie Mac (both created and heavily regulated by Congress); HUD's FHA financing program and Ginnie Mae; VA loans; and USDA loans, which comprised something like 90-95% of all home loans in the mid-2000s. The banking industry is, without a doubt, America's single most regulated industry and has been since the 1930s. Sure, the banks have culpability, too, as do individuals, but the United States federal government set up a scheme over the course of the last 80 years, and particularly the last 40 years, that incentivized banks and investors making home loans without proper underwriting. The federal government's national flood insurance has also made it possible for decades for borrowers to take out loans in known disaster areas, allowing lenders and borrowers to mitigate or eliminate their risk entirely in certain areas.

Think about this: when a bank originates a VA, USDA, or FHA loan, it may or may not hold the loan on its books, but the federal programs ensure that there is little to no loss suffered by the banks in the event of loan default. This is called government insurance. And the VA and USDA loan products allow for maximum leverage, up to 100%, and in certain cases more than 100% LTV. FHA loans aren't much better, still allowing at this point a ridiculous 96.5% LTV. And despite Fannie and Freddie's demise, one may still purchase a house with a conforming GSE loan product at 95% LTV, bought and paid for indirectly by the tax payers of the United States.

In sum, the housing bubble can be traced all the way back to 1) subprime loan products bought and paid for the federal insurance and liquidity, 2) setting up a financial incentive for banks to do a half-assed job in the underwriting process (and as a former multifamily underwriter, I can tell you that our bonuses were tied to our loan approvals), and 3) the Federal Reserve Bank sharply dropping interest rates in response to a rather mild recession that began in 2000 in the aftermath of the internet bust. If you call anything associated with the housing bubble "free market economics" then it's time to go back to Finance Concepts and Skills, sophomore year of college.

It's pretty easy to post a youtube video of an untrained career politician criticizing people with, ya know, 10 times the accomplishments he'll ever possess, but it's another thing to actually know what the f*ck you're talking about.