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Old 02-20-2013, 01:51 PM
 
5,453 posts, read 7,484,992 times
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Quote:
Originally Posted by kanhawk View Post
When the recession and financial collapse happened in 2008 in the US, Bush and his policies were blamed for it. Yet most of Europe also had a major economic downturn and their policies are much different than George Bush's were.
Why would such different policies lead to the same economic recession?
Because they keep trying to IMITATE the US, and fail...because Europe is NOT US, and does not live by the same dog eat dog standards!

Just like with the Euro, which will eventually fall too.
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Old 02-21-2013, 07:14 AM
 
28,906 posts, read 45,202,743 times
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Quote:
Originally Posted by pie_row View Post
Haven forbid we limit the number of houses sold so that we don't sell houses to unqualified buyers.


If 1 in ten from social group A is qualified and 1 in 100 from social group B is qualified, the population is split between the two 50/50, and the law requires 50/50 loans to be written then you turn down nine buyers out of ten from group A. Do that and you get no housing bubble. The law doesn't require you to brake the law.
I meant 'law' in terms of Best Practices. But your analogy betrays a total lack of understanding of credit and its effects, not to mention balance sheets.

At the very best, a bank can hope for 1.5% return on assets. Most banks are more in the 1.0-1.25% range. So if you lend out $500,000 for a mortgage and the borrower defaults, you have to underwrite an additional tens of millions in mortgages to make up for that loss. With all the non-conforming loans from the past decade (Anything that wasn't a standard 30-year or 15-year note) that were developed in order to accommodate people with poor credit, default rates skyrocketed.

What's more, you fail to take into account the other effects of this fiasco that rippled through the markets. First, there was the wholesale upwards movement of home prices to bubble levels that was fueled by incredibly cheap credit. Historically, home prices track pretty evenly with inflation, as shown by the Case-Shiller Index. Suddenly, around 1997-1998, the effects of these new policies was to suddenly have home prices increase at double, then triple, then quintuple the inflation rate. By the middle part of the last decade, the spread between the inflation rate and home price increases was around 15%.

The end result was that home prices were 100-120% higher than what they should have been had they simply track with inflation. This was great for home sellers, but an unmitigated disaster for homebuyers, for they wound up buying an incredibly overpriced home and will be stuck with it for years until the market actually catches up. Of course, this drove up the cost of living in states such as California through the roof as well, with modest two-bedroom houses selling for obscene prices relative to what salaries were. The resulting middle-class flight from California is well documented.

Then, of course, there was the resulting problem with municipal funding. Most of this funding takes place through property taxes, which were assessed at unrealistic levels based on the grossly inflated price of homes. Civic governments ramped up spending due to a flood of new property tax collections. However, this prosperity was short-lived. When home prices plummeted, so did tax collections. All you have to do is look at the precarious financial state of cities throughout the country to know this.

I mean, it's not like this financial crisis didn't have precedence. Australia tried government incentives to juice land sales in the 1880s and 1890s and the GDP took a 12% haircut.
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Old 02-21-2013, 10:25 AM
 
621 posts, read 547,271 times
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Quote:
Originally Posted by cpg35223 View Post
Quote:
Originally Posted by pie_row View Post
Haven forbid we limit the number of houses sold so that we don't sell houses to unqualified buyers.


If 1 in ten from social group A is qualified and 1 in 100 from social group B is qualified, the population is split between the two 50/50, and the law requires 50/50 loans to be written then you turn down nine buyers out of ten from group A. Do that and you get no housing bubble. The law doesn't require you to brake the law.
I meant 'law' in terms of Best Practices. But your analogy betrays a total lack of understanding of credit and its effects, not to mention balance sheets.
I understand the effects of not writing loans to 90% of qualified buyers. What you would have is The Great Depression 2.0. Ugly. I meant law as in fraud. In order to sell a house to an unqualified buyer then you ether need to underwrite a loan that you know will be defaulted on and represent it as such. Or you underwrite a loan to someone that will default on it and misrepresent that it will be repaid. You can't sell a loan that you represent as going to fail. The law does not and can not require you to brake the law.
Quote:
Originally Posted by cpg35223 View Post

At the very best, a bank can hope for 1.5% return on assets. Most banks are more in the 1.0-1.25% range. So if you lend out $500,000 for a mortgage and the borrower defaults, you have to underwrite an additional tens of millions in mortgages to make up for that loss. With all the non-conforming loans from the past decade (Anything that wasn't a standard 30-year or 15-year note) that were developed in order to accommodate people with poor credit, default rates skyrocketed.
The banks weren't keeping those loan on their books. They were selling them to people that were slicing and dicing them and reselling them as gold when they weren't the best of quality of fertilizer.


But You need 99% good loans if you are going to keep loaning money to people. You can't be underwrite bad loans.
Quote:
Originally Posted by cpg35223 View Post

What's more, you fail to take into account the other effects of this fiasco that rippled through the markets. First, there was the wholesale upwards movement of home prices to bubble levels that was fueled by incredibly cheap credit. Historically, home prices track pretty evenly with inflation, as shown by the Case-Shiller Index. Suddenly, around 1997-1998, the effects of these new policies was to suddenly have home prices increase at double, then triple, then quintuple the inflation rate. By the middle part of the last decade, the spread between the inflation rate and home price increases was around 15%.
Again if you limit underwriting to qualified persons. And limit that by the ratio of qualified to unqualified minorities Then there is no bubble. There is economic depression. The over availability of cheap credit does not require you to brake the law. It does not require fraud.
Quote:
Originally Posted by cpg35223 View Post

The end result was that home prices were 100-120% higher than what they should have been had they simply track with inflation. This was great for home sellers, but an unmitigated disaster for homebuyers, for they wound up buying an incredibly overpriced home and will be stuck with it for years until the market actually catches up. Of course, this drove up the cost of living in states such as California through the roof as well, with modest two-bedroom houses selling for obscene prices relative to what salaries were. The resulting middle-class flight from California is well documented.
One thing that everyone is sick of hearing me talk about is radically upping the wages by way of the minimum wage law. With that you can get the wages to support the house prices.
Quote:
Originally Posted by cpg35223 View Post

Then, of course, there was the resulting problem with municipal funding. Most of this funding takes place through property taxes, which were assessed at unrealistic levels based on the grossly inflated price of homes. Civic governments ramped up spending due to a flood of new property tax collections. However, this prosperity was short-lived. When home prices plummeted, so did tax collections. All you have to do is look at the precarious financial state of cities throughout the country to know this.
Yes and I've been talking about how to fix that as well. Turn the bubble into inflation. After the fact.
Quote:
Originally Posted by cpg35223 View Post

I mean, it's not like this financial crisis didn't have precedence. Australia tried government incentives to juice land sales in the 1880s and 1890s and the GDP took a 12% haircut.
Wage inflation makes overpriced assets cheap again.
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Old 02-21-2013, 11:17 AM
 
17,749 posts, read 15,026,257 times
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Quote:
Originally Posted by cpg35223 View Post
I meant 'law' in terms of Best Practices. But your analogy betrays a total lack of understanding of credit and its effects, not to mention balance sheets.

At the very best, a bank can hope for 1.5% return on assets. Most banks are more in the 1.0-1.25% range. So if you lend out $500,000 for a mortgage and the borrower defaults, you have to underwrite an additional tens of millions in mortgages to make up for that loss. With all the non-conforming loans from the past decade (Anything that wasn't a standard 30-year or 15-year note) that were developed in order to accommodate people with poor credit, default rates skyrocketed.
1.5%? Where do you get that number? The interest rate on the note is the whole take of the financial sector. That's more like 4% on Jumbo loans per year on perfect credit, now.On conforming loans they dump them on Freddie, Fannie and GNMA backed by Bubba. What risk? Why do you think the financial sector swims in cash? That is bedside the point is 4% making nothing.

That does not even take into account sub prime loans with high interest rates purchased at par by bubba da guberment.
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Old 02-21-2013, 11:22 AM
 
Location: southern california
55,237 posts, read 72,402,860 times
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we are suffering bek we are trying to introduce their policies here.
massive legal/illegal immigration, non assimilation of immigrants, pro criminal laws, anti business hostile government and offshoring but worst of all having your young people all get advanced gen ed degrees instead of a trade.
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Old 02-21-2013, 12:14 PM
 
28,906 posts, read 45,202,743 times
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Quote:
Originally Posted by gwynedd1 View Post
1.5%? Where do you get that number? The interest rate on the note is the whole take of the financial sector. That's more like 4% on Jumbo loans per year on perfect credit, now.On conforming loans they dump them on Freddie, Fannie and GNMA backed by Bubba. What risk? Why do you think the financial sector swims in cash? That is bedside the point is 4% making nothing.

That does not even take into account sub prime loans with high interest rates purchased at par by bubba da guberment.
Ah. I see you don't understand banking. Return on Assets is just the profitability of a company versus total assets. The net if you will. And the standard ROA in banking is pretty much in the 1.0-1.25% range. That is razor thin compared to other businesses. What's more, out of that AGI on the loan, how are you going to pay for the staff, the electricity, the desks, the buildings, and everything else? What about bad loan provisions? You do know how to read an income statement, right?

Further if you think the financial sector swims with cash, try sitting down and having a chat along those lines with your local community banker or even a mid-sized institution. They will laugh you right out of the conference room. I mean, do you have any clue how many small- and mid-sized operators have been squeezed out in the past few years? 465 in the period from 2008 to 2012. Oh, yeah. They're practically swimming in the cash. And how many more have been forced into mergers by the Federal Reserve?

And you inadvertently stated a large part of the problem. The intervention of the government into the markets forced the dumping of the loan portfolio by these institutions. As late as the late 90s, it was a point of pride among community banks and independent mortgage lenders that they serviced their own paper. So if you got your mortgage from your community bank, you would be paying them for the duration of the loan.

But when the underwriting standards were stripped away by the wholesale government subsidization of non-conforming loans, lots of small and mid-sized operators had no choice but to sell their portfolios upstream. Then, worst of all, because these small- and mid-sized operators were no longer holding their own paper, underwriting standards began to deteriorate. After all, why worry about whether the loan was good or not? First it wasn't worth the hassle of the government nailing you under the auspices of the CRA and, second, you were going to hold the loan for a whopping three weeks before somebody bought it, repackaged it and it became someone else's problem. I know this because I watched it happen with several of my clients. I remember sitting in a board meeting while one bank made the agonizing decision to sell off their portfolio. "This isn't going to end well," were the words of the bank president. Boy, truer words were never spoken.

In short, it was a colossal mess that began when Henry Cisneros thought the Federal Government should do whatever it took to give everyone a home. To accomplish this, underwriting standards were destroyed, gimmick lending instruments were encouraged, banks pressured, and pretty much the entire lending industry was turned on its head. Hell, the Federal government even cooked up securitization in tandem with Bear Stearns in 1998 in order to turn these iffy loans into investment grade paper. Before that, mortgage-backed securities were the most boring, ho-hum investment out there, but incredibly safe. In the last decade, it became the equivalent of walking into a casino and putting it all on black.
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Old 02-21-2013, 12:46 PM
 
48,519 posts, read 81,013,914 times
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If one look tho the resulting crdit crisis causing the resessio i world ecomies had much different realts because of policies. Europe's problems are much different than US or even germany within the euro zone. Of course;its a global econmy but polcies have madea difference as we have seen.Dent tho is debt but mostly its in polices that hinder growth and p fical soundness of institutions.Bascially one can look to the federal governamnt creatio of fannie and freddie ;which we are still bailing out'plus federal program to hep in down payments and even clsoig cost from the same welth sharing concepts started in the mid 60's. Even homeowners have to accpet blame if its a case fo home they couldn;t afford and really only got caught when the bubble crashed o them;otherwsie they like Barney Frank thought the only thing that coud happen is they sold at a gian.Frank is famous for his words in rejecting a audit of Fannie and freddie in saying if they get trouble "we can always bail them out".Wearwe continuig to do so and no end is in site for that bailout;yet.
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Old 02-21-2013, 03:23 PM
 
621 posts, read 547,271 times
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Quote:
Originally Posted by cpg35223 View Post

In short, it was a colossal mess that began when Henry Cisneros thought the Federal Government should do whatever it took to give everyone a home. To accomplish this, underwriting standards were destroyed, gimmick lending instruments were encouraged, banks pressured, and pretty much the entire lending industry was turned on its head. Hell, the Federal government even cooked up securitization in tandem with Bear Stearns in 1998 in order to turn these iffy loans into investment grade paper. Before that, mortgage-backed securities were the most boring, ho-hum investment out there, but incredibly safe. In the last decade, it became the equivalent of walking into a casino and putting it all on black.
Choice was to play the game by their rules or fold. Limiting the number of loans written to the least number of qualified buyers would have been very hard to do. It would have been the end of the business as you knew it. But there would have been no bubble. Like that actor's wife said "just say no". No as in I wont write a loan that wont be repaid. If that means not writing 90% of the loans I would have written otherwise then so be it. If it means going out of business then so be it. We are paying for no one having said no.
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Old 02-21-2013, 03:51 PM
 
28,906 posts, read 45,202,743 times
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Quote:
Originally Posted by pie_row View Post
Choice was to play the game by their rules or fold. Limiting the number of loans written to the least number of qualified buyers would have been very hard to do. It would have been the end of the business as you knew it. But there would have been no bubble. Like that actor's wife said "just say no". No as in I wont write a loan that wont be repaid. If that means not writing 90% of the loans I would have written otherwise then so be it. If it means going out of business then so be it. We are paying for no one having said no.
You aren't familiar with the pressure that the Federal government put on lenders to give mortgages to people with no ability to pay. Regulators would come through a bank and audit the books to see how many loans were written to targeted demographics. Shucks, I consulted for one large mortgage bank. Every six months, they would start to look at their numbers and sweat it out if they didn't have enough lending to people that the entire initiative was designed to put into homeownership. And the government would demand explanations if the quotas weren't met. So your belief that banks could have just said 'no' to bad loans strikes me as uninformed. The only choices were either to lend money or go out of business entirely. There was no middle ground.

The best way to play the game was to not have played it at all. In order to put another 4% of the country's families into homeownership, the banking industry was ravaged, home prices soared, municipal government's financial projections went off the charts, and the deficit soared. It was a classic case of the Law Of Unintended Consequences at work.
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Old 02-21-2013, 03:52 PM
 
Location: West Paris
10,263 posts, read 10,007,423 times
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Both are in the same boat
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