Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
What Bishop is referring to (I believe) is the falsehood that the government forced lenders to give loans to unqualified people, which has been roundly discredited. Or that CRA loans underperformed non-CRA loans, when the opposite is actually true.
In fact, the vast majority of the carnage that occurred during the credit crisis was via lending institutions that were not even subject to CRA regulation.
As to whether the government can exert leverage on business to force compliance in certain matters, well that is the nature of power! Employers do the same to employees. Parents do the same to children. He who has the gold makes the rules!
It was not a matter of Guv'ment forcing anyone to do anything. The bright boys at the various lending firms figured out a way to enrich themselves while passing off all risk to someone else. When there is no risk to one's self, then what the heck! The ratings agencies were in on the hoax, evaluating the CMO's and CDO's as triple A when in fact there was no way to determine the risk profile of every mortgage in a package.
It is a pleasure to read posts by people who actually understand what was going on. Thank you.
What Bishop is referring to (I believe) is the falsehood that the government forced lenders to give loans to unqualified people, which has been roundly discredited. Or that CRA loans underperformed non-CRA loans, when the opposite is actually true.
Quite so on both counts. The CRA myth was fabricated out of whole cloth by Thomas DiLorenzo of the so-called "Mises Institute" in an attempt to deflect mounting blame for the worsening crisis away from Republicans and off onto Democrats instead, especially the hated Bill Clinton and Jimmy Carter wherever possible. The initial draft of his thesis was given a test-flight on Free Republic, and with a few edits, it was then prominently published in the Washington Times. Hundreds of echo-chamber citations of course followed, along with the usual charges that "liberal media bias" was leading the mainstream media to spike the story. The whole thing of course was utter nonsense from top to bottom, as more serious sources have since rather clearly demonstrated. Many of course have still either not gotten or simply not cared about that news.
Quote:
Originally Posted by shaker281
In fact, the vast majority of the carnage that occurred during the credit crisis was via lending institutions that were not even subject to CRA regulation.
Correct. CRA applies to banks and S&L's that take federal deposit insurance. The driving of us into the ditch was carried out by unscrupulous private brokers and greedy investment bank operatives, with an assist from crooked property appraisers and complicit even if overwhelmed ratings agencies. No CRA in sight there anywhere.
More generally, it is quite a surprise and pleasure to find not one, but two other posters with a grasp of the actual history behind the credit crisis and subsequent Great Recession. Tip of the hat you and to "chuckmann" both.
In the real world it cost JPM $13 billion and BOA $16 billion to stay in business even though they disagreed with accusations. No fighting when the other side has unlimited budget and the ability to shut to down.
Well, actually it was Barney Frank. who went from bank to bank, gun in hand, forcing CEO's to make bad loans. This is sarcasm, BTW, but in the minds of many, it is gospel.
Yes, amazing the powers that Barney Frank had. As the mere ranking member of the House Financial Services Committee from 1995 to 2007, he was somehow able to ram his ideas on policy past Republican committee chairmen, past Republican Speakers, past Republican House majorities, past Republican Senate majorities, and after 2000, past a Republican President. Quite the trick!
As Frank himself said in 2009, if he had power such as that ascribed to him, he "would have used that power to block the impeachment of Bill Clinton in the House, the war in Iraq, large tax cuts for the very wealthy, the intrusion into the sad case of Terri Schiavo, and appropriations bills that badly underfunded important social priorities."
In the real world it cost JPM $13 billion and BOA $16 billion to stay in business even though they disagreed with accusations. No fighting when the other side has unlimited budget and the ability to shut to down.
ATTENTION: Securities fraud is illegal. Two of the criminal corporations deeply involved in that wanton scamming have recently agreed to slap-on-the-wrist, pennies-on-the-dollar settlements for their corporate culpability. That of individual employees and officers remains to be addressed.
If you think that even meek and mild enforcement of the laws is an example of government run amok, there is really nothing that anyone will be able to say to you.
What's more interesting to me is the number of people who were alive and adult at the time but never understood it to begin with.
Well, there isn't an actual connection between the two, and housing markets in general had been knocked down by 2006. Subprime of course had been the biggest game in town for years. The success of CRA lending portfolios in the 1990's was like the discovery of gold. Here was this whole previously untapped pool of potential profit. Unfortunately, the bad guys got there first. The GSE's had thought that they would come to have the same position in subprime that they did in prime, but Wall Street built out their "private label" securitization shops to operate as a secondary market bypass around the wall of standards that the GSE's maintained. That's how so much junk got out into the system.
A lot of markets were still appreciating in 2007. Seattle for one. Some of the outlying areas where the sub-primers tended to congregate had leveled off, but core markets were rising as if the problems in the mortgage markets were unimportant.
Quote:
Originally Posted by The_Bishop
It was hardly just subprime borrowers who could not refinance. Borrowers at all levels went underwater on recent purchases. No lender is apt to refinance an underwater property.
Eventually, yes, once the prime mortgage default rate went up, but there were still major banks (wells) offering 125% "equity" lines up through early 2008 - they called this their 'equity plus' product. Wachovia was still offering option ARMS into 2008, which were very soon to be underwater if just through negative amortization in a flat market.
Quote:
Originally Posted by The_Bishop
Again, there are no dots connecting housing prices to aggregate income. There are dots connecting business deaths and job layoffs to both aggregate income and housing prices.
There are other dots as well...
Quote:
Originally Posted by The_Bishop
I don't recall anything like that in my area. Or hearing about it in any other.
It happened in Northern Virginia, which is one of the wealthiest areas in the country, and had the lowest unemployment rate in 2007. Eventually that area fell into recession but it happened much later than most parts of the country. The mass lay offs didn't hit until fall 2008, up to then it was well insulated. After Obama was elected, the government cutbacks started taking a noticeable toll as well since the area has a lot of federal contractors. Some markets turned down due to the economy, others just ran out of buyers.
Quote:
Originally Posted by The_Bishop
People became cash-strapped because their incomes declined. Such as by being laid off and having their former incomes replaced by UI benefits. Many of these people soon enough walked away. Others rode on into foreclosure. The result is pretty much the same either way.
While that sounds logical, it's not what kicked off the first wave of defaults. What was really going on is the billions of dollars in equity extraction was being used to by many to make the payments on their existing debt. It's not uncommon to look back at refinance cycles for individual borrowers during that time and see that they were taking out more equity than the total of their mortgage payments. I saw some cases where people were doing cash out refinances every 3-6 months for several years. That could only continue until prices leveled off - at which point they were forced to support the heavy debt load on income alone. Many of them found that even without a job loss, the inability to extract another $30K+/yr in tax free equity left their monthly budget short. Eventually rising unemployment made worse, but it wasn't the cause.
Quote:
Originally Posted by The_Bishop
There was never too much debt. There was too much lousy paper written to support debt. Much of that lousy paper was written by people who knew it was lousy when they wrote it.
I disagree. Borrowers were being qualified with DTI ratios over 100% in some cases. Drawing the line at 30% or 80% is subjective, but at 100% it's pretty clear the debt isn't supported by income.
A lot of markets were still appreciating in 2007. Seattle for one. Some of the outlying areas where the sub-primers tended to congregate had leveled off, but core markets were rising as if the problems in the mortgage markets were unimportant.
Eventually, yes, once the prime mortgage default rate went up, but there were still major banks (wells) offering 125% "equity" lines up through early 2008 - they called this their 'equity plus' product. Wachovia was still offering option ARMS into 2008, which were very soon to be underwater if just through negative amortization in a flat market.
There are other dots as well...
In his wonderful book The End of Wall Street by Roger Lowenstein, Countrywide lending received a fair share of attention.
The only dots are those leading from the greed of the banking and brokerage industry to the passing off of all risk which led to riskier and riskier behaviour.
A lot of markets were still appreciating in 2007. Seattle for one. Some of the outlying areas where the sub-primers tended to congregate had leveled off, but core markets were rising as if the problems in the mortgage markets were unimportant.
Eventually, yes, once the prime mortgage default rate went up, but there were still major banks (wells) offering 125% "equity" lines up through early 2008 - they called this their 'equity plus' product. Wachovia was still offering option ARMS into 2008, which were very soon to be underwater if just through negative amortization in a flat market.
There are other dots as well...
It happened in Northern Virginia, which is one of the wealthiest areas in the country, and had the lowest unemployment rate in 2007. Eventually that area fell into recession but it happened much later than most parts of the country. The mass lay offs didn't hit until fall 2008, up to then it was well insulated. After Obama was elected, the government cutbacks started taking a noticeable toll as well since the area has a lot of federal contractors. Some markets turned down due to the economy, others just ran out of buyers.
While that sounds logical, it's not what kicked off the first wave of defaults. What was really going on is the billions of dollars in equity extraction was being used to by many to make the payments on their existing debt. It's not uncommon to look back at refinance cycles for individual borrowers during that time and see that they were taking out more equity than the total of their mortgage payments. I saw some cases where people were doing cash out refinances every 3-6 months for several years. That could only continue until prices leveled off - at which point they were forced to support the heavy debt load on income alone. Many of them found that even without a job loss, the inability to extract another $30K+/yr in tax free equity left their monthly budget short. Eventually rising unemployment made worse, but it wasn't the cause.
I disagree. Borrowers were being qualified with DTI ratios over 100% in some cases. Drawing the line at 30% or 80% is subjective, but at 100% it's pretty clear the debt isn't supported by income.
Disagree all you like, but everything in your posts here has been either wrong, foolish, or devious.
Individual outlier markets would not be relevant to the overall situation. Even if any of your information about them had been accurate.
As I noted in some detail earlier, the first wave of defaults was caused by rising interest rates. The second wave was caused by rising unemployment. I don't know how you could have missed that
There are no dots to do the connections necessary to support your earlier claims. Further ahistorical and other unsupportable claims do not count as dots either. It all amounts in the end to hollow free-form gibberish.
I have lived in Northern Virginia for 45 years, and so easily recognize your tales about that area as being worthless babble and fiction.
The notion that there were federal spending cutbacks after Obama took office is a further joke. Revenues had of course collapsed thanks to years of miserable economic failure by the previous administration, but with ARRA-enhanced stabilizers and other programs and legislation, Obama et al. sought to keep liquidity and outlays -- e.g., aid to state and local budgets -- at high levels. Failure by House Republicans to extend expiring provisions of ARRA or to enact any alternate forms of stimulus certainly did hurt the country and the economy just as they had intended, but that did not occur until 2011.
Refi's lower the monthly payment, thereby improving cashflow. Might have been important to all those millions of people whose real incomes had been declining since 2000. Either way, if you had a pre-2001 mortgage and did not refinance it at least once in the years thereafter, you completely bobbled the ball. Do you simply not understand what 335 basis points means?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
