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Old 12-12-2011, 12:48 PM
 
28,896 posts, read 53,939,958 times
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Quote:
Originally Posted by saganista View Post
There is no such thing as a definable "common sense" component of home prices. This is an appeal to subjectivity in the absence of any objective standard to raise. Home prices are agreed to one-at-a-time, typically between two individuals -- a willing buyer and a willing seller. Their judgments matter, yours don't. One or the other of them will almost always be doing something you would have counseled against.

But here's something that is true. The price of houses and all other long-term assets varies inversely with long-term interest rates. In the summer of 2000, the federal funds rate target was 6.5% and the average 30-year fixed-rate mortgage was around 8.2%. Three years later, those numbers were 1% and around 5.4%. Prices rose because buyers who had been on the sidelines would have been insane not to jump with interest rates at such levels. They would have been insane not to have refinanced an existing mortage at least once, and let's do mention what a significant portion of the market was in fact refi's, and not in fact flippers. Let's not forget either that real mean household income was FALLING between 2000 and 2006 for all income strata but the wealthy. The rest needed the break in the monthly budget that a refi would provide just to stay even. And you want to talk about an absence of common sense?

Underwriting standards meanwhile went out the window at unregulated private brokers (e.g., Countrywide, Ameriquest, or New Century Financial) who were writing paper specifically to see it churned through the greatly expanded private label securitization shops that Wall Street had built in order to create a path that bypassed the GSE's and their cheesy conforming requirements so as to get sliced and diced MBS's of any sort of quality at all into the secondary markets at huge profits to themselves. A few crooked appraisers, an overwhelmed bond rating agency or two, and it was free money for the cowboy capitalists for as long as they could keep the system cranking. That turned out to be through 2006 or so. Here's a handy graph of it all to think about. It shows the share of all MBS's sold by three major groups of sellers.



It wasn't any sort of government meddling and interference that froze the credit markets. It was the sheer volume of junk that was rerouted by Wall Street around long-standing public-sector screens and safety valves that ended up turning that trick.

And by the way, the secondary markets are not made up of some bunch of suckers. They include major central and other global banks, foreign governments, insurance companies, pension funds, money market funds, university and philanthropic endowments -- all your typical people with large and very large sums of money to invest. Suckers rarely manage to come by such sums.

[Not done yet...]
This thread betrays an incredible lack of understanding about how all the different factors meshed together to create the perfect storm. I mean, where DO you get your information?

For example, you obsess over the bundling together of junk mortgages into investment instruments, yet you fail to understand that this issue simply didn't exist in the marketplace pre-1996. Underwriting went out the window because of the government's policy to force lowering of standards. And if you tell me otherwise, I'll know you're completely out of touch. I attended many a seminar and sat in on many a discussion on this. The creation of junk bonds was a result of bad underwriting being forced on mortgage lenders, not vice versa. Again, I say that as someone who was there in the middle of it. I watched a lot of mid-sized mortgage companies sell their portfolios by the late 90s, companies that had been in the mortgage business for the better part of a century. Why? Because they no longer had control over their own underwriting, they had no faith in the sustainability of their new loans. So they sold them off in order to assure their future survival.

Now, let me turn my attention to this incredible paragraph:

There is no such thing as a definable "common sense" component of home prices. This is an appeal to subjectivity in the absence of any objective standard to raise. Home prices are agreed to one-at-a-time, typically between two individuals -- a willing buyer and a willing seller. Their judgments matter, yours don't. One or the other of them will almost always be doing something you would have counseled against.

Actually, you couldn't have written a statement more at odds with reality if you tried. In fact, that paragraph betrays the total Alice-In-Wonderland mentality of people like you who created the bubble in the first place. Home prices were remarkably stable when indexed for inflation for years prior to the wholesale Federal tampering in the marketplace. Suddenly, when the National Homeownership Strategy was implemented, you began seeing appreciation levels in the double digits for most of a decade--even more so in many markets. As a result, home prices that had increase apace with inflation with a year-to-year index value of 99 or 100 as late as 1995 began ratcheting up until they indexed to around 248 ten years later. Even now, after four years of home prices being hammered, prices still sit above historical ranges, which tells me that they more room to drop.

http://www.jparsons.net/housingbubble/united_states.png

Look, I realize that you live in DC and are probably part of the vast parasitic Federal bureaucracy, which means you have no actual experience in the private sector. But it might be helpful if you actually knew what went into underwriting a mortgage before you began to yap about it on a message board. Your experience in the financial sector is apparently nil, and it's obvious that your arguments are nothing more than a lame attempt to rationalize bad policy. Learn something about banking and mortgages before you post again.

Last edited by cpg35223; 12-12-2011 at 01:14 PM..
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Old 12-12-2011, 01:00 PM
 
Location: Midwest
504 posts, read 1,265,831 times
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@OP:

Dude, this entire thread is just you begging the question. Your proposition is that "the government is ALWAYS involved in the market" and that laissez-faire objectives should therefore be rejected. You say that taxpayer-funded bailouts of financial firms support this thesis. When others argue that these bailouts were the result of prior government intervention, you answer with your unproven proposition.
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Old 12-12-2011, 01:18 PM
 
19,198 posts, read 31,370,492 times
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Quote:
Originally Posted by cpg35223 View Post
But what I cannot seem to impress upon you was that this entire problem was the result of government involvement in the first place. Seriously. If the government hadn't begun getting involved in the mortgage biz in the mid-90s there wouldn't have been a bubble to start with, and there wouldn't have been a need to bail out anyone.
The reason there were never any "endemic structural problems" in the systems you remember is that they were for rich, white, married people only. The country doesn't look like that anymore. We are now a multi-everything society and all of our newcomers need access to credit. Please remember what the word "access" means.

Barney Frank was "blind-sided" by nothing. You've been watching too many YouTube propaganda videos. Rep. Frank and his peers were trying to write safety-and-soundness related reforms for the GSE's from very shortly after 2000. Real estate and financial markets had changed and were still changing rapidly. Everyone agreed that GSE operations and oversight needed to be modernized. Everyone, that is, except Bush. Just like Social Security, his idea of modernization was to privatize the function, chopping up the GSE's and turning everything they did over to Wall Street. That was his only interest or intention. He proposed schemes to cap the GSE's and to crush the GSE's and he torpedoed all Congressional attempts to write rational legislation for them. All Barney Frank could do was keep trying. By the time he got the gavel back in 2007, the damage had already been done.

As for Dodd-Frank and community banks...
-- It requires them to hold a share of the risk they originate and sell. They then have to maintain reserves against it. Isn't that exactly the old school way that you wanted?
-- It mandates higher capital requirements and narrower capital qualifications. Are you against a safer banking system after what's happened, and in favor of letting any segment of the industry run hog wild?
-- It adds SEC regulation to community bank services provided to municipalities. Do you think local governments should have continued to face the risk of being frozen out of business because some bank officer took a flier on a questionable bunch of derivatives?
-- And speaking of derivatives, community banks will face new restrictions on the depths at which they can gamble. They claim this will increase their costs of hedging. Wasn't that the whole idea?
-- FDIC is going to double the size of its Deposit Insurance Fund. Bad idea? Oh, and are community banks paying for any of that?

And who benefits from changes in the FDIC assessment base or from making permanent the $250K of FDIC coverage? Do community banks actually end up with the least restrictive set of capital requirements under Dodd-Frank? Is BOA or CitiBank going to be exempted from Section 404 of Sarbanes-Oxley or is it just publics with a capitalization of less than $75 million?

The purpose of Dodd-Frank is to make less likely -- much less likely, actually -- a repeat of the fiasco that the Fed found itself unable to deal with this last time around. Much of the free-wheeling, get-it-while-you-can nature that crept into the financial industry is going to have to go. There are both costs and benefits to be passed around from that. The net impacts on community banking are not going to wreck the industry.

[No, not done yet...]
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Old 12-12-2011, 01:30 PM
 
28,896 posts, read 53,939,958 times
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Quote:
Originally Posted by saganista View Post
The reason there were never any "endemic structural problems" in the systems you remember is that they were for rich, white, married people only. The country doesn't look like that anymore. We are now a multi-everything society and all of our newcomers need access to credit. Please remember what the word "access" means.

Barney Frank was "blind-sided" by nothing. You've been watching too many YouTube propaganda videos. Rep. Frank and his peers were trying to write safety-and-soundness related reforms for the GSE's from very shortly after 2000. Real estate and financial markets had changed and were still changing rapidly. Everyone agreed that GSE operations and oversight needed to be modernized. Everyone, that is, except Bush. Just like Social Security, his idea of modernization was to privatize the function, chopping up the GSE's and turning everything they did over to Wall Street. That was his only interest or intention. He proposed schemes to cap the GSE's and to crush the GSE's and he torpedoed all Congressional attempts to write rational legislation for them. All Barney Frank could do was keep trying. By the time he got the gavel back in 2007, the damage had already been done.

As for Dodd-Frank and community banks...
-- It requires them to hold a share of the risk they originate and sell. They then have to maintain reserves against it. Isn't that exactly the old school way that you wanted?
-- It mandates higher capital requirements and narrower capital qualifications. Are you against a safer banking system after what's happened, and in favor of letting any segment of the industry run hog wild?
-- It adds SEC regulation to community bank services provided to municipalities. Do you think local governments should have continued to face the risk of being frozen out of business because some bank officer took a flier on a questionable bunch of derivatives?
-- And speaking of derivatives, community banks will face new restrictions on the depths at which they can gamble. They claim this will increase their costs of hedging. Wasn't that the whole idea?
-- FDIC is going to double the size of its Deposit Insurance Fund. Bad idea? Oh, and are community banks paying for any of that?

And who benefits from changes in the FDIC assessment base or from making permanent the $250K of FDIC coverage? Do community banks actually end up with the least restrictive set of capital requirements under Dodd-Frank? Is BOA or CitiBank going to be exempted from Section 404 of Sarbanes-Oxley or is it just publics with a capitalization of less than $75 million?

The purpose of Dodd-Frank is to make less likely -- much less likely, actually -- a repeat of the fiasco that the Fed found itself unable to deal with this last time around. Much of the free-wheeling, get-it-while-you-can nature that crept into the financial industry is going to have to go. There are both costs and benefits to be passed around from that. The net impacts on community banking are not going to wreck the industry.

[No, not done yet...]
Ah. So you don't have any statistical ammunition to work with, so you are playing the race/class card now. Exactly the weak cheese I would expect from a politico.

It was rather obvious by the early 2000s that home prices had already become seriously out of whack. There were many people in the industry and economists who were already beginning to voice their concerns. In fact, I remember some serious concerns raised in a lot of industry meetings in the late 90s and early 00s. But Frank was still defending the entire apparatus, never considering for a fact that the brainchild of Cisneros, et al, had actually made housing LESS affordable. In fact, I remember his public statements and thinking, "Uh oh. He's out of touch, and we're all in trouble."

Here's my question to you, S. Did you predict this meltdown? I did and warned my clients accordingly, all because I understood the contributing factors to it. I'm betting that you were caught flat-footed by the entire mess, no matter how many Wikipedia articles you copy into this thread and claim as your own.
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Old 12-12-2011, 04:56 PM
 
Location: Indianapolis, IN
67 posts, read 74,109 times
Reputation: 91
Quote:
Originally Posted by rock_chalk View Post
@OP:

Dude, this entire thread is just you begging the question. Your proposition is that "the government is ALWAYS involved in the market" and that laissez-faire objectives should therefore be rejected. You say that taxpayer-funded bailouts of financial firms support this thesis. When others argue that these bailouts were the result of prior government intervention, you answer with your unproven proposition.
When critiquing my thesis, let's be more specific than merely using the term "government intervention." The bailouts were the result of the WRONG type of government intervention, e.g., legislation such as the Gramm–Leach–Bliley Act (1999) which enabled Wall Street to indulge itself like a heroin addict with speculation and leverages -- using bad loans as collateral -- assured that the government would come to its rescue when it needed a fix of liquidity. And why does the government do it? Because our government no longer represents the interests of the public, but rather it serves the interests of a financial sector whose lobbying power and influence knows no bounds. The casino of Wall Street was a party whose excesses came crashing down on the taxpayer. Look it, I don't like when someone freeloads off the system. Likewise -- and on a much bigger scale might I add -- it disgusts me to see high-ranking executives on Wall Street still receiving bonuses on the taxpayer's dime. And none of these scoundrels have been prosecuted for violating the Sarbanes–Oxley Act of 2002.
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Old 12-12-2011, 07:52 PM
 
19,198 posts, read 31,370,492 times
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Quote:
Originally Posted by cpg35223 View Post
But what I cannot seem to impress upon you was that this entire problem was the result of government involvement in the first place. Seriously. If the government hadn't begun getting involved in the mortgage biz in the mid-90s there wouldn't have been a bubble to start with, and there wouldn't have been a need to bail out anyone.
[Sorry for the delay...this work stuff is s-o-o-o unpredictable!]

In any case, your two further Law of Unintended Consequences examples are both off base. University tuition began to rise because of the demand for extra staff and facilities that arose out of the baby-boomer generation, especially when all those GIRLS wanted an education as well. So, lots of new hiring and construction was done. But by the 1980's, all that extra demand had slacked off, and univeristies had excess capacity on their hands that they still had to pay for. Additionally, state schools at least were confronted with waves of wild-eyed, Freddy Krueger, tax-slasher types, all bent on gutting spending wherever they found it. The only answer for universities was to insist that a greater percentage of kids go on to college. Not the roughly 10-15% capable of maintaining a B-average at an accredited four-year school, but twice that. Indeed, some 70% of HS grads now go on to some form of post-secondary education, up from about 40% in 1970. Of course, nowhere near 70% of kids come from families who can actually afford the cost. Substantial public funding has thus become a necessity.

Cash for Clunkers meanwhile took about 680K vehicles out of circulation. 85% of those were aging, gas-guzzling trucks and SUV's with lousy safety ratings. The top five models crunched up were Ford Explorer, Ford F-150, Jeep Grand Cherokee, Ford Explorer, and Dodge Caravan. They averaged a little over 15 mpg. Are those the "good cars" at "decent prices" you had in mind? Keep in mind as well that these 680K vehicles were a little more than one-fourth of 1% of the 260 million vehicles then on the road. It was too small a number to make a difference. Compare it to the effect on used care markets that the 13 million new cars NOT sold in 2008-2010 on account of the recession has had. And of course, figure in that despite it all, the average wholesale price of a used car in October of this year was not "sky high", but $68 lower than what it was two years ago.
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Old 12-13-2011, 06:47 AM
 
19,198 posts, read 31,370,492 times
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Quote:
Originally Posted by cpg35223 View Post
Actually, we're both arguing the same point in many senses. The problem isn't capitalism. It's corporatism, where government and free enterprise get into bed together. Had the government not been involved in the mortgage industry at all over the past twenty years, it's quite likely that we wouldn't be in the pickle we're in.
It is the JOB of government to protect and promote the interests and welfare of all those within its jurisdiction, including individuals, groups, associations, and corporations of all types. Recent problems did not arise in government, but in the economic ineptitude of those elected and appointed to it.

If you put people in charge who do not understand that corporate profits and tax cuts for the rich do not promote economic growth, who do not understand that freezing interest rates at historically low levels will light a fire under long-term asset prices, and who do not understand that markets have never been wise enough to regulate themselves, you are likely to end up being driven into a ditch.

Quote:
Originally Posted by cpg35223 View Post
The huge banks were bailed out because it was government policy to make them huge banks.
Lost liquidity within the financial system was replaced in order to aid in unfreezing credit markets and restoring system confidence. This was done in cognizance of the fact that if the system or its major players began to topple, the chain of dominos that would fall in turn extended into every burg and hamlet in the country and nearly every living room. It was ALL OF US who were being bailed out, not just the banks.

Quote:
Originally Posted by cpg35223 View Post
Heck, just look at the Goldman Sachs employees who served in the upper reaches of the Clinton, Bush, and Obama presidencies to realize how cozy the relationship has been.
Goldman Sachs deliberately overpays the best and brightest of its younger staff so that when the time comes, they will be able to afford to take several years off to work in public service at the low wages that the government pays.

Quote:
Originally Posted by cpg35223 View Post
What's more, you have to remember that the Federal Reserve is not a Federal branch of government.
LOL! We're getting into whackjob territory now.

Quote:
Originally Posted by cpg35223 View Post
It is not answerable to the people of the United States and its books cannot be audited by congress.
The Fed exists and is controlled under Congressional mandate. Congress can change the law at any time, though what's usually thought of as "auditing the Fed" would be quite a bad idea.

Quote:
Originally Posted by cpg35223 View Post
That's because the Federal Reserve is a cartel that was given sweeping powers by the Federal government under auspices of preventing bank panics way back under Woodrow Wilson's administration. The chief shareholders of the Federal Reserve are the same large banks that were bailed out by, surprise, the Federal Reserve.
LOL! LOL! Regulation is paid for by the regulated. What you call "stock" is essentially a receipt for assessments paid in -- it does not convey any ownership interest nor much of any other right either.

Quote:
Originally Posted by cpg35223 View Post
So we have an institution with sweeping powers that isn't beholden to Federal law, yet essentially coins our money.
The Fed seeks under its Congressional mnadates to influence the money supply in order to promote economic growth and stable prices. That's the sort of thing that central banks do. Can you name any signficant economy that does not have a central bank?

Quote:
Originally Posted by cpg35223 View Post
In a purely capitalist system, there would be a much clearer line of demarcation between the private and public sectors, not this system that thrives off nepotism and backroom deals.
Kind of a lords and serfs sort of situation? The very purpose of a representative democracy is to obliterate any such demarcation.

Quote:
Originally Posted by cpg35223 View Post
So current crisis, much like Japan's financial crisis that began in 1989 and continues to this day, is the result of government and select entities working hand in hand, not separately.
Well, we can add "The Lost Decade" to the list of knee-jerk talking points that you don't seem to know very much about.
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Old 12-13-2011, 07:00 AM
 
19,198 posts, read 31,370,492 times
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Quote:
Originally Posted by cpg35223 View Post
That would have been a very small number. Because the people involved would have had to totally blow off the comparables of the neighborhood, a trend that would have quickly emerged upstream.
Dude, at the end of the road, everyone was doing it despite knowing better. Their excuse was that everybody else was doing it. Since you seem a bit oblivious on the matter, head over to NPR and find the video "The Giant Pool of Money". Named by the NYU School of Journalism as one of the top ten journalistic works of the decade, the hour-long segment will that quickly bring you up to date on a wide range of history that you seem to have missed out on completely.
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Old 12-13-2011, 10:55 AM
 
19,198 posts, read 31,370,492 times
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Originally Posted by grindlemeister View Post
It has been intimated, on this thread, that the Community Reinvestment Act was responsible, to a great extent, for the crisis caused by subprime loans. Furthermore, it was added that any arguments to the contrary, were due to propaganda delivered by "revisionist hacks." So, in light of that, I have a few questions for people who link the CRA directly to the subprime fiasco. Here are my questions:
1) The wretched performance of mortgage loans made between 2005 and 2007 caused the crisis. So, in regards to timing, why do certain people make this BIG link between the Community Reinvestment Act and subprime loans, especially considering the fact the aforementioned federal law was passed in 1977, with no substantive changes thereto since 1995?
2) It is acknowledged that independent nonbank lenders (e.g., mortgage and finance companies) played a considerable role in the subprime game. Since those lenders are not subject to CRA regulation, how should critics of the CRA respond to "revisionist hacks" who mention this detail?
3) If we are to trust a January 2011 report from the Financial Crisis Inquiry Commission, in which they said, "Research indicates only 6% of high-cost loans -- a proxy for subprime loans -- had any connection to the law," what should be the response from those continually link the CRA to subprime lending?
4) How do critics of the CRA account for data, courtesy of First American Loan Performance, which indicates that delinquency rates for subprime loans were just as high in middle- and higher-income neighborhoods as those in lower-income neighborhoods?
These are all good questions. They exist because the thesis that CRA was any contributor to the credit crisis was invented out of whole cloth, principally by Thomas DiLorenzo of the so-called Mises Institute. He may be known also for his claims that Abraham Lincoln was the worst President in US history, but his fictional claims regarding CRA have probably gained wider circulation. They were invented so as to establish a credible-sounding alternative to the notion that "this was all Bush's fault", and after being tested out at FreeRepublic.com, his finished product started showing up in right-wing media outlets and then in the MSM. It was total bunk in the beginning, is now, and ever more shall be.
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Old 12-13-2011, 11:10 AM
 
19,198 posts, read 31,370,492 times
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Originally Posted by elamigo View Post
Have you read how the CRA forced lending insitutions to give credit to people that had bad credit with threats?
It did no such thing. It required those lenders who took federal deposit insurance to make serious efforts consistent with safe and sound operation to meet the credit needs of the communities they took deposits from. They did not need to make a single loan. All they needed to do was demonstrate that they had sincerely sought to find qualified borrowers right there in the middle of the urban low- and moderate-income neighborhoods they had branches in. Of course, when they did that, they found scads of borrowers able to qualify at prime terms, and the rest is history.

No policy, law, rule, or court decision has ever forced any lender to make any loan to any entity not qualified for that loan.
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