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Considering the national and/or global scale of the marketplace -- not to mention the sophistication of the current high-tech world -- the notion that laissez-faire capitalism could even be considered an option, at this point, is just simply naive. The state is always involved when dealing on a BIG scale. HOW it's involved differs from time to time (e.g., at times, there have been administrations who promoted tougher regulations, only to be followed by an administration, and perhaps a legislature, more resistant to such oversight). The fact that the government is always involved should be self-evident by now, in light of the big taxpayer-funded bailouts in recent years. A few years ago, the government came to the rescue when the banks demanded bailouts. But aside from receiving government aid, too many companies in the financial sector still bemoan other, less-favored, examples of government involvement. To reiterate, too many companies approve of government participation ONLY when it benefits them in the form of bailouts and subsidies, but they attack any plan of viable oversight and regulation.
I was watching a clip of Noam Chomsky delivering a lecture from 1997. He summed up the marketplace and how the government is always involved (even with so-called "private" companies). He cited Cray Inc. as an example. He mentioned that despite being called a private enterprise, so many things about the company are not private. Yes, the profits and the management are private, but that's about it. Everything else is socialized. The cost, ideas and development are all all socialized. The technology is "state-subsidized, developed and supported."
And of course, while the profits are privatized, the risks are socialized. Could Cray Inc. (and many other BIG companies) exist without the AID of the government? Answer: No. If they could survive in this high-tech world without any help, they wouldn't bribe our public officials on Kay Street. They wouldn't be actively lobbying to influence legislation that works to their advantage.
It was revealed by Bloomberg Markets magazine, a few days ago, that the Federal Reserve secretly loaned Wall Street banks over $7.7 trillion by March 2009 (in fact, $1.2 trillion was handed out on one day, Dec. 5, 2008). Of course, the Fed created all of this money out of nothing.
My next question: If these companies can stand on their own, why the need for all this aid? Think about it, after the banks facilitated this mess by bundling bogus mortgages into complex financial instruments, sold them to investors and bet against them at the same time, THEY demanded a bailout when they got into trouble. Why? Because they're failures, not to mention them being intentionally deceptive too. When it came to Wall Street, it was, as Matt Taibbi from Rolling Stone put it, "one Ponzi scheme after another."
So, can the sophisticated companies of this high-tech world exist without the state? Answer: No. We're not talking about a lemonade stand here. For these companies to be a viable force in the modern day, hi-tech world, the government is needed IN A BIG WAY. Of course, the defenders of laissez-faire capitalism are invited to post their opposing arguments.
Last edited by grindlemeister; 12-01-2011 at 09:05 AM..
Actually, there's a huge, gaping flaw in your logic.
What you fail to acknowledge is the massive government intervention in the housing and lending markets that created the entire bubble possible in the first place, which then required government bailouts. In that sense, the government was essentially correcting the fallout from its own misguided policies. From the juicing of the Community Reinvestment Act to FHA, Fannie Mae, Freddie Mac, and the Federal Reserve's artificially low rates AND its approval of stunt mortgages the government was actually complicit for at least a full decade in the massive run-up of the credit bubble. What's more the Clinton Administration was cheering on Bear Stearns to securitize mortgage-based securities as early as 1997. In a classic example of the Law of Unintended Consequences, what had once been a safe, steady, and fairly boring segment of American financial life was turned into the Wild Wild West. All because the inflow of government funding and its suspension of prudent underwriting.
Almost immediately, contradictions began being baked into the mortgage lending process. For example, it was a point of pride among mid-sized mortgage lenders through the mid-90s to hold their own papers, meaning that if you got your house note with them, you'd likely still be dealing with the same lender 30 years later. But because of the whole new Alice in Wonderland world of lending requirements imposed on them by a government seeking to achieve social equality and seeking home ownership as a wealth builder, those same lenders began dumping their portfolios as fast as they could. I remember a lot of companies reluctantly selling out for the very reason that government subsidized lending made long-term holding of mortgages untenable. Add to that the Federal Reserve's 'encouragement' of banks to juice their portfolios with loans such as ARMs, Zero-Interest, Interest-Only, etc. etc., loans that were tailor-made to encourage rampant price speculation.
The result was a total absence of common sense in pricing. I remember talking to people in Las Vegas who bragged about how home values were rising 15-20% annually. When I dared to suggest that there would be a reckoning, you would have thought I had insulted their children. Now, Las Vegas is ground zero for worthless real estate.
Because mortgage lenders were no longer holding onto their notes for 30 days, let alone 30 years, guess what happened next? Underwriting went completely out the window. Nobody cared about the actual values of the homes versus what money was being lent out. They were just filling out the forms, knowing that Citi would swoop in and buy their loans, and then repackage them for suckers. So the growth of banks to the point that they became huge, bloated 'too big to fail' entities is very much a result of government intervention. Had the government not been promoting the housing bubble, pricing would not have gotten out of hand. Just as importantly, banks would have likely kept their own mortgage portfolios, which meant that underwriting would have been a very good governing force--just as it had done over the past century or so.
So what you see is a calamity that was caused because of the government getting heavily involved in the marketplace, thereby putting artificial and disruptive constructs into both pricing and lending, rather than the result of an absent government (By the way, who was the New York Fed's Chairman, presiding over Wall Street when it became one giant Ponzi scheme? None other than our current Treasury secretary, Tim Geithner). Noam Chomsky is a fine linguist, et al, but he is a really awful dilettante economist with very selective memory. And Matt Taibbi is a polemicist who conveniently ignores facts and evidently considers research to be for chumps. You should really not take them very seriously.
Considering the national and/or global scale of the marketplace -- not to mention the sophistication of the current high-tech world -- the notion that laissez-faire capitalism could even be considered an option, at this point, is just simply naive. The state is always involved when dealing on a BIG scale. HOW it's involved differs from time to time (e.g., at times, there have been administrations who promoted tougher regulations, only to be followed by an administration, and perhaps a legislature, more resistant to such oversight). The fact that the government is always involved should be self-evident by now, in light of the big taxpayer-funded bailouts in recent years. A few years ago, the government came to the rescue when the banks demanded bailouts. But aside from receiving government aid, too many companies in the financial sector still bemoan other, less-favored, examples of government involvement. To reiterate, too many companies approve of government participation ONLY when it benefits them in the form of bailouts and subsidies, but they attack any plan of viable oversight and regulation.
I was watching a clip of Noam Chomsky delivering a lecture from 1997. He summed up the marketplace and how the government is always involved (even with so-called "private" companies). He cited Cray Inc. as an example. He mentioned that despite being called a private enterprise, so many things about the company are not private. Yes, the profits and the management are private, but that's about it. Everything else is socialized. The cost, ideas and development are all all socialized. The technology is "state-subsidized, developed and supported."
And of course, while the profits are privatized, the risks are socialized. Could Cray Inc. (and many other BIG companies) exist without the AID of the government? Answer: No. If they could survive in this high-tech world without any help, they wouldn't bribe our public officials on Kay Street. They wouldn't be actively lobbying to influence legislation that works to their advantage.
It was revealed by Bloomberg Markets magazine, a few days ago, that the Federal Reserve secretly loaned Wall Street banks over $7.7 trillion by March 2009 (in fact, $1.2 trillion was handed out on one day, Dec. 5, 2008). Of course, the Fed created all of this money out of nothing.
My next question: If these companies can stand on their own, why the need for all this aid? Think about it, after the banks facilitated this mess by bundling bogus mortgages into complex financial instruments, sold them to investors and bet against them at the same time, THEY demanded a bailout when they got into trouble. Why? Because they're failures, not to mention them being intentionally deceptive too. When it came to Wall Street, it was, as Matt Taibbi from Rolling Stone put it, "one Ponzi scheme after another."
So, can the sophisticated companies of this high-tech world exist without the state? Answer: No. We're not talking about a lemonade stand here. For these companies to be a viable force in the modern day, hi-tech world, the government is needed IN A BIG WAY. Of course, the defenders of laissez-faire capitalism are invited to post their opposing arguments.
The differenc between government is a the huge gap. A government does not run for profit, a company does. A government is competing with anybody so it has not need to improve quality or performance. It only does when at times the voters threaten with their vote. Only then they improve enough to stay in good with voters, no more.
However, a company does better for your dollar because they know you can go to the competition if they fail you.
Are there flaws in the invisible hand? I am sure there are. Why? Because people do run their businesses differently, some poorly and other greatly. The results? Ups and downs when people try to correct problems, customers choices that vary, the weather, a calamity, international market, bad political decisions, and to me a big one is excessive government intervention. Take care.
What you fail to acknowledge is the massive government intervention in the housing and lending markets that created the entire bubble possible in the first place, which then required government bailouts.
But what about arguments citing the gradual repeal of the Glass-Steagall Act (through passing the Gramm-Leach-Bliley Act in 1999) as having something to do with causing this mess? I'm sure deregulation of this kind, in many ways, incurred the economic crisis of 2008. Experts know the obvious truth that by repealing Glass-Steagall -- and thus demolishing the wall of separation between commercial and investment banking -- this allowed for an environment of unethical behavior and manipulation. Again, the government is always involved no matter what. HOW it's involved differs from time to time. And in this example of deregulation, the government chose to serve the interests of the financial elites by passing the Gramm-Leach-Bliley Act, rather than serving the public interest through a law like Glass-Steagall. Can you admit that the repeal of Glass-Steagall had at least something to do with the economic mess of 2008? (And before you mention the fact that Gramm-Leach-Bliley was passed during the Clinton administration, note also, that a Republican majority passed it.)
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Originally Posted by cpg35223
What's more the Clinton Administration was cheering on Bear Stearns to securitize mortgage-based securities as early as 1997. In a classic example of the Law of Unintended Consequences, what had once been a safe, steady, and fairly boring segment of American financial life was turned into the Wild Wild West. All because the inflow of government funding and its suspension of prudent underwriting.
No disagreement there relating to the Clinton administration. And I'm no fan of the Clinton "legacy." That kind of government funding should have never happened.
Quote:
Originally Posted by cpg35223
But because of the whole new Alice in Wonderland world of lending requirements imposed on them by a government seeking to achieve social equality and seeking home ownership as a wealth builder, those same lenders began dumping their portfolios as fast as they could.
So, from your viewpoint, nearly all of the blame should fall upon the shoulders of a government seeking "social equality" or the foolish folks who chose to buy a home they couldn't afford? While I agree that such an egalitarian approach was reckless at times, can you at least acknowledge that the financial sector was acting unethically too? And to reiterate, I condemn the championing of subprime lending for "social equality." I agree 100 percent with you there. That was ABSOLUTELY the wrong type of government intervention. But I still hold that Glass-Steagall was the right kind government involvement.
Quote:
Originally Posted by cpg35223
I remember a lot of companies reluctantly selling out for the very reason that government subsidized lending made long-term holding of mortgages untenable. Add to that the Federal Reserve's 'encouragement' of banks to juice their portfolios with loans such as ARMs, Zero-Interest, Interest-Only, etc. etc., loans that were tailor-made to encourage rampant price speculation.
Absolutely.
Quote:
Originally Posted by cpg35223
They were just filling out the forms, knowing that Citi would swoop in and buy their loans, and then repackage them for suckers.
Regardless if the victims were "suckers" or not, that doesn't make the repackaging those loans by the financial necromancers right or ethical, and it should have never happened. Which reminds me... What about the Commodity Futures Modernization Act of 2000 which excluded derivatives from regulation? Shall we include that in the discussion? Suckers or not, enabling this kind of financial sorcery should NEVER have happened. (And of course, it should be noted that the repealing of Glass-Steagall was a monumental a achievement due to $300 million of lobbying from the financial sector, with the help of Senator Phil Gramm. And ALL in the spirit of deregulation. This is an example of the financial sector lobbying i.e. bribing our government into acquiescing to their whims.)
Quote:
Originally Posted by cpg35223
So the growth of banks to the point that they became huge, bloated 'too big to fail' entities is very much a result of government intervention.
But the WRONG kind of intervention.
Quote:
Originally Posted by cpg35223
So what you see is a calamity that was caused because of the government getting heavily involved in the marketplace...
Again, it was the WRONG kind of intervention.
Quote:
Originally Posted by cpg35223
...thereby putting artificial and disruptive constructs into both pricing and lending, rather than the result of an absent government
To reiterate, I never said that the government was absent. It can never be absent. That's the point of this thread. Moreover, I'm addressing the far-fetched notion of a laissez-faire capitalist viewpoint: the notion that there can be situations were the government is never involved. I still maintain that government is ALWAYS INVOLVED in the marketplace. HOW it's involved is the important question to be asked. The Glass-Steagall Act is, in my opinion, a much needed example of government involvement, whereas I can see your problem with the Community Reinvestment Act (despite claims that the majority of subprime loans were not related to the CRA).
Quote:
Originally Posted by cpg35223
(By the way, who was the New York Fed's Chairman, presiding over Wall Street when it became one giant Ponzi scheme? None other than our current Treasury secretary, Tim Geithner).
I never cared for Geithner. And likewise, I'm not thrilled with Obama's economic team.
But what about arguments citing the gradual repeal of the Glass-Steagall Act (through passing the Gramm-Leach-Bliley Act in 1999) as having something to do with causing this mess? I'm sure deregulation of this kind, in many ways, incurred the economic crisis of 2008. Experts know the obvious truth that by repealing Glass-Steagall -- and thus demolishing the wall of separation between commercial and investment banking -- this allowed for an environment of unethical behavior and manipulation. Again, the government is always involved no matter what. HOW it's involved differs from time to time. And in this example of deregulation, the government chose to serve the interests of the financial elites by passing the Gramm-Leach-Bliley Act, rather than serving the public interest through a law like Glass-Steagall. Can you admit that the repeal of Glass-Steagall had at least something to do with the economic mess of 2008? (And before you mention the fact that Gramm-Leach-Bliley was passed during the Clinton administration, note also, that a Republican majority passed it.)
Glass-Steagall did indeed contribute to this partially. But nowhere on the scale of an activist government manipulating interest rates and creating subsidy programs to encourage homeownership--thereby creating a huge bubble. After all, it's not like government intervention in real estate hasn't caused similar problems before. Hell, Australia took a 10% hit to its GDP after a similar run up in real estate cause by government incentives and subsidies earlier in the 20th Century. Further, because the alphabet soup of government programs created a situation where small- and mid-sized financial institutions could not longer hold mortgage portfolios, forcing them to sell off, Glass Steagall only came into play after the damage had already been done.
So, from your viewpoint, nearly all of the blame should fall upon the shoulders of a government seeking "social equality" or the foolish folks who chose to buy a home they couldn't afford? While I agree that such an egalitarian approach was reckless at times, can you at least acknowledge that the financial sector was acting unethically too? And to reiterate, I condemn the championing of subprime lending for "social equality." I agree 100 percent with you there. That was ABSOLUTELY the wrong type of government intervention. But I still hold that Glass-Steagall was the right kind government involvement.
Well given that you seemed to lay the entire blame for the crisis on the recklessness of the private sector and then advanced the view that the only cure would be extensive government intervention and regulation, I merely pointed out that wholesale government involvement in the housing and financial sector was the primary cause of this crisis in the first place. The motivation, while laudable, was ill-advised. Hell, even when the obvious cracks were showing in the whole facade as early as 03 and 04, people like Barney Frank and Maxine Waters were doubling down on FMAE and FMAC, despite any number of economists shouting the warnings from the rooftops. Worst of all, it was a sector of the economy that was stable for decades--and now it's a mess while causing a huge portion of the GDP to evaporate in the process. And yet you really want to entrust the government with more power in this sector? Haven't they done enough?
Regardless if the victims were "suckers" or not, that doesn't make the repackaging those loans by the financial necromancers right or ethical, and it should have never happened. Which reminds me... What about the Commodity Futures Modernization Act of 2000 which excluded derivatives from regulation? Shall we include that in the discussion? Suckers or not, enabling this kind of financial sorcery should NEVER have happened. (And of course, it should be noted that the repealing of Glass-Steagall was a monumental a achievement due to $300 million of lobbying from the financial sector, with the help of Senator Phil Gramm. And ALL in the spirit of deregulation. This is an example of the financial sector lobbying i.e. bribing our government into acquiescing to their whims.)
I don't argue that government shouldn't prevent fraud. But, once again, because the government had skin in the housing and mortgage game, it had first-class motivation to look the other way during the late 90s and beyond. Once again, if the government hadn't pressured lenders to underwrite people who had no business owning homes in the first place, there wouldn't have been a need to offer stunt loans. In turn, small- and mid-sized lenders wouldn't have been forced to sell off their portfolios, which led to the entire securitization mess. You seem to think that the cited legislation overlooked derivatives. Instead, it was seen as a way to enable continued growth of the bubble, thereby allowing corrupt political darlings such as Fannie Mae to exist and do business when, under a normal market system, they would have been out of business years earlier.
But the WRONG kind of intervention.
Yes it was. But that's immaterial, because it was an intervention to ameliorate the disaster of the first government intervention. You act as if one didn't have anything to do with the other.
To reiterate, I never said that the government was absent. It can never be absent. That's the point of this thread. Moreover, I'm addressing the far-fetched notion of a laissez-faire capitalist viewpoint: the notion that there can be situations were the government is never involved. I still maintain that government is ALWAYS INVOLVED in the marketplace. HOW it's involved is the important question to be asked. The Glass-Steagall Act is, in my opinion, a much needed example of government involvement, whereas I can see your problem with the Community Reinvestment Act (despite claims that the majority of subprime loans were not related to the CRA).
While my argument with the Glass Steagal act is minor, it was just one of many actions the government put in place, and really played a minor role in the development of this crisis. Instead, I consulted for any number of financial institutions and was intimately involved in mortgage discussions. And, despite what some revisionist hack might say, the CRA had a profound effect on how banks operated. Bank charters were scrutinized to ensure compliance and, if a minority was turned down for a mortgage, the government wanted to know why. Hence the grab bag of stunt loans that were toxic the day they were written. As a result, the average bank got a new mortgage off their books within roughly 25 days, essentially kicking the can down the road so it would be someone else's problem. It is a classic example of the Law Of Unintended Consequences if ever I heard it.
Contrary to the weird, paranoid fantasies of the left, banks do not say to themselves, "Why here comes a black/Latino couple wanting to take out a thirty-year mortgage. Let's go through the motions and turn them down. Har, Har, Har." To banks, a loan is a loan is a loan. And if the credit score is good, they are happy to underwrite you whether you're white, black, brown, yellow, red, or green with eye stalks.
In short, there were never these kinds of endemic structural problems in the real estate and the mortgage industry before the government stepped in with both feet. It was a pretty simple business with simple underwriting. Because it made business sense to hold your own paper, there was no need to sell your loan portfolio upstream, which meant there was no need for securitization in the financial markets. What's more, a homebuyer had to save a considerable amount of money to buy his or her home, which meant that equity wasn't derived from mushrooming prices but real and tangible value. The industry chugged along financing people's homes. And because there was sound underwriting, overall home prices appreciated at roughly the rate of inflation. It was about as stable as you could get.
The government ruined all that. Sure their intentions were good. But you know what the road to Hell is paved with, right? And guess what? Their supposed solution to the problem, the Dodd-Frank Bill, is going to be a huge problem in the years to come (The brainchild of Barney Frank. Remember him? The guy who was totally blindsided by the entire problem in the first place. Yeah, there's a name you can trust with the country's entire financial industry). Because the way the legislation is written, it forces the small- and mid-sized community bank to either grow, merge, or die. So the community bank, the ones who were the most innocent and powerless ones in this entire debacle, are going to be the ones who get punished the most. It is unlikely that any bank with fewer than a half-billion in assets will be in business by the end of the decade, not for any business reason, but before the government thinks its a good idea. What's more, Dodd Frank will actually create a financial oligarchy among big banks even more profound than before, because the new regulatory environment makes the formation of de novo banks almost impossible. And yet poor deluded fools are giving the whole mess a nice little golf clap, foolishly thinking it solved the problem.
Want to see a parallel? A few decades ago, somebody looked up and said, "Hey, you know, it's kind of hard for college students and their families to afford college. We should develop a program to help them." So the entire raft of student loan programs was hatched.
Yet, once again, the Law of Unintended Consequences came into play. Because colleges no longer had to worry about pricing in accordance with the average family's ability to pay, tuitions began their long, sustained hike northward at a rate roughly three times the rate of inflation to pay for spiffy new buildings and the whatnot. So, ultimately, instead of making college more affordable, government introduced a lack of reality into tuitions, thereby making college less so. 30 years ago, I could scrape together the funds to attend my private college. A student today attending the same school could never hope to do that. Heck, my wife and I do quite well, but there's no way we're paying $40,000 a year in tuition to send each of my three children to private colleges. So the ultimate result will be that private colleges will begin shuttering left and right, chiefly because government tuition assistance helped them price themselves out of the market.
Want another example? If you've tried to buy a good used car in the past two years, you'd notice that prices were sky high, all because someone in the government thought it would be a great idea to take used cars off the market and destroy them. They never anticipated what a financial hardship it would cause for a working class family who wanted to drive a decent used car for a decent price.
To wrap it all up, government involvement in any industry introduces a lack of reality in pricing models, whether it's houses, tuition, healthcare, used cars, or anything else. Endorsing wholesale government intervention to solve a problem caused by wholesale government intervention strikes me as a little absurd.
To wrap it all up, government involvement in any industry introduces a lack of reality in pricing models pricing models, whether it's houses, tuition, healthcare, used cars, or anything else.
So, obviously, you don't like government involved in industry. Well, that's fair enough, I suppose. My question: Do you really believe that big corporations can adequately function in today's hi-tech global marketplace without viable government involvement? (Keep in mind, I'm not endorsing anything here, I'm simply asking this question for the sake of clarity.)
So, why don't we apply this idea of removing viable government involvement to its furthest extent. Let's see if these companies could continue without waging aggressive lobbying tactics in Washington. Let's see if these companies could survive without receiving government subsidies, over-the-top taxpayer bailouts or public money for research (like Cray Inc.). Could they survive? I'm not convinced they can. Why DID the banks secretly receive $7.77 trillion from the Federal Reserve? If they're so great, why the over-the-top bailouts from a private bank?
You believe the government is overstepping its bounds when it comes to business, whereas I see industry holding the public sector hostage. No big deal. Both sectors are in bed together. And, most likely, will remain so, to the disadvantage of the rest of us. Sometimes I wonder if it even matters who's more correct when it comes to private sector versus public sector debates. Both sectors have a revolving door in the middle that's spinning like a top.
Last edited by grindlemeister; 12-01-2011 at 06:58 PM..
So, obviously, you don't like government involved in industry. Well, that's fair enough, I suppose. My question: Do you really believe that big corporations can adequately function in today's hi-tech global marketplace without viable government involvement? (Keep in mind, I'm not endorsing anything here, I'm simply asking this question for the sake of clarity.)
So, why don't we apply this idea of removing viable government involvement to its furthest extent. Let's see if these companies could continue without waging aggressive lobbying tactics in Washington. Let's see if these companies could survive without receiving government subsidies, over-the-top taxpayer bailouts or public money for research (like Cray Inc.). Could they survive? I'm not convinced they can. Why DID the banks secretly receive $7.77 trillion from the Federal Reserve? If they're so great, why the over-the-top bailouts from a private bank?
You believe the government is overstepping its bounds when it comes to business, whereas I see industry holding the public sector hostage. No big deal. Both sectors are in bed together. And, most likely, will remain so, to the disadvantage of the rest of us. Sometimes I wonder if it even matters who's more correct when it comes to private sector versus public sector debates. Both sectors have a revolving door in the middle that's spinning like a top.
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. At the same time, if large businesses such as the big banks had not enjoyed such a cozy relationship with Washington, they wouldn't have gotten so large that they could demand special favors.
What's more, I don't think you're really making a lot of sense with the examples you cite. The huge banks were bailed out because it was government policy to make them huge banks. 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. What's more, you have to remember that the Federal Reserve is not a Federal branch of government. It is not answerable to the people of the United States and its books cannot be audited by congress. 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. So we have an institution with sweeping powers that isn't beholden to Federal law, yet essentially coins our money.
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. 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.
For now, there's one more thing I'd like to add to this thread as it relates to the housing bubble. I had a discussion with a friend about how a number of small mortgage companies worked with lenders and home appraisers, and all three parties played a little mentioned but highly significant role in the blowing of the housing bubble. Lenders and brokers pressured appraisers to overestimate the worth of homes for owners trying to get second and third mortgages, and consequently, all parties facilitating this real estate scam made lots of cash in the resultant fees. I don't know how much of a role the government played in this scenario -- my guess would be not at all.
Last edited by grindlemeister; 12-01-2011 at 08:19 PM..
For now, there's one more thing I'd like to add to this thread as it relates to the housing bubble. I had a discussion with a friend about how a number of small mortgage companies worked with lenders and home appraisers, and all three parties played a little mentioned but highly significant role in the blowing of the housing bubble. Lenders and brokers pressured appraisers to overestimate the worth of homes, and consequently, all parties made lots of cash in the resultant fees. I don't know how much of a role the government played in this scenario -- my guess would be not at all.
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.
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?
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