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Congress forced lenders to lower standards and make loans they rarely made in the past. In 1989 1 in 240 loans was 3 percent down or less because they werent a good risk. Lenders knew this from experieince. In 2007 those loans were common place as now 1 in 3 or 80 in 240 were 3 percent down or less. Basic economic premise when you lower standards, quality and efficiency suffer.
Quit running and directly respond to what I've posted. Don't make things up like no one forced lenders to make those loans when in fact it's been pointed out several times how they actually did it.
From the FCIC report that addresses your assertion "Basic economic premise when you lower standards, quality and efficiency suffer". They believed that had found a way to make money off of subprime loans.
Still, it was not obvious that a pool of mortgage-backed securities rated BBB could be transformed into a new security that is mostly rated triple-A. But math made it so.
The securities firms argued—and the rating agencies agreed—that if they pooled
many BBB-rated mortgage-backed securities, they would create additional diversifi-
cation benefits. The rating agencies believed that those diversification benefits were
significant—that if one security went bad, the second had only a very small chance of
going bad at the same time.
...
Relying on that logic, the CDO machinegobbled up the BBB and other lower-rated
tranches of mortgage-backed securities, growing from a bit player to a multi-hundred-
billion-dollar industry. Between 2003 and 2007, as house prices rose 27% nationally
and $4 trillion in mortgage-backed securities were created, Wall Street issued nearly
$700 billion in CDOs that included mortgage-backed securities as collateral.
With ready buyers for their own product, mortgage securitizers continued to demand loans
for their pools, and hundreds of billions of dollars flooded the mortgage world. In ef-
fect, the CDO became the engine that powered the mortgage supply chain.“There is a
machine going,” Scott Eichel, a senior managing director at Bear Stearns, told a finan-
cial journalist in May 2005. “There is a lot of brain power to keep this going.”
I've posted the documentation in this thread time and time again. By the 2000s the investment banks created a demand for subprime loans. The investment banks needed the subprime loans. The investment banks couldn't find enough subprime loans, despite the fact that volume of subprime loans had gone from 100 billion a year to 600 billion a year, so they started buying subprime originators in order to guarantee a supply. The investment banks were not under a congressional mandate to do this. Investment banks motivation was profit and for nearly a decade the investment banks made billions of dollars off of subprime loans.
Therefore it is not after the fact. Its why suddenly there was all this capital to fund subprime mortgages.
It’s clear he is only interested in his predetermined narrative at this point. As I stated 24 of the top 25 subprime lenders in 06 were non bank entities (hint...shadow banking system I have been referring to throughout) who were not bound by the evil government lending rules he claims are the sole Cause of 08 crisis. It’s clear he really thinks the issue was too many poor people for thier loan docs stamped yes at the local branch bank bc of the evil hud rules. He has demonstrated no capacity to understand or consider otherwise. Whenever presented with evidence otherwise he ignores or claimed its made up or deflection. It would be comical if it weren’t how so much of our nation acts as well.
Example of investment bank guaranteeing a supply of subprime loans.
https://www.insidearm.com/news/00011...e-lender-for-/ Merrill Lynch today announced an agreement to acquire the First Franklin mortgage origination franchise and related servicing platform from National City Corporation. Under terms of the agreement, Merrill Lynch will pay a $1.3 billion purchase price for San Jose, Calif.-based First Franklin Financial Corporation, and affiliated business units National City Home Loan Services, Inc., and NationPoint.
...
“These leading mortgage origination and servicing franchises will add scale to our platform and create meaningful synergies with our securitization and trading operations,” said Dow Kim, president of Merrill Lynch’s Global Markets and Investment Banking Group. “This transaction accelerates our vertical integration in mortgages, complementing the three other acquisitions we have made in this area and enhancing our ability to drive growth and returns. We look forward to working with the experienced teams at these companies to serve their clients and leverage our broad range of mortgage products and services.”
...
“This acquisition, and the origination platforms in particular, fills an important gap for us domestically providing a significant presence in both the wholesale and online retail channels,” said Michael Blum, Managing Director and head of Merrill Lynch’s GSFI Group. “Home Loan Services adds scale to our existing servicing platform and allows us to enhance our special servicing and risk management of mortgage products. In addition, we believe the acquisition will complement our existing third party client business, which has grown significantly in the past few years.”
...
Merrill Lynch expects to operate the acquired businesses under their current names, as distinct units. The new businesses will be part of a global mortgage platform that includes existing origination and servicing businesses in the U.S., Asia and Europe. The transaction is expected to close in the fourth quarter of 2006 and is subject to regulatory approvals. Merrill Lynch expects the acquisition to be accretive to its net earnings and earnings per share by the end of 2007.
Except relaxed lending standards don’t create cdo or CDs products don’t create huge leverage don’t explode derivatives market. But again you seem tobe able to comprehend thatyou are only focusing on one part of the equation. But again post non sequitors and claim it supports your failed argument.
From the FCIC report:
Quote:
We conclude over-the-counter derivatives contributed significantly to this crisis.
"The enactment of legislation in 2000 to ban the regulation by both the federal and state governments of over-the-counter (OTC) derivatives was a key turning point in the march toward the financial crisis. ... OTC derivatives contributed to the crisis in three significant ways. First, one type of derivative—credit default swaps (CDS) fueled the mortgage securitization pipeline. CDS were sold to investors to protect against the default or decline in value of mortgage-related securities backed by risky loans. ... Second, CDS were essential to the creation of synthetic CDOs. These synthetic CDOs were merely bets on the performance of real mortgage-related securities. They amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities and helped spread them throughout the financial system. ... Finally, when the housing bubble popped and crisis followed, derivatives were in the center of the storm. AIG, which had not been required to put aside capital reserves as a cushion for the protection it was selling, was bailed out when it could not meet its obligations. The government ultimately committed more than $180 billion because of concerns that AIG's collapse would trigger cascading losses throughout the global financial system. In addition, the existence of millions of derivatives contracts of all types between systemically important financial institutions—unseen and unknown in this unregulated market—added to uncertainty and escalated panic, helping to precipitate government assistance to those institutions."
The financial 'products' were toxic & were 'invented' by the financial institutions. The interconnection (please note the use of a banned word) between the financial institutions, the insurance industry, & real estate (F I RE sector) escalated the already precarious systemic problems. Further, the former 'wall' separating banks & Wall Street (another banned word/phrase) was demolished when Glass-Steagall was tossed aside as a 'relic of the Great Depression' & marketed to the 'marks' as no longer necessary. This last was predicted by Mr. Pecora.
The purchase is the latest of several mergers involving sub-prime lenders,which offer loans to less creditworthy borrowers, as volumes fall and margins are squeezed.Merrill also wants to add profit from securitizations, the packaging of mortgages into bonds that are sold to investors, and better compete with Wall Street rivals such as Bear Stearns Cos. and Lehman Bros. Holdings Inc. "They're thinking strategically in buying a business when it's out of season," said Bill Fries, a portfolio manager at Thornburg Investment Management Co.
...
"Strategically, this isn't a surprise because Merrill wanted to add an asset generator," said Jeff Harte, an analyst at Sandler O'Neill & Partners. "The price is a challenge to get my arms around. Exactly what earnings stream they bought is difficult to determine."
Merrill Lynch, Bear Stearns and Lehman Bros, as investment banks, were to subject of any congressional mandates to generate subprime loans.
It’s clear he is only interested in his predetermined narrative at this point. As I stated 24 of the top 25 subprime lenders in 06 were non bank entities (hint...shadow banking system I have been referring to throughout) who were not bound by the evil government lending rules he claims are the sole Cause of 08 crisis. It’s clear he really thinks the issue was too many poor people for thier loan docs stamped yes at the local branch bank bc of the evil hud rules. He has demonstrated no capacity to understand or consider otherwise. Whenever presented with evidence otherwise he ignores or claimed its made up or deflection. It would be comical if it weren’t how so much of our nation acts as well.
I guess that is what really bothers me. There are people including congressional leaders who pass legislation affecting banking and regulating investments who believe the same thing. Its one of the reasons the some the regulations on derivatives that were included in Dodd-Frank were rolled back and why Fannie and Freddie are hanging out in limbo.
https://www.nytimes.com/2007/01/26/b...6mortgage.html
Wall Street’s big bet on risky mortgages may be souring a lot faster than had been previously thought.
...
Now, Wall Street firms, which had helped fuel the growth in the market by bankrolling and investing in subprime mortgage lenders, have begun to pinch off the money spigot.
...
The recent bankruptcy of Ownit Mortgage Solutions, a lender based in Agoura Hills, Calif., provides a cautionary tale. Even as its revenue grew by more than a third in the first nine months of 2006, to $8.3 billion, the company was losing money. It shut down after its financial backers, which included Merrill Lynch & Company and JPMorgan Chase, could not come up with a deal to save it.
...
Wall Street firms were attracted to such lenders because they helped feed a pipeline of securities backed by the mortgages, a market bigger than the one for United States Treasury bonds and notes. Merrill Lynch, for example, securitized $67.8 billion in residential mortgages in the first nine months of 2006, up 58.4 percent from the period a year earlier.
...
While Wall Street’s tolerance for mortgage risk has waned, it is still interested in mortgage originators. This week, Citigroup bought a mortgage servicing business from ABN Amro Holding for undisclosed terms, and Barclays Bank bought the Equifirst Corporation, a subprime lender, for $225 million. But something of a shakeout has begun.
...
They also indicate that mortgage lenders became more generous last year, giving 100 percent financing and allowing borrowers to state their incomes with little or no documentation in an effort to bolster volume, according to industry experts.
...
For his part, Mr. Dallas acknowledges that standards were lowered, but he placed the blame at the feet of investors and Wall Street, saying they encouraged Ownit and other subprime lenders to make riskier loans to keep the pipeline of mortgage securities well supplied.“The market is paying me to do a no-income-verification loan more than it is paying me to do the full documentation loans,” he said. “What would you do?”
More deflection. Why listen to you when you've been wrong and don't have the guts to address what I've posted?
I listen to ones who saw the bubble coming because it was obvious. The same ones who told us ahead of time that same easy lending would cause the dot com bubble, the same ones who told us the same easy lending that caused the stock market crash.
Yes lets ignore those people and listen to someone like you, who cannot identify the cause of the collapse. Doesn't make you a bad person, just a horrible problem solver.
It was obvious to Brooksley Born as well as far back as the 90s.
She tried to put the brakes on it and 13 bankers piled into Larry Summers office and put a stop to it.
There was just way to much money to be made by the banksters.
It was obvious to Brooksley Born as well as far back as the 90s.
She tried to put the brakes on it and 13 bankers piled into Larry Summers office and put a stop to it.
There was just way to much money to be made by the banksters.
And for those who don't know what was Born asserting in the 90s? That derivatives (ie CDOs and CDSs) needed greater supervision and/or regulation or they would pose a huge risk to the economy.
Born lost the argument and derivatives went largely unregulated. Part of the regulations on derivatives that occurred after the fact in the Dodd-Frank law have already been rolled back.
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Doesn't make you a bad person, just a horrible problem solver.
Besides the de rigueur "Wall Street” "shadow banking” “interconnection” & "deregulation".
