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This American Life's interviews with the mortgage brokers, mortgage bundlers and the rest of the money changers.
Adam Davidson: An interesting fact, here. Mike Garner's bank did not care how risky these mortgages were. This was the new era: banks didn't have to hold on to these mortgages for 30 years. They didn’t have to wait and see if they’d be paid back. Bank's like Garner's just owned them for a month or two and then sold them on to Wall Street. Wall Street would sell them on to the global pool of money.
Alex Blumberg: Which is how we get half-million dollar, no income, no asset loans.
Adam Davidson: And loans to dead people. So there's another thing going on: housing prices were rising, fast. Lots of people in the mortgage industry had this faith that housing prices, in the US, simply never go down. So, from the bank's perspective, even if the worst happens and someone defaults, the bank would then own the house which is now worth even more than when they gave out the loan.
So, All Mike cared about was whether or not his customers--the Wall Street
investment banks--would buy those mortgages from him. And he was under
pressure to approve more and more loans. Because other guys in his company--the actual guys cruising strip malls all across Nevada buying mortgages from brokers, their commission depended on selling more loans. And occasionally, those guys would hear about some loan that some other mortgage company offered that they weren’t allowed to offer. And they'd complain to Mike.
What I find most peculiar is how the executive branch was in effect pitting privatized services against government programs for the net effect of bankrupting those government programs. I don't think this is an ooopsie. I'm pretty sure this was strategic failure. If they can't get their way by legislation, they'll break it this way.
Same thing with social security and medicaid woefully neglected. Would my own finances be run in similar fashion, I'd be sent to debtors prison.
Did Asian-Americans disproportionally take out loans they could not afford? Or for that matter, any other minority group save Blacks & Hispanics whom are over-represented in the subprime crisis.
Did Asian-Americans disproportionally take out loans they could not afford? Or for that matter, any other minority group save Blacks & Hispanics whom are over-represented in the subprime crisis.
Interesting data point ThomasRa. Makes you wonder what strategy was planned, doesn't it. We'll never know though; if it was ever put to paper it's long gone now.
One would have to answer a few questions about this interesting data point before drawing any conclusions from it. For instance, why would blacks and Hispanics be over-represented among subprime borrowers? Would it be because these groups rushed out en masse to sign up for high-cost mortgages that they knew they could never repay, or is it that their communities were selectively targeted by unscrupulous mortgage brokers who were paying lots of attention to the commissions they might receive and very little to the underwriting standards they might have observed? Hmmm....
Sag, or they played on their lack of financial education due to their economic standing.
I've read a few of the sad stories and these people truly believed their realtors and loan officers and had faith in what they were told.
Yeah. The video and transcript that <ovcatto> put up in the OP covers a good deal of how and why all that went down. Pretty sad when you think of what all has come from it...
That's a great TAL episode - it really points out how things were driven by the financial sector.
This certainly wasn't a GOP failure. But it was a conservative failure. And to the extent that Clinton and the Dems went along with those conservative polices, they are to blame.
Well, the GOP gets a good dose of blame for their role as buddy-buddy cheerleaders and enablers. It wasn't over any sort of conviction that they were trying to wedge the GSE's out of the seocndary markets, after all. That was all favors for the Wall Street boys.
Then there's the matter of who constructed the economic background that made the whole thing go. Tax cuts for the rich coupled with diversions of productivity gains into corporate profits instead of wage increases (too inflationary, you know), left pools of capital at the upper end of the scale and declining real wages at the lower end. As things progressed, consumers no longer had enough purchasing power to clear costly inventory off the shelves.
Solution? Lend the money that had been diverted to the rich back to those it had been diverted from. Methodology? Slash interest rates to nearly nothing and encourage people to borrow and spend, spend, spend! But all that credit merely let markets break even, and next you had Greenspan pledging that he would keep interest rates low for as long as it took to spark an upturn in actual economic activity. Not good news for institutional investors. Money funds, pension funds, university endowments, and the like...these folks weren't really much interested in the crummy yields that Greenspan was offering, but where to turn? Well, what about mortgage-backed securities? Heck, real estate was about the safest thing around, and now these MBS things were actually offering what seemed like more than competitive rates. Enter an almost unlimited demand for secondary mortgage market paper...demand that the Wall Street boys were happy to steamroller the GSE's to provide.
Then they started seriously selling derivatives off that debt also, and making truly huge profits from it. All they needed was a steady or expanding secondary market share and a continuous supply of original mortgage paper to slice and dice. So, get Bush to beat up the GSE's and lean on brokers to keep the paper coming. More, more, more. That's where the video comes in.
And then there's the matter of who was supposed to be minding the store. Warnings of the dangers lurking in expanding subprime markets in the event of any future interest rate rise (which everyone knew would come at some point) began appearing even in late 2003. Who was paying attention at the Fed, at SEC, at the Comptroller's office? No one it turned out. It wasn't so much that they didn't have adequate tools (though they didn't), but more a case of not so much as thinking about using the tools they did have. The market knows. The market is wise. The market is able to self-regulate. These are the laissez-faire right-wing dreams that fostered an attitude of inaction. Until it was much too late.
So that's a few strikes that stand against the GOP, and it was the right also that had long yearned for repeal of Glass-Steagall, and they finally did get Clinton to go along with the idea. It was true enough that the law needed updating. It was seriously hampering US banks in rapidly growing international operations and markets. A tailored revision might have done the trick, but that's not what Phil Gramm had in mind, and that's not what he ultimately got.
There was nearly immediate negative fall-out from the decision in the form of the rigged IPO scandals that followed. Those should have been warning enough to clue people in that a maybe not so nice genie was out of the bottle, but by January 2001, a new cast had appeared on the federal stage, and they were not much interested in learning any sort of lesson that was out there. Deregulate. Slash the bureaucratic red tape. Loose the great engine of the American economy. Profits, profits, profits! That's the path the new guys thought to follow. Without thinking about very much else.
So yes, Democrats were there at the ribbon-cutting. They helped open the door. But an open door does not force people to walk through it. That's a voluntary act. Sort of like the bike the police unit leaves unattended on the sidewalk. You take it, you're busted. Well, now we're all busted.
Last edited by saganista; 04-12-2009 at 07:59 PM..
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