Goverment is 100% responsible for this financial crisis. Here's why (regime, solution, dollar)

[Eeeee22895]

Originally Posted by nvxplorer

Can you show when and how this happened? Democrats didn't gain control of any committee until 2006, so I have a hard time pinning the defeat of legislation on them.

Explained in post #36.

[saganista]

Originally Posted by runningncircles1

Most of those foreclosures would have in fact fit into the conforming loan standards looking at this chart, especially looking at the "high cost areas" price, so Fannie and Freddie did indeed play a large role in this:

There are more standards in the definition of conforming than are included in the chart...loan-to-value and debt-to-income ratios being two such. That matter aside, any role played by the GSE's is constrained to the effects of the loans that they actually handled. In 2000, the GSE's were reponsible for just about 80% of all loans securitized into the secondary market. Six years later, that number had fallen to a little over 30% even though the GSE's had been working aggressivley to expand their programs. That drop reflects then the massive push of the investment banks into secondary mortgage markets, and the fact that where the GSE's were always under restraints in terms of loan quality, Wall Street was not. Unlike the GSE's, Wall Street was able to pressure non-banks and brokers to supply paper even by ignoring many underwriting standards because by bundling its weakest paper into CDO's alongside balancing paper of higher quality, they could get AAA's out of the rating services, and by purchasing credit-default swaps to cover unanticipated risk, buyers could end up booking these assets at full value while avoiding the need to collateralize them under international banking rules. This was a Higwhay to Happiness for all concerned, but the road didn't travel through the GSE's. That isn't however to say that Fannie was not purchasing subprime loans. They were -- both in response to stockholder demands to increase profitability and Congressional demands to increase support for affordable housing. Like CRA before them, however, they were working to skim the top off the subprime markets, but again despite these efforts to expand, the GSE share of subprime loans handled fell by roughly half. This was again due to the major profit-seeking drive into these markets by Wall Street, and also to the efforts of the administration to hamper and encumber any expansion of GSE operations.

As the crisis eventually began to emerge, one could just as easily guess what it was that failed as look it up -- garbage loans written into economically vulnerable communities at high cost terms by private brokers for the Wall Street banks. That is again not to say that prime loans in upscale communities that did meet GSE standards did not also go south. There have always been some defaults on loans of every type at every income level. But that isn't what produced the crisis. It was the sheer volume of sad-sack loans literally pushed out the door in service to the Wall Street banks that got packaged into the obstacle in the road that the world could not overcome.

Even second place would not go to the GSE's. That honor would in all likelihood belong to AIG and others who created tens of trillions of dollars worth of CDS's without creating any reserves for them since they never expected to incur a loss. Very bad idea, there. It was the massive collapse of CDS's that sent certain doom scurrying across the entire system.

Bottom line is that the GSE's were on the scene, doing -- and trying to expand upon -- what they'd always done. But that's just plain not where the fuel for the eventual bonfire came from.

[saganista]

Originally Posted by Eeeee22895

Deregulation is a phantom argument.

No, not phantom at all...Gramm-Leach-Bliley and the release of Wall Street from leverage constraints played not central, but not inconsequential roles either. Still, non-regulation might be a more apt word than de-regulation. It wasn't so much that the tools for regulation weren't at hand (though they were indeed both too few and too weak) as that the people charged with using those tools wouldn't go anywhere near them as a result of being caught in a zombie-like trance of faith in laissez-faire free-market capitalism that allowed them to conclude that the markets were wise and knew best how to take care of themselves. That, obviously, was a huge mistake.

[mateo45]

Originally Posted by Eeeee22895

Without the trillions in bad loans, there is nothing to leverage against

If sub-primes were so manifestly "unwise", what does that say about the culpability of the folks who bought & sold them (let alone leveraged them many times over)?

[saganista]

Originally Posted by Eeeee22895

That's patently false. The NYT article says they were heavily involved in 1999.

The typical characteristics of the loans that ultimately failed were that they were written between 2002 and 2006 by unregulated private brokers into low- and moderate-income communities at high-cost terms, often with less than rigorous documentation. The GSE's could hardly have been into many of these in 1999.

[saganista]

Originally Posted by Eeeee22895

The Democrats defeated all reform bills strictly along party lines in committee. Votes are never brought to the floor in such a situation.

One cannot defeat a bill in committee when one is in the minority. S.190 for example cleared the Senate Banking Committee by an 11-9 party-line vote and could have been scheduled and brought to floor by Republican leadership at any time. The companion House bill (HR.1461) had already been passed. There is no such practice as you claim of not bringing bills passed on a party-line vote in committee to the floor.

[vec101]

As to who was in power - Dems or Republicans.... See Newsmax.com - The Party That Controls Congress Controls (http://www.newsmax.com/john_perry/congress_oval_office/2008/04/03/85144.html - broken link) or

Year Congress President Senate (100)House (435)
2009 111thD D - 55*** D - 256
2007 110thR D - 51** D - 233
2005 109thR R - 55 R - 232
2003 108thR R - 51R - 229
2001 107thR D* R - 2211
999 106thD R - 55R - 223

* There were 50 Ds and 50 Rs until May 24, 2001, when Sen. James Jeffords (R-VT) switched to Independent status, effective June 6, 2001; he announced that he would caucus with the Democrats, giving the Democrats a one-seat advantage.

** Independent Sen. Bernard Sanders (VT) gives the Democrats a one-seat majority.

** Two Independents and two vacancies (IL and MN)

[saganista]

Originally Posted by Eeeee22895

Ah. I think I've spotted the reason for your delusion. You have this illusion that F&F weren't heavily involved in the subprime market. They, in fact, were up to their eyeballs in it.

No, the GSE eyeballs were a good deal further off the ground than you appear to realize. You might also want to go back through a little history and watch the 1998 default of Russian guaranteed debt decimate the finance companies that had dominated subprime lending markets for years, then add to that the arrival of Bushie and his halt to enforcement of CRA lending into LMI communities, then monitor the rise of the new non-banks such as Ameriquest and Countrywide as they rushed in to fill the void, tracking the ways in which they integrated with the investment banks and both grew and grew to have influence within mortgage and particularly subprime mortage markets. Might give you a better picture of things...

[HappyTexan]

Heck, both parties are guilty of riding this gravy train and providing the fuel to make it go. I think this crisis was years in building so I'd say it was non-partisan..both parties benefited and both parties are now suffering as well as ALL Americans one way or another.

[vec101]

Originally Posted by HappyTexan

Heck, both parties are guilty of riding this gravy train and providing the fuel to make it go. I think this crisis was years in building so I'd say it was non-partisan..both parties benefited and both parties are now suffering as well as ALL Americans one way or another.

Well said.