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For me, watching the film was a bit depressing. But it is a real eye opener. It shows how totally corrupt our whole financial system has become.
The Banksters were able to capture the bond rating agencies, Moodys and Standard and Poors. They also captured The Wall Street Journal. Nobody wanted to bite the hand that feeds them.
Since then the regulations were tightened a wee bit, e.g. no more NINJA loans. However, I still see adds for creative mortgage loans in California, e.g.
Eligible applicants have to meet a threshold income level, a maximum loan amount, and a home sale price limit. In some cases, the programs allow the borrower to:
purchase a single family home, including a condo, PUD or manufactured home
receive down payment assistance up to five percent of the purchase price of the home as a second mortgage
obtain more than a 100 percent combined loan-to-value ratio
To allow somebody to buy a house with a loan-to-value of more than 100% should be illegal. Seems to me that we are at risk of repeating the whole RE bubble mess.
The big short is entertaining but what is not shown in the story is as important as what is shown. I would not take the story line as a full explanation of the crash and recession.
I haven't watched since I followed the housing bubble story almost from the start. The federal government ran interference at different points to protect Wall Street from oversight and from the states regulators. Two laws were passed in 2000 to protect the Citicorp-Travelers merger and the use of credit default swaps from existing regulation. The repeal of Glass-Steagall through the Financial Modernization Act in 2000 gave legal cover to Citigroup's takeover of Travelers which had already received a regulatory waiver. The Commodity Futures Modernization Act at about the same time protected credit default swpa from regulation. These would be used to investors to provide insurance against losses on bond securities. Other firms would use them for speculation. This would come into play when investment banks were found to be lobbying lenders to make loans to bad credits so they could be repackaged into CDO's as sure money losers for their clients but profitable for them. This is a violation of the Chinese Firewalls which require their own inhouse trading to be separate from their customer side.
If you go to 2001 through 2003, there were a couple of regulatory actions that later spurred on the subprime activity which ended up blowing up the housing market. In 2001, HUD gave the ruling allowing the third-party charities to forward the funds to the borrower to pay the downpayment and various closing costs. Nehemiah was the largest of these 'charities'. Usually, the builders supplied the funds to Nehemiah by inflating the price of the home. In 2003, the federal banking regulator OCC blocked the states' regulators from applying their predatory consumer lending laws against the activities of the large national banks. With these two actions, the banks could essentially get anybody into a house if they wanted since the ability to repay wasn't being checked and the closing costs to enter into the transaction were covered.
What everyone is ignoring, congress was what caused the housing bubble and crash. Barney Frank and his cohorts passed legislation to what they called making it possible for very poor people to own homes. They required an ever increasing requirement that lenders had to make a minimum of a fixed amount of their loans to people that could not qualify for loans to buy homes. If they did not meet the quota, they had to stop all lending on homes.
This lead to loans being made that were not within any rhyme or reason expected to be paid off. A couple of examples. No credit check loans, interest only for 5 years, then refinanced under normal terms and conditions. And many other shaky loans, which they had to make or stop their lending. George Bush saw there was a problem, and wanted to get the law changed, and of course the Democrats controlled congress, and Barney Frank gave an impassioned speech (I watched it on T.V.) crying we cannot change it as it is the only way poor people will be able to become home owners so the law stayed in place. At the end, 22% of all loans had to be made to poor people that could under normal loan requirements could not buy a home. When they changed their requirements for loans to be able to keep lending, they had to use the same ways of doing business for anyone that wanted to buy a home. People that should never have been sold homes, were buying up everything they could, and this lead to rampant price increases due to the demand exceeding the supply.
When the 5 years low payments ended, the people could not afford to pay the higher payments, and could not qualify for regular loans, and those homes were foreclosed on. Those that had bought homes even in higher income brackets, could not keep up their payments and those had to be foreclosed on. Suddenly the house of cards caused by congress requiring lenders to make loans to non qualified buyer, collapsed and we had the big housing bust.
The lenders were making crazy loans, and lending home loans to people that should never have been allowed to buy homes as it was known it was a mistake, but with Barney Frank saying we had to do it to help poor people, for political reasons the Democratic Party made those laws and maintained them for votes.
Too many people today blame the lenders, but when the law requires lenders to make bad loans of course they are going to make them. Either make them and sell the loans off in packages, or close down and go out of business, was the only choice the lenders had if they wanted to remain in business.
If Bush could have got the law changed like he tried to do, there would not have been the big bubble and the loses would have been not so devastating to the economy and the nation.
The one thing I did enjoy, was watching Barney Frank in an interview after he left Congress, admit that law had been a mistake and he was sorry he had been the big cause of the housing fiasco. As I did not sell homes for personal use, but bought and sold a lot of homes to investors, as many as 14 in one day, I am proud I never sold one of those homes that were going to be repossessed due to it being a bad loan. Investors cannot buy property and get mortgages without some skin in the game as they say (money). They have to qualify to buy those properties, by very strict lending rules.
What everyone is ignoring, congress was what caused the housing bubble and crash.
Barney Frank and his cohorts passed legislation to what they called making it possible for very poor people to own homes.
They required an ever increasing requirement that lenders had to make a minimum of a fixed amount of their loans to people that could not qualify for loans to buy homes. If they did not meet the quota, they had to stop all lending on homes.
This lead to loans being made that were not within any rhyme or reason expected to be paid off. A couple of examples. No credit check loans, interest only for 5 years, then refinanced under normal terms and conditions. And many other shaky loans, which they had to make or stop their lending. George Bush saw there was a problem, and wanted to get the law changed, and of course the Democrats controlled congress, and Barney Frank gave an impassioned speech (I watched it on T.V.) crying we cannot change it as it is the only way poor people will be able to become home owners so the law stayed in place. At the end, 22% of all loans had to be made to poor people that could under normal loan requirements could not buy a home. When they changed their requirements for loans to be able to keep lending, they had to use the same ways of doing business for anyone that wanted to buy a home. People that should never have been sold homes, were buying up everything they could, and this lead to rampant price increases due to the demand exceeding the supply.
When the 5 years low payments ended, the people could not afford to pay the higher payments, and could not qualify for regular loans, and those homes were foreclosed on. Those that had bought homes even in higher income brackets, could not keep up their payments and those had to be foreclosed on. Suddenly the house of cards caused by congress requiring lenders to make loans to non qualified buyer, collapsed and we had the big housing bust.
The lenders were making crazy loans, and lending home loans to people that should never have been allowed to buy homes as it was known it was a mistake, but with
Barney Frank saying we had to do it to help poor people, for political reasons the Democratic Party made those laws and maintained them for votes.
Too many people today blame the lenders, but when the law requires lenders to make bad loans of course they are going to make them. Either make them and sell the loans off in packages, or close down and go out of business, was the only choice the lenders had if they wanted to remain in business.
If Bush could have got the law changed like he tried to do, there would not have been the big bubble and the loses would have been not so devastating to the economy and the nation.
The one thing I did enjoy, was watching Barney Frank in an interview after he left Congress, admit that law had been a mistake and he was sorry he had been the big cause of the housing fiasco. As I did not sell homes for personal use, but bought and sold a lot of homes to investors, as many as 14 in one day, I am proud I never sold one of those homes that were going to be repossessed due to it being a bad loan. Investors cannot buy property and get mortgages without some skin in the game as they say (money). They have to qualify to buy those properties, by very strict lending rules.
Yep oldtrader
When government gets involved in the name of helping the poor they always end up making more poor.
In this case easy money to people with low credit scores, no or low downpayment, who couldn't afford a mortgage. More people buying, demand increased driving housing prices up, now even people who could once afford to buy can no longer afford it.
I was offered one of those fancy loans. The banker said I would be approved for x amount then said if you want a bigger house that I could get a mortgage paying interest only for the first 5 years. The amount and terms set off red flags and I didn't buy.
Obama was a pioneering contributor to the subprime real estate bubble. Obama sued Citibank forcing them to lower lending standards to the poor. Roughly half of the 186 African-American clients in his landmark 1995 mortgage discrimination lawsuit against Citibank have since gone bankrupt or received foreclosure notices.
Obama’s lawsuit was one element of a national “anti-redlining” campaign led by Chicago’s progressive groups, who argued that banks unfairly refused to lend money to people living within so-called “redlines” around African-American communities. The campaign was powered by progressives’ moral claim that their expertise could boost home ownership among the United States’ most disadvantaged minority, African-Americans. Obama pushed banks to give subprime loans to Chicago blacks | The Daily Caller
Bush warned many times but his warnings were rejected by Democrats. Here is Democrat Barney Frank recording calling the warnings "the sky is falling" a farce and called for more. The video also includes Democrat Chuck Schumer defended the Fanny and Freddie Mac lending practices.
The above all being said, if the post mortgage investment paper markets were better regulated, there would have been no where in the world to pawn off such a large enough amount of foul debt to bring about such a large economic crash. Greenspan my former god recommended that the free markets know best.
I haven't watched since I followed the housing bubble story almost from the start. The federal government ran interference at different points to protect Wall Street from oversight and from the states regulators. Two laws were passed in 2000 to protect the Citicorp-Travelers merger and the use of credit default swaps from existing regulation. The repeal of Glass-Steagall through the Financial Modernization Act in 2000 gave legal cover to Citigroup's takeover of Travelers which had already received a regulatory waiver. The Commodity Futures Modernization Act at about the same time protected credit default swpa from regulation. These would be used to investors to provide insurance against losses on bond securities. Other firms would use them for speculation. This would come into play when investment banks were found to be lobbying lenders to make loans to bad credits so they could be repackaged into CDO's as sure money losers for their clients but profitable for them. This is a violation of the Chinese Firewalls which require their own inhouse trading to be separate from their customer side.
Gramm-Leach-Bliley rescinded two sections of Glass-Steagall so as to allow banks, insurance companies, and brokerage houses to operate under the same roof and to share the same directors. Banks and brokerages had been routinely working together since the mid-1980s, and as you say, the Fed gifted the Citi/Travelers merger with a hall pass on about ten seconds notice. What GLB did was match the law with what had already become the existing status quo.
The regulation of OTC derivatives meanwhile had been halted by Wendy Gramm (wife of GLB's Phil Gramm) in her last days (January 1993) as chair of the Commodity Futures Trading Commission. In the Spring of 1998, her successor, Brooksley Born, floated a request for comments on means for bringing this rapidly growing "dark market" back under regulation. There was an immediate explosion of outrage and protest from Alan Greenspan and other laissez-faire subscribers to the notion that markets were wise enough to regulate themselves. As you note, derivatives contracts can and do perform a valuable and legitimate hedging function, but they can also be fertile ground for simple gambling and speculation. In a regulatory determination of the latter case, contracts might be held legally unenforceable, and the OTC market had become much too large and important for that sort of thing to be going on. Interestingly, about six months after Born put forth her regulatory proposal, LTCM -- a large and highly-leveraged hedge fund -- collapsed over issues very much related to what Born had highlighted, resulting in a multi-billion dollar bailout by major international banks. You'd think that would have been vindication, but no.
Quote:
Originally Posted by lchoro
If you go to 2001 through 2003, there were a couple of regulatory actions that later spurred on the subprime activity which ended up blowing up the housing market.
There is nothing wrong with subprime lending. There is quite a bit wrong with abuse of subprime credit markets. It's important to be mindful of the difference.
Quote:
Originally Posted by lchoro
In 2001, HUD gave the ruling allowing the third-party charities to forward the funds to the borrower to pay the downpayment and various closing costs. Nehemiah was the largest of these 'charities'. Usually, the builders supplied the funds to Nehemiah by inflating the price of the home. In 2003, the federal banking regulator OCC blocked the states' regulators from applying their predatory consumer lending laws against the activities of the large national banks. With these two actions, the banks could essentially get anybody into a house if they wanted since the ability to repay wasn't being checked and the closing costs to enter into the transaction were covered.
To say nothing of Bush's lifting leverage limits for the major Wall Street banks -- allowing ratios of 30% and even 40% instead of 12% -- and all the while urging them to do more, more, more lending, no matter what. The history to that point was that Big Money -- a cabal of the big investment banks, a stable of unscrupulous mortgage brokers, a compromised appraisal industry, and overwhelmed ratings agencies -- had earned large profits and bonuses from writing new and refinanced mortgages in an era of declining rates. That all worked out well until everyone who wanted or could afford a new mortgage already had one. Things should have wound down, but they didn't. Instead, underwriting standards were simply sacrificed as more and more bad paper was written to worse and worse customers. The people writing these notes knew full well that they would fail. But they didn't care. "I won't be here. You won't be here. It will all be somebody else's problem." The inevitable failure of those notes was what poisoned the well and brought on the credit crisis. Failure to contain that was what collapsed asset markets and sent the Main Street economy reeling. .
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