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Ok, Im going to clarify what I think lenders are responsible for.
The easy money they offered created a pool of buyers that were all enabled to reach beyond their means. This easy money and competitive environment drove prices to an unsustainable level since home sellers could be as greedy as they wanted knowing that banks will loan whatever necessary just to get an origination fee and sell some interest rates.
Once the condition reached a level that could no longer be sustained, market languishes and ultimately collapses. Banks eventually take properties back and sell them for prices that are less than half what they loaned creating a messy sea of trashy comps behind them.
Now easy money is gone, no one can sell, even the responsible people that didnt lie, and didnt buy beyond their means. In fact, your whole city is in ruins due to this practice, and you want to say its because all of a sudden everyone in the country just decided to buy beyond their means.
If this is what you want to believe, you deserve to be taking the brunt of whatever issues you are facing. Blame it on whoever you want.
You don't get it. My bank has also enabled me to use a a little 3.5" x 2" plastic card to run up tens of thousands in debt if I so choose. All I have to do is hand the card to a vendor in exchange for whatever I want. Money doesn't get much easier than that. I'm hardly alone, there are millions others just like me with access to the same easy money, but we haven't gotten over our heads in debt. Oddly enough, I've somehow figured out how to manage this without financial counseling from the bank that made all that easy money available to me in the first place. How is this possible?
Last edited by tony soprano; 11-11-2009 at 12:29 AM..
Reason: typo
You don't get it. My bank has also enabled me to use a a little 3.5" x 2" plastic card to run up tens of thousands in debt if I so choose. All I have to do is hand the card to a vendor in exchange for whatever I want. Money doesn't get much easier than that. I'm hardly alone, there are millions others just like me with access to the same easy money, but we haven't gotten over our heads in debt. Oddly enough, I've somehow figured out how to manage this without financial counseling from the bank that made all that easy money available to me in the first place. How is this possible?
Credit cards have existed long before this complete collapse came about.
Fine, you believe there was some mass type of mass hysteria and everyone in the country all went out and decided to spend and mortgage beyond their means all at the same time.
And NOW all of a sudden the banks have gained some newfound wisdom and put that to an end, when in reality this is what they should have done in the first place to prevent it. Its what they were doing YEARS before it happenend, and its what they returned to doing now that the frenzy is over.
Its called the availability of sub-prime loans. Easy money. Whilst sub-prime existed prior to 2003, regulatory oversight relaxed in 2003 which led to a huge increase in sub-prime loans. The rest is history.
Credit cards have existed long before this complete collapse came about.
Right. So, easy money isn't exactly a new phenomena. Somehow a large population of people have been successfully managing their debt levels for a long, long time. Others, not so much.
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Fine, you believe there was some mass type of mass hysteria and everyone in the country all went out and decided to spend and mortgage beyond their means all at the same time.
And NOW all of a sudden the banks have gained some newfound wisdom and put that to an end, when in reality this is what they should have done in the first place to prevent it. Its what they were doing YEARS before it happenend, and its what they returned to doing now that the frenzy is over.
It was a speculative bubble so by definition there was some level of mass hysteria. Although, I think the term "mass hysteria" in this instance has been replaced with the more contemporary "irrational exuberance". No, I don't think everyone in the country went out and mortgaged themselves well beyond their means. Clearly there are people who are being swept up in this debacle at no fault of their own. People who made sound decisions that are still suffering. My heart goes out to them. That said, I make my own decisions on how I manage my debt and credit. I don't want or need my bank to do that for me. If the bank says they're willing to lend me $XXXK, the decision is mine, and mine alone, whether I agree to their terms. I've never been forced by a bank to accept their credit.
Last edited by tony soprano; 11-11-2009 at 01:43 AM..
Right. So, easy money isn't exactly a new phenomena. Somehow a large population of people have been successfully managing their debt levels for a long, long time. Others, not so much.It was a speculative bubble so by definition there was some level of mass hysteria. Although, I think the term "mass hysteria" in this instance has been replaced with the more contemporary "irrational exuberance". No, I don't think everyone in the country went out and mortgaged themselves well beyond their means. Clearly there are people who are being swept up in this debacle at no fault of their own. People who made sound decisions that are still suffering. My heart goes out to them. That said, I make my own decisions on how I manage my debt and credit. I don't want or need my bank to do that for me. If the bank says they're willing to lend me $XXXK, the decision is mine, and mine alone, whether I agree to their terms. I've never been forced by a bank to accept their credit.
While you may be completely in control of your finances, its no mystery that a majority of people are not this way... and banks KNEW this before they changed the lending requirements to
1. Pulse. (check)
2... um nevermind... approved.
I believe the requirements were eliminated because during the bubble the risk was eliminated. Loan approval was no longer based on risk, or ability to repay, the solid time tested methods, but based on the insatiable demand that wall street had for buying loans. Wall Street Investors would buy ANY LOAN, there was ZERO RISK for the banks, and as such, why should they care whether the buyers can really afford it or not.
True, no one was forced to take the loan, but prior to the bubble, lenders would have DENIED the loan because they KNEW the person was not viable and the loan wasn't sellable to any investor. You simply didnt even have the OPTION to mess them up with a bad loan, but all of a sudden there was NO SUCH THING as a bad loan and all the easy money started flowing out of every orifice in the building.
So essentially lenders released a flood of people into the market that they KNEW were not viable and created unrealistic competition amongst a bunch of people that shouldnt have been buying in the first place, which then caused a HUGE unsustainable pricing spike. Blame the buyers too if you want, but these buyers could not have even EXISTED if the bank just used a real financial model to qualify them, you know, like the one they used before the bubble? Right now no such easily qualified buyers are out on the streets, So why should they have existed then??
You want to blame the buyers for taking the loan, but I blame the lenders who obviously knew better and threw all qualification methods out the window in the name of making a quick buck.
What??? Are they just NOW learning the principles of banking??? Did they really need to witness a national catastrophe in order to know that its wiser to loan money based on income and ability to repay rather than just pulse rates and a wall street investor??
My question is why so tight before the bubble, and then again after the bubble? But during the bubble it was ok to behave so irresponsibly and create conditions that proved to be devastating for the entire nation?? Its OK to have the whole nation pummeled so buyers can have the freedom to go get loans they can't afford??? I'd rather they stay tight, and never loosen up like that again and I hope they learned something.
I get your point, no one forced the buyers. Do you get mine? You better pray that banks DON'T operate as you are suggesting because it screws everyone up including you, Mr. Soprano. I see no reason to protest banks operating with more responsibilty, so irresponsible buyers arent let out of the gates in droves ever again in the future. If the banks allow it, they WILL come again.
According to the GAO, there were 3 factors for the loosening.
(a) Liquidity went up;
(b) Underwriting standards went down;
(c) House prices went down.
As a summary, banks were using complex instruments to gain lots of liquidity. With abundant liquidity, there was a pressure to make use of the loose money to earn more money. As subprime provided greater returns compared to prime, many people were encouraged to switch their loans to sub-prime resulting in the growth of that sector.
This pressure manifested itself in loosening underwriting standards where loan approvals were facilitated to justify potential higher returns.
It was not a conscious effort to re-regulate after the crash. When house prices crashed for a variety of reasons, defaults fed on itself to create more defaults. As more defaults hit the bank's books, the natural reaction is to tighten credit. Not all succeeded and that's why we see bank closures today.
According to the GAO, there were 3 factors for the loosening.
(a) Liquidity went up;
(b) Underwriting standards went down;
(c) House prices went down.
As a summary, banks were using complex instruments to gain lots of liquidity. With abundant liquidity, there was a pressure to make use of the loose money to earn more money. As subprime provided greater returns compared to prime, many people were encouraged to switch their loans to sub-prime resulting in the growth of that sector.
This pressure manifested itself in loosening underwriting standards where loan approvals were facilitated to justify potential higher returns.
It was not a conscious effort to re-regulate after the crash. When house prices crashed for a variety of reasons, defaults fed on itself to create more defaults. As more defaults hit the bank's books, the natural reaction is to tighten credit. Not all succeeded and that's why we see bank closures today.
Nonsense. This all sounds like a very complicated explanation to a simple problem. They should have used the same time tested methods over & over for qualifying borrowers, period, end of subject. There should be no such attitude that when demand rises for loans from wall street that its ok to make stupid loans. Who cares about the short term yields of a subprime loan??? Shouldnt they understand the future implications of the way they conduct business?
Its not a conscious effort to re-regulate??? BS!!!!! They are going back to making viable loans because if they didn't, they wouldnt have a product that was marketable to investors. They are simply going back to business as usual, and if provided the opportunity, since they are still denying their involvement through reports like this, it sounds like they would do it all over again.
If they were to recite all that nonsense for an excuse instead of acknowledging they acted irresponsibly, and f*cked us all up in the process, it would only prove how stupid they still are.
While you may be completely in control of your finances, its no mystery that a majority of people are not this way... and banks KNEW this before they changed the lending requirements to
1. Pulse. (check)
2... um nevermind... approved.
I believe the requirements were eliminated because during the bubble the risk was eliminated. Loan approval was no longer based on risk, or ability to repay, the solid time tested methods, but based on the insatiable demand that wall street had for buying loans. Wall Street Investors would buy ANY LOAN, there was ZERO RISK for the banks, and as such, why should they care whether the buyers can really afford it or not.
True, no one was forced to take the loan, but prior to the bubble, lenders would have DENIED the loan because they KNEW the person was not viable and the loan wasn't sellable to any investor. You simply didnt even have the OPTION to mess them up with a bad loan, but all of a sudden there was NO SUCH THING as a bad loan and all the free money started flowing out of every orifice in the building.
So essentially lenders released a flood of people into the market that they KNEW were not viable and created unrealistic competition amongst a bunch of people that shouldnt have been buying in the first place. Blame the buyers too if you want, but these buyers could not have even EXISTED, and right now they DONT. So why should they have existed then??
You want to blame the buyers for taking the loan, but I blame the lenders who obviously knew better and threw all qualification methods out the window in the name of making a quick buck.
What??? Are they just NOW learning the principles of banking??? Did they really need to witness a national catastrophe in order to know that its wiser to loan money based on income and ability to repay rather than just pulse rates and a wall street investor??
My question is why so tight before the bubble, and then again after the bubble? But during the bubble it was ok to behave so irresponsibly and create conditions that proved to be devastating for the entire nation?? Its OK to have the whole nation pummeled so buyers can have the freedom to go get loans they can't afford??? I'd rather they stay tight, and never loosen up like that again and I hope they learned something.
I get your point, no one forced the buyers. Do you get mine? You better pray that banks DON'T operate as you are suggesting because it screws everyone up including you, Mr. Soprano. I see no reason to protest banks operating with more responsibilty, so irresponsible buyers arent let out of the gates in droves ever again in the future. If the banks allow it, they WILL come again.
Yes, I see your point. We just have diverging opinions on the level of responsibility to ascribe to each of the players in this mess. You asked why lending standards eased and there are any number of legitimate reasons why; artificially low interest rates maintained by the Fed, the use of securitization to mitigate risk, the use of derivatives to mitigate risk, unrealistic financial models, policy directed at increasing home ownership levels, etc. The fundamental business model of a bank is to lend money. That's what they do to sustain themselves and create value for their shareholders.
The bank determines the level of risk they're undertaking by extending a loan and charge a premium for doing so. While the bank determines what level of risk they are taking on by extending the loan, it's up to the home buyer to determine what level of risk they are taking on by going into debt. When either party makes the wrong choice, they are punished for it. If it turns out the banks incorrectly assessed their risk, they are subject to tremendous losses. The last number I've heard was ~118 banks have been seized or shuttered YTD. When the home buyer gets it wrong there's a very good chance they lose their home.
So why is credit tightening now? Well, I think it's pretty clear that banks know their models were flawed, their hedges didn't work as well as planned, and they had horribly mispriced their risk. It's to be expected. You may have noticed that the personal savings rated has increased also. Why? There's just a lower appetite for risk all around.
The fundamental business model of a bank is to lend money. That's what they do to sustain themselves and create value for their shareholders.
Right, and they failed in the aspect that the loans they created were bogus and they KNEW it. And since its also their mission to create value for their shareholders, it looks like they failed in both regards. Not to mention, they were UNABLE to sustain themselves due to their own poor business practices. So they not only received bailouts for their toxic assets, they also got to foreclose on them as well and have had NO consequences for their clueless operation.
I guess your solution would be to travel around the country and preach fiscal responsibility and pray that individual consumers will listen.
And my suggestion is that banks do business as usual, and not loosen up when it benefits them, just so they can make short term meaningless gains and f*ck everyone else up in the process.
By your own definition of what a banks role should be, they failed miserably on just about every level that could be failed. Based on their performance, I think it warrants a new grade level beyond F. And I dont even think our alphabet goes low enough to assign the grade banks should get.
Right, and they failed in the aspect that the loans they created were bogus and they KNEW it. And since its also their mission to create value for their shareholders, it looks like they failed in both regards. Not to mention, they were UNABLE to sustain themselves due to their own poor business practices. So they not only received bailouts for their toxic assets, they also got to foreclose on them as well and have had NO consequences for their clueless operation.
Yeah, if you don't count the ~118 failed banks, the nationalized entities, or financial institutions acquired for pennies on the dollar, there have been absolutely no consequences at all.
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I guess your solution would be to travel around the country and preach fiscal responsibility and pray that individual consumers will listen.
WHOA! Fiscal responsibility? Now you're just talking crazy!
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And my suggestion is that banks do business as usual, and not loosen up when it benefits them, just so they can make short term meaningless gains and f*ck everyone else up in the process.
By your own definition of what a banks role should be, they failed miserably on just about every level that could be failed. Based on their performance, I think it warrants a new grade level beyond F. And I dont even think our alphabet goes low enough to assign the grade banks should get.
My suggestion is even simpler. People shouldn't take out loans to purchase overvalued assets. Crazy, I know.
We'll have to agree to disagree. It's late and I'm getting tired of typing.
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