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The vast majority of the mortgage loans were not written as part of a government program to expand home mortgages. In fact the loans written under the CRA where just a small part of the market. Many firms providing loans were not even governed by the CRA, therefore they had no obligation to write loans to low income borrowers.
Many of the people who took out risky loans could have afforded normal loans. This includes people making 100k plus salaries. The easy access to mortgage credit by the middle and upper classes is what helped drive the bubble. The attitude of many was to get an even bigger house with so many companies willing to lend the money. Throughout the system, including the well off borrower, there were those willing to take the risk that home prices would not decline significantly.
There were only a few people in the government or outside the government who pointed out the real risk. Normally it wasn't a good career move.
In this thread, someone mentioned AIG. AIG was not under government mandate to write the contracts they did. It was an unregulated market.
The following are some articles on AIG.
The Collapse of AIG and Its Impact on the Mortgage and Banking System (http://ezinearticles.com/?The-Collapse-of-AIG-and-Its-Impact-on-the-Mortgage-and-Banking-System&id=1816126 - broken link)
To make these mortgage investments more saleable they would purchase an AIG Credit Default Swaps or also known as debt insurance contracts. AIG's credit default swaps were insurance contracts which were not regulated. Typically these insurance policies were for three to five years. AIG did not have the capital reserves required to back up these policies should they ever have to pay any claims out.
... All the banks that purchased these credit default swaps were able to assure their national regulators that they were holding only triple-A credits mortgage products instead of the sub-prime mortgages that they were really holding which were high risk and toxic.
... That market was considered to be worth $58 trillion worldwide at the end of 2007. The biggest problem is that nobody really knows how much of the $58 trillion AIG is responsible for? Frightening!
... The mortgage bubble would never have grown so large had it not been for AIG's involvement. The banks would never have made such huge profits and the supply of money would not have been so easy to obtain by everyone and the growth in the mortgage market would have been controlled.
• Exempt: Thanks to the CFMA, these derivatives were exempt from ALL regulation and ALL supervision — There was no oversight from an exchange, no listing of derivative trades, no disclosures of risk, no transparency, no counter-party information. Most damaging of all, these derivatives required zero reserves in case of a claim. No other traded financial instruments receive this special treatment;
The following is from Berkshire Hathaway annual stock holder letter. Its Buffet talking about the derivatives market place.
Indeed, recent events demonstrate that certain big-name CEOs (or former CEOs) at major financial institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include Charlie and me in this hapless group: When Berkshire purchased General Re in 1998, we knew we could not get our minds around its book of 23,218 derivatives contracts, made with 884 counterparties (many of which we had never heard of). So we decided to close up shop. Though we were under no pressure and were operating in benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the task. Upon leaving, our feelings about the business mirrored a line in a country song: “I liked you better before I got to know you so well.”
Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).
It (FHEFSSA '92) didn't "require" anybody to do anything...
The Act required the Secretary of HUD to set "Affordable Housing Goals" for Fannie and Freddie. The Act also set preliminary goals that took effect on Jan 1, 1993 (before Clinton even took office).
Both Clinton and Bush-43 pushed hard for increased minority and low-income homeownership.
The vast majority of the mortgage loans were not written as part of a government program to expand home mortgages. In fact the loans written under the CRA where just a small part of the market. Many firms providing loans were not even governed by the CRA, therefore they had no obligation to write loans to low income borrowers.
The issue had little to do with who was making the loans (banks, mortgage brokers, etc.) it had more to do with who was buying or guaranteeing the loans (Fannie Mae and Freddie Mac).
By the time the bottom fell out of the mortgage market Fannie and Freddie were buying more than 55% of all subprime and alt-A mortgages.
The fact that there was such a willing buyer fanned the crisis.
It's 90% due to a runaway financial industry that was turned loose by deregulation.
That deregulation was favored by Republicans more than Democrats.
Deregulation just means that people/companies should do the right thing on their own. Sure, they are free to make bad choices but overall, the concept of deregulation is not to let the industry run wild, it's to give companies the freedom to make the right choices for their business, and those choices should in the end be good for the people. It has to do with smaller gov't and not enforcing what the legislators believe to be right on everyone. If a company wants to make a bad choice, let it, and they can suffer the consequences. This deregulation that led to banks making bad mortgage loans means some banks will fail. We should not have bailed them out in any way, it was up to them to do the right thing and they did not do that.
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,766,887 times
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Quote:
Originally Posted by Recovering Democrat
I say, Both!
Further more, while the great unwashed (that's you and me) squabble over who is MORE to blame the carpetbaggers in Washington do nothing to fix the problems and continue to rob us blind.
They are both responsible. Bush was responsible for much of it because he was the idiot that appointed banksters like Bernanke and Geithner to run the economy. Bernanke lowered interest rates to such an artificially low level that it ignited rampant real estate speculation and housing inflation and then the banksters that run Fannie and Freddie lowered lending standards to the point that anybody that breathes could buy a house with no money down. And Democrats like slobbering Barney Frank kept any sensible regulation from being put on to what Fannie and Freddie were buying in the way of bundled securities. And Obama is doing pretty much likewise hoping he can recreate the wonderful housing bubble because his ass is one the line because there is no other sector of the economy still living in this country. Clinton and Bush I saw to that with NAFTA.
It's 90% due to a runaway financial industry that was turned loose by deregulation.
That deregulation was favored by Republicans more than Democrats.
I think it's just the opposite. Dems adding more regulation via Barney Frank. He and his democratic partners have made a mess of the banking and loan industry DUE TO REGULATION..It was the Democratic legislation that pressured banks to EASE the lending requirement and make those "toxic asset" loans!!
Placing and R, or a D next to someones name, is very deceiving in today's political atmosphere.
It is used to confuse the voters.
Long ago the parties were very split. The direction you see it heading to now.
The past 150 years, there are no longer a Conservative side or a Progressive side, represented by a single political party.
Conservative. Spending out the nose, is anything but conservative. Taxing to pay for a bigger and bigger government, is anything but Conservative. Just because they have a R by their name, it does not make them Conservative.
Then the other side of the coin. The Progressive. The ruling intellectual class. They have their noses in everyones business, because they are smart enough to figure it out for everyone. The collective, that has destroyed every society that has tried it.
The problem is the Progressive. Not the Democrat, not the Republican.
I think it's just the opposite. Dems adding more regulation via Barney Frank. He and his democratic partners have made a mess of the banking and loan industry DUE TO REGULATION..It was the Democratic legislation that pressured banks to EASE the lending requirement and make those "toxic asset" loans!!
They have the blinders on.
You will have to repeat this many times over. Each time the blinders will go on firmly.
If you want someone to blame, choose Alan Greenspan. Extremely low interest rates during and after the early 00s recession continued fueling the housing bubble. We had a major housing bubble for nearly 10 years. We all knew it was going to bust eventually.
remember all those news stories extolling greenspan's genius?
i bet the people who wrote them feel like total idiots today. hopefully.
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Who's responsible for the US financial crisis; Republicans or Democrats?
