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What we should possibly be asking ourselves is why we meekly accept the idea that a 3-digit number - generated by a proprietary algorithm and by a private entity that can't be held to account for anything - holds such power over us?
(And before the accusations of sour apples begin, let me state for the record that I have an effin' awesome credit score.)
Same people who meekly accept that the monetary system is controlled by a non-elected entity that answers to no one and has never been audited, but has supplied us with all of our most recent Secretaries of the Treasury.
No, the toxic subprime countrywide loans were not sold directly to gov'ts and investors.
The GSEs bought them. From Countrywide and their other "best lenders" to meet HUD Affordable Lending goals. No FICO score. No credit history. Subprime. What evidence do you have that those loans were never bundled by the GSEs and sold as MBS to worldwide financial institutions, governments, and investors?
It all goes back to buyer beware. Know what you can afford. Never borrow the max and always have a good amount of cash left in savings after the purchase. If you can't do this then you can't afford the house.
Subprime loans were. But they were not disclosed as subprime to investors.
Tis a shame investors, especially institutional investors, do not read 10Ks and prospectus documentation or in the case of mortgage securitization, subscribe to monthly feeds that show the performance of each pool.
Instead, many prefer to listen to snake oil salesmen.
OK, one more time. The road to the meltdown was paved by Gramm-Leach-Bliley, written by three proud members of the GOP, and signed into law by President Clinton. It allowed banks to sell investments as part of commercial banking. Something they were not allowed to do by Glass-Steagall. Some moron(s) thought it was a good idea to again allow the banks to do what helped to cause the great depression.
The housing market became unsustainably hyperinflated. People were essentially giving away sub prime mortgages, and people who didn't know any better signed them, paying only interest with the promise that they could refinance when the principle became due.
The bubble burst, the houses were all under water, nobody could refinance like they planned to do after the principle was due, so, they were foreclosed.
Soooo, the banks bundled the sub-prime mortgages, sold them as AAA investments, and KEPT SELLING THEM, even as the ship began to sink. The banks then relied on the gubmit to bail them all out when it all went down the toilet, because they were allowed to become "too big to fail".
Credit contracted, businesses could no longer get the short term loans and lines of credit to build up their inventory and raise cash for accounts payable, so they had to shut down or downsize, laying off millions.
Voila!!!! mix well and you get one magnificent recession.
Regulators do. That said, why were F&F buying so many subprime loans via the lower lending standards used in their Affordable Lending programs with Countrywide and their other "best lenders" and passing those loans off as "prime" in their bundled MBS?
Devil is in the detail.
Investors making good ROI, rarely question how that is possible or bother reading 10K documents, let alone make use of readily available data.
OK, one more time. The road to the meltdown was paved by Gramm-Leach-Bliley, written by three proud members of the GOP, and signed into law by President Clinton. It allowed banks to sell investments as part of commercial banking. Something they were not allowed to do by Glass-Steagall. Some moron(s) thought it was a good idea to again allow the banks to do what helped to cause the great depression.
The housing market became unsustainably hyperinflated. People were essentially giving away sub prime mortgages, and people who didn't know any better signed them, paying only interest with the promise that they could refinance when the principle became due.
The bubble burst, the houses were all under water, nobody could refinance like they planned to do after the principle was due, so, they were foreclosed.
Soooo, the banks bundled the sub-prime mortgages, sold them as AAA investments, and KEPT SELLING THEM, even as the ship began to sink. The banks then relied on the gubmit to bail them all out when it all went down the toilet, because they were allowed to become "too big to fail".
Credit contracted, businesses could no longer get the short term loans and lines of credit to build up their inventory and raise cash for accounts payable, so they had to shut down or downsize, laying off millions.
Voila!!!! mix well and you get one magnificent recession.
Class dismissed.
Not convinced the private sector is to blame for this. According to Elizabeth Warren, the less than $500 billion spent on TARP will not end up costing a thing (footnote 106):
But the Federal Reserve has had to buy $2 trillion worth of GSE MBS.
Remember, Fannie and Freddie WANTED to buy loans made to those who never should have qualified from Countrywide and their other "best lenders" in order to meet HUD's Affordable Lending goals. They even implemented special programs to do so with those lenders. I posted a link to the year 2000 document earlier in this thread.
No one said it does. But when the government regulates your business and they specifically want you to do something, guess what happens...?
HUD began mandating X% of GSE portfolio to contain loans to low income in the early 90's. Every year, HUD increased the percentage. It did not matter who sat the oval or held the majority.
FNMA/FHLMC lowered standards to satisfy HUD mandate and in some years did so in protest.
Some originators abandoned all standards because Wall Street was buying junk.
At peak, 85% of subprime did not meet FNMA/FHLMC standards and went straight to the private sector.
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