Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Gross distortions of history, a detailed record of which I am not going to type out. Start with two facts: The CRA had absolutely nothing to do with bringing about this crisis, and Fannie Mae and Freddie Mac played insignificant roles at best.
Keep in mind that almost half of all CRA borrowers were qualified at prime terms, and nearly all the rest at near-prime Alt-A terms. These loans -- held by people whom you all seem to suppose to be unworthy of credit -- actually performed better than industry averages. Remember that the low- and moderate-income communities targeted by CRA had credit needs all along, but since no prime lender would lend to them, members were forced to turn to finance companies (Household, Beneficial, The Money Store, etc) who made a fortune off of them through high costs and fees. Converting from a finance company loan to a CRA loan left MORE money in the borrower's pocket than what had been there before.
Keep in mind also that the GSE's purchase only conforming loans from lenders, and that while there were easings of standards and requirements at the margin as the market expanded, the greatest portion of subprime loans was never conforming at all. The fact is that almost all of the loans that ultimately failed and triggered this crisis were written into LMI and plenty of other communities by unregulated private brokers who were paid handsomely to feed original mortgage paper -- almost all of it subprime -- not to Fannie or Freddie, but to the mostly now-defunct Wall Street investment banks. They in turn were making an absolute fortune by slicing and dicing those loans into MBS's and a variety of derivatives that were then sold into a secondary market starving for reasonable yields given that the Fed had pledged to keep interest rates near zero until economic activity picked up.
To keep their profits and mega-bonuses high, Wall Street put pressure on the administration to wedge the GSE's out of secondary markets (this is what all the supposed Republican attempts at GSE-reform were actually about), and they put pressure on private brokers to keep the supply of original paper coming, which they were able to do simply by disregarding more and more underwriting standards. When interest rates began to rise in the Spring of 2004, it set up a pending crisis whereunder subprime default rates would climb past the reserve levels, there would not be enough money to pay off the MBS's, major banks and other holders of those assets would have to book gigantic losses, no lender would trust any borrower anymore, lending would all but cease, and economic activity with it. People warned of this, but it was allowed to happen anyway.
As for the GSE's, after seeing their secondary market share fall from more than 40% to less than 25%, they did yield to stockholder and other pressures and did begin to buy some non-conforming garbage paper. This was toward the tail end of the problem period, and was not either early or significant enough to have affected anything. The GSE's were brought back into government conservatorship primarily because all of the competition disappeared. For a vareity of reasons, they were not in great shape as companies, and they certainly were not in any shape to shoulder the 75% market share that they have had to deal with since almost all of Wall Street disappeared.
Now back to your regularly scheduled discussion of non-facts and faux-theories.
Last edited by saganista; 04-19-2009 at 10:04 AM..
So to claim that a very small subset of home mortgages is the problem is just deluded fantasy by those who want to blame the poor and minorities for the fault of Wall Street and DC.
I don't know of anyone who is targeting the poor and minorities saying they are the cause of the mortage crisis. There is plenty of blame to go around. Look at the thousands and thousands who were not poor/minorities who bought houses they could not afford, made bad financial decisions with their mortgages, etc. Look at the number of people who bought houses with the purpose of flipping them because the real estate market was in a crazy increase - boy their bubbles got burst when the market crashed (and many houses probably settled at the price they should have been at if not for the real estate craze that hit the nation).
That is just considering the people, doesn't even take into account Fed regs, Wall Street, etc. It is a jumbled mess with blame to go all around.
Partially, yes, but not 100%. This was a mix of bad regulation with the stripping of good regulation and banks taking advantage of the situation.
You had the Fed releasing cheap money to banks, and you had banks consolidate into investment houses. Those banks gave money to the public at low intro rates. That money was used mainly for consumer expenditures; not much production going on with these new funds to pay back the capital. So, for the last 8 years, you had an economy based on shuffling money around to pay debt off. Too much consumer debt was taken on to be paid off while being solvent. Fannie and Freddie became more private, but still had "exceptions" granted to them from the government, such as taking on loans at a 2.5% capital ratio, which is INSANE. Foreclosures happened, repo trucks came, and banks tanked.
Those funny mortgages were packaged improperly and sold to the large investment houses with the banks' own money, because they were all own by the same company. They used those as investments as well as margin debt to buy stocks, derivatives, etc.. Those financial instruments became overvalued and everyone jumped in on buying those. Flash forward to when the Fed FINALLY says it's time to raise interest rates. Uh oh. Train won't stop. They're still giving the money out because it's still profitable. Then, severe inflation comes in with the increased money velocity, with speculators driving up the price of commodities with loaned money. Consumers get pinched to the point they can no longer afford that mortgage note that will increase next month, $4/gal gas in a country that's freeway dependent with crappy-mileage cars equates to further pinching, food prices go up... it's almost like you had this turbine going (demand), it's able to go fast with small weights, but you put the larger weights on (high prices) without more power (consuming power made possible with production income or money expansion, and the latter was already done and would exacerbate the problem), so it stops.
You reach critical mass. At that point, people are foregoing and foreclosing on their worthless assets. The money supply is shrinking at breakneck pace. Banks stop giving money because they're collapsing left and right. People lose all confidence in this system and all hell breaks lose. Jobs slashed, left and right.
All because the government wanted to increase demand immediately without also increasing production afterward. The banks took advantage, and so did consumers. Everyone wanted something for nothing, but instead they ended up with nothing for all they had.
1) Private sector greed could not have taken place without the PUBLIC sector guaranteeing and buying up of loans
2) You mean the only type of deregulation possible by the government?
3) You mean the type of easy money that ONLY the government can control?
4) Predatory lending, a VERY small percentage of loans, which became possible due to government guarantees and buying up of loans?
Anotherwords, you just listed FOUR reasons why the OP is correct..
The OP said; "Liberals will try to say the crisis was due to:
"1) Private sector greed could not have taken place without the PUBLIC sector guaranteeing and buying up of loans". This is the equivalent of blaming the gun instead of the person who fires the weapon. You need the government for private sector greed?
"2) You mean the only type of deregulation possible by the government?" History has proven that banking isn't very good at self regulation. Do you remember the "savings and loan crisis?"
"3) You mean the type of easy money that ONLY the government can control?" Government didn't make those loans the private sector did.
"4) Predatory lending, a VERY small percentage of loans, which became possible due to government guarantees and buying up of loans?" They were due to greedy lenders regardless of the percentage of loans made.
Greedy lenders and the government didn't make AIG insure those loans. The greedy were the ones that created and used the CDS's to reduce or eliminate their risk. They were the ones that over leveraged the loans to over 60 trillion.
Keep in mind also that the GSE's purchase only conforming loans from lenders, and that while there were easings of standards and requirements at the margin as the market expanded, the greatest portion of subprime loans was never conforming at all. The fact is that almost all of the loans that ultimately failed and triggered this crisis were written into LMI and plenty of other communities by unregulated private brokers who were paid handsomely to feed original mortgage paper -- almost all of it subprime -- not to Fannie or Freddie, but to the mostly now-defunct Wall Street investment banks. They in turn were making an absolute fortune by slicing and dicing those loans into MBS's and a variety of derivatives that were then sold into a secondary market starving for reasonable yields given that the Fed had pledged to keep interest rates near zero until economic activity picked up.
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:
Not going to talk about the CRA, though. I've heard all kinds of things about it. I'd have to research more on it to have a decent conversation about it, else I'd be blathering on.
I believe your blind hatred for the left is blocking your comprehension of the very words you cut and pasted.
From what I read "1) Private sector greed, 2) Deregulation, 3) Easy Money, 4) Predatory lending" were all used to create the current crisis.
I've debunked them all. Reread my post.
Easy money, 'predatory lending, and so-called greed were all functions and the result of the bad loans. Deregulation is a phantom argument.
I love this. You people make it sound like the government wasn 't anywhere around. It was their very involvement that caused this mess.
Nobody is saying they were not involved. They (the gov) changed the laws/rules based on "advice" from wall street, mega banks & mega corporations. (Let the industries police themselves, not the government).
So lets get rid of all gov. regulations and rules
....the FDA, the FCC...the DOE......
make the industries happy, make wall street happy.
They will do the right thing..........right?
Nobody is saying they were not involved. They (the gov) changed the laws/rules based on "advice" from wall street, mega banks & mega corporations. (Let the industries police themselves, not the government).
So lets get rid of all gov. regulations and rules
....the FDA, the FCC...the DOE......
make the industries happy, make wall street happy.
They will do the right thing..........right?
Ultimately I think that's what industries want. Isn't that what they are paying lobbyists to do for them ?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
