I've read it.. the credit markets were all but forced to loan against their better judgment, and congress was warned by the Bush administration on many occasions ..
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Openmind
Well-Known Member
Ridiculous! They were not FORCED to do anything. . .they CHOSE to make bad loans, because every loan brought them CASH, and they knew they could sell many of those bad loans oversea. . .even BET on their bad loan, and made "insurance" on those bad loans, with "insurance" on those worthless insurances!
And when the bubble burst, It is the banks, again, who made money. . .by repossessing the home of people who had been fooled by the brokers, the bankers in taking those loans that they couldn't afford. It went all the way down to the real estate agents! They made more money selling a $300,000 home to people who couldn't afford more than a $200,000 home, and they always were able to "give them a good deal" on a loan. . .because they had "a friend" who would arrange the mortgage for them. . .and at each level of the transaction, those greedy bastards took their cuts. . .not worrying at all about what the poor young couple would do once the "second mortgage" had to be paid. . .and even less when the bread winner lost his job due to the 2008 economic disaster. . .triggered by the same banks who had started the whole process!
Maybe you read that book. . .but you don't seem to have read it for comprehension!
And when the bubble burst, It is the banks, again, who made money. . .by repossessing the home of people who had been fooled by the brokers, the bankers in taking those loans that they couldn't afford. It went all the way down to the real estate agents! They made more money selling a $300,000 home to people who couldn't afford more than a $200,000 home, and they always were able to "give them a good deal" on a loan. . .because they had "a friend" who would arrange the mortgage for them. . .and at each level of the transaction, those greedy bastards took their cuts. . .not worrying at all about what the poor young couple would do once the "second mortgage" had to be paid. . .and even less when the bread winner lost his job due to the 2008 economic disaster. . .triggered by the same banks who had started the whole process!
Maybe you read that book. . .but you don't seem to have read it for comprehension!
I would explain how all of it really worked, but I have posted it before.. There is plenty of guilt to go around. they were regulated into making bad loans..
I would explain how all of it really worked, but I have posted it before.. There is plenty of guilt to go around. they were regulated into making bad loans..Standards were lowered..
Openmind
Well-Known Member
No they were not. . .they took advantage of people who had little knowledge of economics, and trusted their realtors and their brokers. The recession created by the deregulations in the banking arena made things worse by provoking so much lay offs, which affected even those who didn't extend their finances too far, but didn't expect to lose their job.
Think what you wish. . .but it is NOT the well intentioned law to allow lower income people to obtain REASONABLE loans that created the bubble. If that were true, only low income or average income housing would have been affected, when in fact, many wealthy people got stuck with huge loans (first mortgage, second mortgage, and home equity loans) and lost their mansions.
The Scotsman
Well-Known Member
perhaps.... although maybe the original algorithms were flawed and the ratings agencies were unable to understand the securitised instruments that the algorithms described and therefore applied false ratings which caused faulty market making that exacerbated bad ART solutions into the insurance and reinsurance markets which went back into the financial markets as flawed Cat Bonds where the whole cycle started again… If only the ratings agencies had the bollocks to stand up and say "we don't know what these ares o how can we rate them!" then maybe the damage would have been limited to some extent.
The whole bloody mess thing was based on greed and ignorance.
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Like I said , there is a lot of blame to go around..
Mandated loans[edit]
Republican Senator Marco Rubio has stated that the housing crisis was "created by reckless government policies.”[22][23] Republican appointee to the Financial Crisis Inquiry Commission Peter J. Wallison and coauthor Edward Pinto believed that the housing bubble and crash was due to federal mandates to promote affordable housing. These were applied through the Community Reinvestment Act and "government sponsored entities" (GSE's) "Fannie Mae" (Federal National Mortgage Association) and "Freddie Mac" (Federal Home Loan Mortgage Corporation).[24] Journalist Daniel Indiviglio argues the two GSE's played a major role, while not denying the importance of Wall Street and others in the private sector in creating the collapse.[4]
The Housing and Community Development Act of 1992 established an affordable housing loan purchase mandate for Fannie Mae and Freddie Mac, and that mandate was to be regulated by HUD. Initially, the 1992 legislation required that 30 percent or more of Fannie’s and Freddie’s loan purchases be related to affordable housing. However, HUD was given the power to set future requirements. In 1995 HUD mandated that 40 percent of Fannie and Freddie’s loan purchases would have to support affordable housing. In 1996, HUD directed Freddie and Fannie to provide at least 42% of their mortgage financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005. Under the Bush Administration HUD continued to pressure Fannie and Freddie to increase affordable housing purchases – to as high as 56 percent by the year 2008.[24] To satisfy these mandates, Fannie and Freddie eventually announced low-income and minority loan commitments totaling $5 trillion.[25] Critics argue that, to meet these commitments, Fannie and Freddie promoted a loosening of lending standards - industry-wide.[26]
Regarding the Community Reinvestment Act (CRA), Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charged the Federal Reserve with ignoring the negative impact of the CRA.[27] American Enterprise Institute Scholar Edward Pinto noted that, in 2008, Bank of America reported that its CRA portfolio, which constituted only 7 percent of its owned residential mortgages, was responsible for 29 percent of its losses.[28] A Cleveland Plain Dealer investigation found that "The City of Cleveland has aggravated its vexing foreclosure problems and has lost millions in tax dollars by helping people buy homes they could not afford." The newspaper added that these problem mortgages "typically came from local banks fulfilling federal requirements to lend money in poorer neighborhoods.
Congressman Frank
His most successful effort was to impose what were called "affordable housing" requirements on Fannie Mae and Freddie Mac in 1992. Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy--in other words, prime mortgages--but Frank and others thought these standards made it too difficult for low income borrowers to buy homes. The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.
At first, this quota was 30%; that is, of all the loans they bought, 30% had to be made to people at or below the median income in their communities. HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30% to 50% under Clinton in 2000 and to 55% under Bush in 2007. Despite Frank's effort to make this seem like a partisan issue, it isn't. The Bush administration was just as guilty of this error as the Clinton administration. And Frank is right to say that he eventually saw his error and corrected it when he got the power to do so in 2007, but by then it was too late.
It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies--all under congressional and HUD pressure--followed suit. This continued through the 1990s and 2000s until the housing bubble--created by all this government-backed spending--collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government. When these mortgages failed in unprecedented numbers in 2008, driving down housing prices throughout the U.S., they weakened all financial institutions and caused the financial crisis.
His most successful effort was to impose what were called "affordable housing" requirements on Fannie Mae and Freddie Mac in 1992. Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy--in other words, prime mortgages--but Frank and others thought these standards made it too difficult for low income borrowers to buy homes. The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.
At first, this quota was 30%; that is, of all the loans they bought, 30% had to be made to people at or below the median income in their communities. HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30% to 50% under Clinton in 2000 and to 55% under Bush in 2007. Despite Frank's effort to make this seem like a partisan issue, it isn't. The Bush administration was just as guilty of this error as the Clinton administration. And Frank is right to say that he eventually saw his error and corrected it when he got the power to do so in 2007, but by then it was too late.
It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies--all under congressional and HUD pressure--followed suit. This continued through the 1990s and 2000s until the housing bubble--created by all this government-backed spending--collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government. When these mortgages failed in unprecedented numbers in 2008, driving down housing prices throughout the U.S., they weakened all financial institutions and caused the financial crisis.
The standards were lowered via regulation, this is fact.
Securitization was the result of rules Fannie & Freddie had that conflicted with the new regulations. Hide the unsecured paper and Frank Raines can pretend to look the other way.
Chronology is clear on this.
WE have just had a TV program that shows many Americans low wage earners are living in tents. Wages are kept low by business moving to low wge states. General Electric has just sacked 1000workes in a high wage state and move to Texas. This just to increase profits.
Amy scheme to help low wage earners must provide an increase wage and a minimum wage for all states
Schemes to help the poor may not suit classic economic theory but no stimulate spending and therefore growth. Between 1800 and 1860 the territory expanded and produce growth American productivity in creased from 1859 to 1950 , Real hourly earnings increased during this period (American Economic History Seymour Harris0n)0 wages have not increase much in recent years .Wages have increased from 20.17 in April 2015 to 20.65 in January 2017.
Amy scheme to help low wage earners must provide an increase wage and a minimum wage for all states
Schemes to help the poor may not suit classic economic theory but no stimulate spending and therefore growth. Between 1800 and 1860 the territory expanded and produce growth American productivity in creased from 1859 to 1950 , Real hourly earnings increased during this period (American Economic History Seymour Harris0n)0 wages have not increase much in recent years .Wages have increased from 20.17 in April 2015 to 20.65 in January 2017.
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I don't think that happened, at least not to the extent you mentioned..
Businesses relocated out of high tax states. Six figure salary people are living in tents in Silicon Valley due to taxes and general cost of living.
Increase demand for people and wages take care of themselves.
Free markets work fir everyone who wants a better life.
The Scotsman
Well-Known Member
Nah.... I don't buy into that theoretical utopian economic ideal. The libertarian mantra of laissez-faire capitalism is based on a flawed set of assumptions aimed at achieving a specific behavioural model - effectivley an unrealistic modelling of society which even Coarse couldn't get his head round.
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The Scotsman
Well-Known Member
errmm.... no it wasn't. I'd be interested to know how you came to that assumption.
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The Scotsman
Well-Known Member
..... Did they? Cheap credit had been avaliable for years prior to Fannie and Freddie - they were real late comers to the game. Equally, the OTC's that allowed Wall Street to get the ball rolling were well established and being traded all over the world.
Forgive me if I'm wrong but you seem to conclude your post by implying that the sole cause of the financial crisis was as a direct result of GSE mortgage securities....
but....
I think you need to aim your analysis a bit wider at least start with the greed and hubris of Wall Street. Take some time to look into the likes of Citibank or Lehman for example, just for starters, where were their checks and balances where was the internal oversight?
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