I did not read every post on this thread; however, several were read but found none that mentioned "credit default swaps". A CDS if used as originally intended was not necessarily bad but when CDS's were created without either party to the transaction having any tangible interest in the object that was basically being gambled on created this problem. It was like commercial paper was being created out of thin air. There was not enough defaulted mortgages in this country to cause a collapse of the financial system. Someone mentioned greed and truly greed that was not regulated has brought this country to the brink. I really hate to say it but I believe that the $700 BILLION package has as much chance as the proverbial snowball in h**l of solving this problem. It will be like putting a band aid on someone who has been gut shot. You should also check out what was going on in the stock market with "naked short selling" until it was TEMPORARILY stopped. You might also be surprised to learn that former Senator Phil Grahm's 262 page bill that was attached to a must pass piece of legislation is responsible for many of these problems. Since he has been McCains economic advisor can't you imagine how well he would do as Sec. of Treasurer for a hardcore deregulator President McCain.
In a time of economic crisis it is so good to see both sides of the polictical spectrum put aside their differences to help solve this instead of pointing fingers.
There is plenty of blame to go around. Does the blame game really help?? There are Democrats who supported things that helped cause this mess as well.
[font size="1" color="#FF0000"]LAST EDITED ON 10-02-08 AT 06:59AM (CST)[/font][br][br][font size="1" color="#FF0000"]LAST EDITED ON 10-01-08 AT 07:13Â PM (CST)[/font]
It is easy to blame the Republicans for all of our social ills at this point. But, is that merely jumping on the political bandwagon? Of course supporters of Obama want us to believe that so that they can lure more voters. It's a scam and they all know it.
[i]In the early 1990s I attended a conference designed to teach journalists the tools of an emerging field known as computer-assisted investigative reporting. One of the hottest sessions of the conference explained how journalists could replicate stories that other papers had done locally using computer tools, including one especially popular project to determine if banks in your community were discriminating against minority borrowers in making mortgages.
Although academic researchers leveled substantial criticisms against these newspaper efforts (namely, that they relied on incomplete data and did not take into account lower savings rates, higher debt levels, and higher loan defaults rates for many minority borrowers), bank lending to minority borrowers still became an enormous issue—
Eventually, the political climate changed, and Washington became a believer in the story. Crucial to this change was a Federal Reserve Bank of Boston study which concluded that although lender discrimination was not as severe as suggested by the newspapers, it nevertheless existed. This, then, became the dominant government position, even though subsequent efforts by other researchers to verify the Fed’s conclusions showed serious deficiencies in the original work.
Ignoring the import of such data, federal officials went on a campaign to encourage banks to lower their lending standards in order to make more minority loans. One result of this campaign is a remarkable document produced by the Federal Reserve Bank of Boston in 1998 titled “Closing the Gap: A Guide to Equal Opportunity Lendingâ€.
It told banks they should consider junking the industry’s traditional debt-to-income ratio, which lenders used to determine whether an applicant’s income was sufficient to cover housing costs plus loan payments. It instructed banks that an applicant’s “lack of credit history should not be seen as a negative factor†in obtaining a mortgage, even though a mortgage is the biggest financial obligation most individuals will undertake in life. In cases where applicants had bad credit (as opposed to no credit), the Boston Fed told banks to “consider extenuating circumstances†that might still make the borrower creditworthy.
Many defenders of the government’s efforts to prompt banks to lend more to minorities have claimed that this effort had little to do with the present mortgage mess.....But this defense misses the point. In order to push banks to lend more to minority borrowers, advocates like the Boston Fed put forward an entire new set of lending standards and explained to the industry just why loans based on these slacker standards were somehow safer than the industry previously thought.
What happened in the mortgage industry is an example of how, in trying to eliminate discrimination from our society, we turned logic on its head. Instead of nobly trying to ensure equality of opportunity for everyone, many civil rights advocates tried to use the government to ensure equality of outcomes for everyone in the housing market. And so when faced with the idea that minorities weren’t getting approved for enough mortgages because they didn’t measure up as often to lending standards, the advocates told us that the standards must be discriminatory and needed to be junked. When lenders did that, we made heroes out of those who led the way, like Angelo Mozilo, before we made villains of them.[/i]
This is the fault of the Republicans? I suspect some of those most loudly proclaiming the guilt of others are themselves most guilty.
And Frank, this is not even close to blaming Republicans for Monicagate. In fact, as someone from the banking industry, your comments on this article would be interesting.
(for clarification, though I refer to Frank at the end, my post is not aimed at him or in reaction to his posts)
This has been the mega-banks' straw man argument - "We had to do it because we were pressured to lend to minorities." I think one of the blog responses said it better than I can:
----------------------------------------------------------------------- As a banking attorney, I can assure all readers that the basic premise of this article is wrong. Federal legal requirements regarding lending to minorities had nothing to do with the present credit crises.
How can I prove that assertion? I can prove it by looking at what the $700 Billion proposed bailout is intended to do. It is intended to purchase so-called mortgage backed securities and derivatives of questionable value. The bailout law is not designed to buy mortgages acquired by minorities that went bad.
What loans did go bad that were bundled up and sold as securities? The liar loans. The liar loans were those made to people who were not required to verify their income and ability to repay the loan. The liar loans were not made to just minorities because of some pressure imposed by the federal government. To assert that is silly.
What, then, did cause so many liar loans to be made? The answer is simple: greed. Prior to 2005 there was a housing boom. Home prices rose rapidly. As time went by all the people who could afford to buy a home based on prudent lending standards had bought a home. The housing market started to slow down. To heat up the housing market again, mortgage companies and banks began making imprudent loans who would not have qualified under prudent standards. Doing that kept the housing market hot and kept housing prices increasing. Eventually, however, some of the loans made to people who could not afford them started to fail and the lenders had to foreclose on the homes. By mid 2007, the number of foreclosures became large enough to attract the attention of the public at large. By the end of 2007, the housing market had essentially ground to a halt in many states, and was slow in the others. By mid 2008, everyone recognized that the housing market was in a crises.
When the housing market was hot, the mortgage companies and banks were bundling their mortgages and selling the bundle as securities on Wall Street. That allowed the mortgage companies and banks to get money from the sale of the mortgages to loan more money for houses. However, as the foreclosures started becoming prevalent, some of the mortgages bundled in these securities stopped paying, reducing the value of the securities. The AIG insurance company sold insurance, insuring the value of the mortgage backed securities. As the foreclosures occurred, the value of the securities were reduced and AIG had to pay out on the insurance - to a point where it could no longer afford to do so.
The buyers of some of these bundled securities were foreign central banks and funds owned by foreign countries, including China. As these securities became worth less money and when AIG needed to be bailed out, these countries started demanding that they be protected from the value of their mortgage backed securities continuing to reduce in value.
The federal government has become so dependent on borrowing money from these foreign countries, especially China, that it can not afford to risk not obtaining future funds from these banks, which could happen unless the federal government buys these mortgage backed securities back from the foreign banks with the bail out currently being considered by Congress.
Now, does that sound like the problem has anything to do with loans made to minorities. Any assertion that is the case is beyond ludicrous. It serves as nothing more than a smoke screen.
Why the need for a smoke screen? Because the economic theory that allowed this mess to happen is Ronald Reagan's belief that the government should not too closely regulate markets. And that is what happened. The Reagan and Bush administrations kept the federal government from regulating the financial markets too closely, allowing them to do basically what they wanted. And, what they did was create the mortgage backed security Ponzi scheme that is now collapsing.
This article tries to contend that too much government regulation - i.e., requiring loans to minorities - caused the current crises. Actually , the opposite is true: it was the lack of oversight and good governance that caused the problem. Harold Meyers of the Washington Post has a good article on how the current crises will bring about the death of Reagan/Bush economics. It will and it must. ----------------------------------------------------------------
What I find interesting is that most are saying essentially the same thing, but shading it to appear as if the fault lies elsewhere. The root cause was greed, with that we can agree. And I admit, I am in no position to dispute any of what you have said. All I know is what I read and obviously much of that must be taken with a grain of salt. For many years now when it comes to disputes I have subscribed to the theory that the truth is somewhere in between.
I do have one question for you, you are placing all the blame on Reagan and Bush - I assume you mean Bush II, not Bush the First - assuming you are correct, why didn't Clinton do something to change the course in the 8 years he was in charge? That is not meant to be another blame Clinton attack, but I just wonder how much control the president really has had in this.
To claim that the entire problem comes from liars is as silly as saying the entire problem was caused by dictates from the Clinton administration. Asking lenders to loosen their criteria may have started it, but then again it may not have. You don't get this far into trouble because of one simple thing. I am sure the loosening of credit had something to do with it. Too many people qualified who were not ready to own a home. The interest rates kept dropping, which helped more and more people to be able to buy. The sheer number of new people wanting to buy caused the housing market to become red hot, which in turn forced up the price of homes to unnaturally high amounts.
Then you had lenders not doing due diligence, which was a major factor, but it is rediculous to claim that everyone losing their home lied on the application. There was plenty of that going around, but there are also a lot of people who got in deeper than they could afford. I remember when you had to have a large amount down plus you needed to make sure your payments weren't more than 25% of your income. I heard just about a month ago a economy geru claim that people should never have a payment more than 33% (a significant difference). That person also said lenders had been using criteria of as much as 50%. The lenders all thought it would be ok because if the owner defaulted the house would be worth so much more anyway (thanks to the red hot market.)
Then you have the mortgage brokers who worked on a commission basis and knew just what to say to get the loan through. Many were honest, but unfortunately there were plenty who were just greedy.
Many lenders offerred 100% financing, which is a real problem if the value of your home goes down and you are having trouble making your payments. It is even worse if you fell for the trap of a few lenders who were willing to loan you up to 125% of the value of your home.
Do-it yourself shows helped people increase the value of their homes, and flip-it type shows also became popular. In the end, people forgot to think things through and just got caught up in the frenzy. Those people include lawmakers, adminstrators, lenders, brokers, agents, and home buyers. Let's stop playing the blame game. There is plenty to go around. I believe it is always better to focus first on what we need to do it fix the problem. After we have things going again, we can review the issues and learn from our mistakes.
If and when the truth about credit default swaps and derivatives is revealed we will find that DEFAULT ON MORGAGES BY INDIVIDUAL HOME OWNERS will be as a grain of sand on the sea shore or a drop of water in the ocean. May God have mercy on us all.
According to this article Bush tried in 2003 to tighten controls on Fannie/Freddie which would have overhauled the housing finance industry. But he was stymied by the Democrats in Congress, specificially Barney Frank, a very vocal critic at this time.
So now everyone blames Bush. OK, I got it. Now I understand.
Oh, I don't think anyone is letting Barney Frank off the hook. However, correct me if I'm wrong, but... the proposal would have succeeded if Bush had been able to sell it to just the Republicans in Congress. He couldn't.
[font size="1" color="#FF0000"]LAST EDITED ON 10-03-08 AT 10:46AM (CST)[/font][br][br]Interesting, seems Obama/Biden are putting all the blame on Bush. That's what I heard last night.
The failure of the bailout was bipartisan. Bush was unable to herd his cats and Pelosi was unable to herd hers.
The problem obviously is becoming bigger than party politics.
OK, it appears the measure will now pass with additional controls in place.
The measure was doomed to failure unless it was packed with enough pork. It appears that has been accomplished. I can't wait to see what our new "bridges to nowhere" are.
Speaking of the "bridge to nowhere", I don't know if I've mentioned it before, but I live in the town that's on the island right across from "nowhere" (in other words, it was supposed to be OUR bridge). When our airport was built 35 years ago, with no access except by ferry, we were told there would be a bridge built. If they'd gone ahead and built the bridge then, it would have cost much less, but for whatever reason it wasn't done. Then 30 years later the whole "bridge to nowhere" thing comes along, and all of a sudden we are splashed all over the media as some sort of textbook case of government wastefulness of the worst kind. You may have seen Gov. Palin in pictures holding up a shirt that says "Nowhere, Alaska 99901"? That's my zip code and she posed for that picture on a campaign stop here before she was elected governor, and at that time she told us she was pulling for us to get our bridge. Fast forward to when she was named McCain's running mate, and the first thing she said was "I said thanks but no thanks to the Bridge to Nowhere". Okay, she's a politician, I could forgive her for that, and even for fibbing about opposing it. We knew at the time the money was withdrawn for our bridge that the state of Alaska got to keep most of it; we were told it would go to several other projects within the state. What I just found out recently is that the money has been earmarked for a bridge in Gov. Palin's hometown of Wasilla. Not only that, but the bridge up there is supposed to cost $200 million MORE than the one here was projected to cost. And all the plans for that one are going ahead as scheduled.
Before I started hearing this kind of stuff, I thought Gov. Palin had done an okay job for us here in Alaska and she might do okay in national office, but since I've heard how the money is actually being spent, I realize now that it's political business as usual and she's no different than any other politician at putting her spin on things and telling people exactly what they want to hear. And unfortunately, my community has been given a black eye in the media for even daring to want improvements, while other projects, such as the bridge in Wasilla, sneak in under the radar.
It is nice to see a local spin on the "Bridge to Nowhere". We only know what the media decides is relevant.and we really don't know how true or distorted our information is.
Comments
(just a joke, bank Forumites...)
'He' could be a 'she'...that could be grounds for gender discrimination.
Moon
There is plenty of blame to go around. Does the blame game really help?? There are Democrats who supported things that helped cause this mess as well.
It is easy to blame the Republicans for all of our social ills at this point. But, is that merely jumping on the political bandwagon? Of course supporters of Obama want us to believe that so that they can lure more voters. It's a scam and they all know it.
Here's an interesting article that gives another viewpoint. And one that makes more sense. [url]http://www.realclearmarkets.com/articles/2008/10/the_long_road_to_slack_lending.html[/url]
Here are some quotes.
[i]In the early 1990s I attended a conference designed to teach journalists the tools of an emerging field known as computer-assisted investigative reporting. One of the hottest sessions of the conference explained how journalists could replicate stories that other papers had done locally using computer tools, including one especially popular project to determine if banks in your community were discriminating against minority borrowers in making mortgages.
Although academic researchers leveled substantial criticisms against these newspaper efforts (namely, that they relied on incomplete data and did not take into account lower savings rates, higher debt levels, and higher loan defaults rates for many minority borrowers), bank lending to minority borrowers still became an enormous issue—
Eventually, the political climate changed, and Washington became a believer in the story. Crucial to this change was a Federal Reserve Bank of Boston study which concluded that although lender discrimination was not as severe as suggested by the newspapers, it nevertheless existed. This, then, became the dominant government position, even though subsequent efforts by other researchers to verify the Fed’s conclusions showed serious deficiencies in the original work.
Ignoring the import of such data, federal officials went on a campaign to encourage banks to lower their lending standards in order to make more minority loans. One result of this campaign is a remarkable document produced by the Federal Reserve Bank of Boston in 1998 titled “Closing the Gap: A Guide to Equal Opportunity Lendingâ€.
It told banks they should consider junking the industry’s traditional debt-to-income ratio, which lenders used to determine whether an applicant’s income was sufficient to cover housing costs plus loan payments. It instructed banks that an applicant’s “lack of credit history should not be seen as a negative factor†in obtaining a mortgage, even though a mortgage is the biggest financial obligation most individuals will undertake in life. In cases where applicants had bad credit (as opposed to no credit), the Boston Fed told banks to “consider extenuating circumstances†that might still make the borrower creditworthy.
Many defenders of the government’s efforts to prompt banks to lend more to minorities have claimed that this effort had little to do with the present mortgage mess.....But this defense misses the point. In order to push banks to lend more to minority borrowers, advocates like the Boston Fed put forward an entire new set of lending standards and explained to the industry just why loans based on these slacker standards were somehow safer than the industry previously thought.
What happened in the mortgage industry is an example of how, in trying to eliminate discrimination from our society, we turned logic on its head. Instead of nobly trying to ensure equality of opportunity for everyone, many civil rights advocates tried to use the government to ensure equality of outcomes for everyone in the housing market. And so when faced with the idea that minorities weren’t getting approved for enough mortgages because they didn’t measure up as often to lending standards, the advocates told us that the standards must be discriminatory and needed to be junked. When lenders did that, we made heroes out of those who led the way, like Angelo Mozilo, before we made villains of them.[/i]
This is the fault of the Republicans? I suspect some of those most loudly proclaiming the guilt of others are themselves most guilty.
And Frank, this is not even close to blaming Republicans for Monicagate. In fact, as someone from the banking industry, your comments on this article would be interesting.
(for clarification, though I refer to Frank at the end, my post is not aimed at him or in reaction to his posts)
-----------------------------------------------------------------------
As a banking attorney, I can assure all readers that the basic premise of this article is wrong. Federal legal requirements regarding lending to minorities had nothing to do with the present credit crises.
How can I prove that assertion? I can prove it by looking at what the $700 Billion proposed bailout is intended to do. It is intended to purchase so-called mortgage backed securities and derivatives of questionable value. The bailout law is not designed to buy mortgages acquired by minorities that went bad.
What loans did go bad that were bundled up and sold as securities? The liar loans. The liar loans were those made to people who were not required to verify their income and ability to repay the loan. The liar loans were not made to just minorities because of some pressure imposed by the federal government. To assert that is silly.
What, then, did cause so many liar loans to be made? The answer is simple: greed. Prior to 2005 there was a housing boom. Home prices rose rapidly. As time went by all the people who could afford to buy a home based on prudent lending standards had bought a home. The housing market started to slow down. To heat up the housing market again, mortgage companies and banks began making imprudent loans who would not have qualified under prudent standards. Doing that kept the housing market hot and kept housing prices increasing. Eventually, however, some of the loans made to people who could not afford them started to fail and the lenders had to foreclose on the homes. By mid 2007, the number of foreclosures became large enough to attract the attention of the public at large. By the end of 2007, the housing market had essentially ground to a halt in many states, and was slow in the others. By mid 2008, everyone recognized that the housing market was in a crises.
When the housing market was hot, the mortgage companies and banks were bundling their mortgages and selling the bundle as securities on Wall Street. That allowed the mortgage companies and banks to get money from the sale of the mortgages to loan more money for houses. However, as the foreclosures started becoming prevalent, some of the mortgages bundled in these securities stopped paying, reducing the value of the securities. The AIG insurance company sold insurance, insuring the value of the mortgage backed securities. As the foreclosures occurred, the value of the securities were reduced and AIG had to pay out on the insurance - to a point where it could no longer afford to do so.
The buyers of some of these bundled securities were foreign central banks and funds owned by foreign countries, including China. As these securities became worth less money and when AIG needed to be bailed out, these countries started demanding that they be protected from the value of their mortgage backed securities continuing to reduce in value.
The federal government has become so dependent on borrowing money from these foreign countries, especially China, that it can not afford to risk not obtaining future funds from these banks, which could happen unless the federal government buys these mortgage backed securities back from the foreign banks with the bail out currently being considered by Congress.
Now, does that sound like the problem has anything to do with loans made to minorities. Any assertion that is the case is beyond ludicrous. It serves as nothing more than a smoke screen.
Why the need for a smoke screen? Because the economic theory that allowed this mess to happen is Ronald Reagan's belief that the government should not too closely regulate markets. And that is what happened. The Reagan and Bush administrations kept the federal government from regulating the financial markets too closely, allowing them to do basically what they wanted. And, what they did was create the mortgage backed security Ponzi scheme that is now collapsing.
This article tries to contend that too much government regulation - i.e., requiring loans to minorities - caused the current crises. Actually , the opposite is true: it was the lack of oversight and good governance that caused the problem. Harold Meyers of the Washington Post has a good article on how the current crises will bring about the death of Reagan/Bush economics. It will and it must.
----------------------------------------------------------------
I do have one question for you, you are placing all the blame on Reagan and Bush - I assume you mean Bush II, not Bush the First - assuming you are correct, why didn't Clinton do something to change the course in the 8 years he was in charge? That is not meant to be another blame Clinton attack, but I just wonder how much control the president really has had in this.
Then you had lenders not doing due diligence, which was a major factor, but it is rediculous to claim that everyone losing their home lied on the application. There was plenty of that going around, but there are also a lot of people who got in deeper than they could afford. I remember when you had to have a large amount down plus you needed to make sure your payments weren't more than 25% of your income. I heard just about a month ago a economy geru claim that people should never have a payment more than 33% (a significant difference). That person also said lenders had been using criteria of as much as 50%. The lenders all thought it would be ok because if the owner defaulted the house would be worth so much more anyway (thanks to the red hot market.)
Then you have the mortgage brokers who worked on a commission basis and knew just what to say to get the loan through. Many were honest, but unfortunately there were plenty who were just greedy.
Many lenders offerred 100% financing, which is a real problem if the value of your home goes down and you are having trouble making your payments. It is even worse if you fell for the trap of a few lenders who were willing to loan you up to 125% of the value of your home.
Do-it yourself shows helped people increase the value of their homes, and flip-it type shows also became popular. In the end, people forgot to think things through and just got caught up in the frenzy. Those people include lawmakers, adminstrators, lenders, brokers, agents, and home buyers. Let's stop playing the blame game. There is plenty to go around. I believe it is always better to focus first on what we need to do it fix the problem. After we have things going again, we can review the issues and learn from our mistakes.
Nae
moon
According to this article Bush tried in 2003 to tighten controls on Fannie/Freddie which would have overhauled the housing finance industry. But he was stymied by the Democrats in Congress, specificially Barney Frank, a very vocal critic at this time.
So now everyone blames Bush. OK, I got it. Now I understand.
The failure of the bailout was bipartisan. Bush was unable to herd his cats and Pelosi was unable to herd hers.
The problem obviously is becoming bigger than party politics.
OK, it appears the measure will now pass with additional controls in place.
Before I started hearing this kind of stuff, I thought Gov. Palin had done an okay job for us here in Alaska and she might do okay in national office, but since I've heard how the money is actually being spent, I realize now that it's political business as usual and she's no different than any other politician at putting her spin on things and telling people exactly what they want to hear. And unfortunately, my community has been given a black eye in the media for even daring to want improvements, while other projects, such as the bridge in Wasilla, sneak in under the radar.
decides is relevant.and we really don't know how true or distorted our information is.