No no one "forced" the banks to do it, but what do you call it when the govt., although not "forcing them to anything" threatens them with financial penalties if they don't?Dilbert_X wrote:
That was barely a small part of it, banks onselling packages of these garbage loans with certificates which said they were AAAAAAAA********** rated was the problem - and drove the banks to sell ever more loans to people who couldn't afford them on properties which were worth small fractions of the mortgages.
No-one force the banks to do any of that.
The banks were forced to give out the loans through government legislation. The credit rating was high because it was balanced off by a high rate of return from proper loans. But when the poor fuckers couldn't pay, everyone got fucked.Dilbert_X wrote:
That was barely a small part of it, banks onselling packages of these garbage loans with certificates which said they were AAAAAAAA********** rated was the problem - and drove the banks to sell ever more loans to people who couldn't afford them on properties which were worth small fractions of the mortgages.
No-one force the banks to do any of that.
Now who's oversimplifying it?Dilbert_X wrote:
That was barely a small part of it, banks onselling packages of these garbage loans with certificates which said they were AAAAAAAA********** rated was the problem - and drove the banks to sell ever more loans to people who couldn't afford them on properties which were worth small fractions of the mortgages.
No-one force the banks to do any of that.
Banks really had no choice.Dilbert_X wrote:
Or the merchant banks to buy them up, package them up and sell them on?
Shitty loans were a problem, they weren't the cause of the financial markets going into a huge boom and crash.
Learn how the various parties work (or don't) together, then come back.Dilbert_X wrote:
So who forced the ratings agencies to give them stellar ratings?
Or the merchant banks to buy them up, package them up and sell them on?
No-one. Not even the govt.
Shitty loans were a problem, they weren't the cause of the financial markets going into a huge boom and crash.
If you don't think forcing banks to lend subprime mortgages contributed to the situation in a major way (as in root cause way), you seriously need to relearn root cause analysis.KEN-JENNINGS wrote:
CRA didn't have much of an impact on the GFC. Don't know why people here are still regurgitating that line from 3 years ago. Government deregulation of banking standards related to buying and selling loan packages had a larger effect.
So that's 1 for lax government intervention, 0 for government intervention if anyone is keeping score.
its not a root cause though as far as I'm concerned. i remember reading analysis a few years ago from a Fed Reserve regional exec saying it (CRA) had little to do with the GFC. i remember reading more, recent analysis from a few people opining that the CRA had little impact, something along the line that the banks that issued subprime loans were outside CRA regulation. So its in direct contradiction to what you state. I trust their opinions over yours.FEOS wrote:
If you don't think forcing banks to lend subprime mortgages contributed to the situation in a major way (as in root cause way), you seriously need to relearn root cause analysis.KEN-JENNINGS wrote:
CRA didn't have much of an impact on the GFC. Don't know why people here are still regurgitating that line from 3 years ago. Government deregulation of banking standards related to buying and selling loan packages had a larger effect.
So that's 1 for lax government intervention, 0 for government intervention if anyone is keeping score.
http://www.lewrockwell.com/dilorenzo/dilorenzo125.htmlKEN-JENNINGS wrote:
its not a root cause though as far as I'm concerned. i remember reading analysis a few years ago from a Fed Reserve regional exec saying it (CRA) had little to do with the GFC. i remember reading more, recent analysis from a few people opining that the CRA had little impact, something along the line that the banks that issued subprime loans were outside CRA regulation. So its in direct contradiction to what you state. I trust their opinions over yours.FEOS wrote:
If you don't think forcing banks to lend subprime mortgages contributed to the situation in a major way (as in root cause way), you seriously need to relearn root cause analysis.KEN-JENNINGS wrote:
CRA didn't have much of an impact on the GFC. Don't know why people here are still regurgitating that line from 3 years ago. Government deregulation of banking standards related to buying and selling loan packages had a larger effect.
So that's 1 for lax government intervention, 0 for government intervention if anyone is keeping score.
Last edited by Macbeth (2011-09-20 14:21:36)
http://www.fdic.gov/news/news/speeches/ … c1708.htmllowing wrote:
http://www.lewrockwell.com/dilorenzo/dilorenzo125.htmlKEN-JENNINGS wrote:
its not a root cause though as far as I'm concerned. i remember reading analysis a few years ago from a Fed Reserve regional exec saying it (CRA) had little to do with the GFC. i remember reading more, recent analysis from a few people opining that the CRA had little impact, something along the line that the banks that issued subprime loans were outside CRA regulation. So its in direct contradiction to what you state. I trust their opinions over yours.FEOS wrote:
If you don't think forcing banks to lend subprime mortgages contributed to the situation in a major way (as in root cause way), you seriously need to relearn root cause analysis.
the first two are the articles I read a few years ago, the ones I mentioned in my previous post. the last one is an opinion piece (like the Lew Rockwell one). If I have more time i'll find the recent ones.Macbeth wrote:
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Lynx
Links
Hmmmm 2 articles from the govt. stating it isn't their fault, and one from Ellen SeidmanKEN-JENNINGS wrote:
the first two are the articles I read a few years ago, the ones I mentioned in my previous post. the last one is an opinion piece (like the Lew Rockwell one). If I have more time i'll find the recent ones.Macbeth wrote:
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Lynx
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attacking the SOURCE instead of the CONTENT??!!lowing wrote:
Hmmmm 2 articles from the govt. stating it isn't their fault, and one from Ellen SeidmanKEN-JENNINGS wrote:
the first two are the articles I read a few years ago, the ones I mentioned in my previous post. the last one is an opinion piece (like the Lew Rockwell one). If I have more time i'll find the recent ones.Macbeth wrote:
Links
Lynx
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http://newamerica.net/user/32 <-----Neh, nothing biased about Ellen.
What I posted is at least from an economist. Ya know, someone who has no stake in the blame game. but I concede it could go back and forth with links as to who is right.
My article wasn't written by Lew Rockwell. but you would have known that if you had opened it up and looked at it. It was written byKEN-JENNINGS wrote:
attacking the SOURCE instead of the CONTENT??!!lowing wrote:
Hmmmm 2 articles from the govt. stating it isn't their fault, and one from Ellen SeidmanKEN-JENNINGS wrote:
the first two are the articles I read a few years ago, the ones I mentioned in my previous post. the last one is an opinion piece (like the Lew Rockwell one). If I have more time i'll find the recent ones.
http://newamerica.net/user/32 <-----Neh, nothing biased about Ellen.
What I posted is at least from an economist. Ya know, someone who has no stake in the blame game. but I concede it could go back and forth with links as to who is right.
Lew Rockwell isn't an economist.
Federal Reserve isn't the government.
Were we clear as to who the author was of that article? Or did you still wanna argue without even reading it?KEN-JENNINGS wrote:
kind governy isn't the federal government. try again. In the interest of not derailing this topic, I'll start a new one.
In that new topic, you can debate the CONTENT of the article instead of ATTACKING THE SOURCE!!!11
Last edited by lowing (2011-09-20 16:06:36)
Yeah, reads like a bunch of "not our fault" to me...KEN-JENNINGS wrote:
http://www.fdic.gov/news/news/speeches/ … c1708.htmllowing wrote:
http://www.lewrockwell.com/dilorenzo/dilorenzo125.htmlKEN-JENNINGS wrote:
its not a root cause though as far as I'm concerned. i remember reading analysis a few years ago from a Fed Reserve regional exec saying it (CRA) had little to do with the GFC. i remember reading more, recent analysis from a few people opining that the CRA had little impact, something along the line that the banks that issued subprime loans were outside CRA regulation. So its in direct contradiction to what you state. I trust their opinions over yours.
http://www.federalreserve.gov/newsevent … 81203a.htm
http://prospect.org/cs/articles?article … stment_act
It all ties back to the same rationale behind CRA, and scoring banks based on CRA compliance, rather than sound lending practices.Sizable pools of capital came to be allocated in an entirely new way. Bank examiners began using federal home-loan data—broken down by neighborhood, income, and race—to rate banks on their CRA performance, standing traditional lending on its head. In sharp contrast to the old regulatory emphasis on safety and soundness, regulators now judged banks not on how their loans performed, but on how many loans they made and to whom. As one former vice president of Chicago’s Harris Bank once told me: “You just have to make sure you don’t turn anyone down. If anyone applies for a loan, it’s better for you just to give them the money. A high denial rate is what gets you in trouble.” It’s no surprise, then, that as early as 1999, the Federal Reserve Board found that only 29 percent of loans in bank lending programs established especially for CRA compliance purposes could be classified as profitable.
Was there a high enough level of CRA-related lending to spark our current crisis? Not on its own, of course. The crucial link was the extension of CRA-type thinking and regulation to the secondary mortgage markets through the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which buy loans from banks in order to provide liquidity. Beginning in 1992, the Department of Housing and Urban Development pushed Fannie and Freddie to buy loans based on criteria other than creditworthiness. These “affordable housing goals and subgoals”—authorized, ironically, by the Federal Housing Enterprises Financial Safety and Soundness Act—became more demanding over time and, by 2005, required that Fannie and Freddie strive to buy 45 percent of all loans from those of low and moderate income, including 32 percent from people in central cities and other underserved areas and 22 percent from “very low income families or families living in low-income neighborhoods.” As one former Fannie Mae official puts it: “Both HUD and many advocates in the early 2000s were anxious for the GSEs to extend credit to borrowers with blemished credit in ways that were responsible.”
How were such goals to be met? Crucially, subprime loans didn’t only allow banks to meet their CRA lending requirements; sold to Fannie and Freddie, they could also help the two secondary mortgage giants meet their affordable-housing targets. Not all subprime loans, or even a majority of them, were made for CRA-related reasons—the combination of cheap money and imprudent borrowers clearly made for a tremendous bubble. But such loans, bundled into asset-backed securities, were purchased (according to a June 2007 HUD report) especially by Freddie Mac to help fulfill its affordable-housing goals. As recently as April of this year, Fannie actually boasted about “mortgage products and options,” which included “reduced requirements for down payment and closing costs, choices for borrowers with less than perfect credit and flexibility to provide loans to home buyers with no traditional credit history.” In 2005 alone, Fannie Mae purchased some 3.8 million loans that could help them achieve affordable-housing targets. Bruce Marks might as well have been in charge of federal housing policy.
It’s important to note that Fannie and Freddie bought paper from all sorts of mortgage originators, not just from banks bound by the CRA. But the loans still counted toward Fannie’s and Freddie’s affordable-housing goals—and helped lead to their meltdowns. Those meltdowns were anticipated by the National Association of Realtors when in 2004 it wrote to HUD protesting the increases in the GSE affordable-housing goals: “Increases in housing prices have exceeded income growth in the past few years, interest rates are on the rise and rental markets are soft. The credit scores of renters have declined significantly over time, reducing the number of qualified buyers.” By insisting that such underqualified buyers be dealt into homeownership for political reasons, we helped create the financial crisis.
If you mean political parties - they were irrelevant to the real problem, which was the financial markets.FEOS wrote:
Learn how the various parties work (or don't) together, then come back.
Jay wrote:
It would've happened with or without the government requiring a percentage of loans to be subprime. It was a boom, a feeding frenzy, the loan originators were giving out loans to anyone with a pulse, and selling them on to investment banks. The investment banks in turn bought the loans as quickly as possible, and in many cases, hounded the originators into providing more stuff for them to sell.
The real issue for us as taxpayers is that Fannie and Freddie backstopped all of these unsecured loans. Because they had the backing of the US government, they could then be sold by the investment bankers as AAA rated bonds. It really was a perfect storm. Blaming subprime mortgages as the main culprit is like blaming the 4th outfielder on a baseball team for a teams terrible season. Sure, he might have dropped a few balls, or struck out a few too many times, but he's just a small cog in the wheel.
