BF2S Forums Racial Predatory Loans Fueled U.S. Housing Crisis

CRA's are actually hard loans to qualify for. Also I'm sure the tax abatement's for those regions didn't help any. Well it was done with the best of intentions to lend in poor neighborhoods so people would end up taking more pride in things they own. So instead of squat houses and boarded up homes, you ended up with people getting "predatory loans". 

I'm pretty sure that majority of this area's are ones that are barely staying afloat with state and federal funding. So what's worse, forcing banks to loan money in neighborhoods with high default numbers, or letting those neighborhoods fail?

LividBovine wrote:

Source

Man, I really didn't think it was true.  I really wanted to blame the people for being stupid enough to get loans they couldn't afford.  I know banks were taking advantage of a good situation and all, but geez.

Does the new financial controls legislation do enough to keep banks from doing this again?

Blaming the people for being stupid enough to take out these type of loans makes as much sense as blaming this on racism. That isn't what caused the crisis, though it certainly is a problem. Without premium ratings from the rating agencies, the credit default swaps would have never left port. Why do you think CDOs were used for the bonds that couldn't get AA?

New financial controls do essentially nothing different. Derivatives are still largely unregulated and of course, misunderstood by the government, but I am not arguing in favor of regulation of derivatives in themselves, but of fraud found in them and in the financial sector. As long as the government does not enforce the law and prosecute fraud, it will continue to exist.

Phrozenbot wrote:

LividBovine wrote:

Source

Man, I really didn't think it was true.  I really wanted to blame the people for being stupid enough to get loans they couldn't afford.  I know banks were taking advantage of a good situation and all, but geez.

Does the new financial controls legislation do enough to keep banks from doing this again?

Blaming the people for being stupid enough to take out these type of loans makes as much sense as blaming this on racism. That isn't what caused the crisis, though it certainly is a problem. Without premium ratings from the rating agencies, the credit default swaps would have never left port. Why do you think CDOs were used for the bonds that couldn't get AA?

New financial controls do essentially nothing different. Derivatives are still largely unregulated and of course, misunderstood by the government, but I am not arguing in favor of regulation of derivatives in themselves, but of fraud found in them and in the financial sector. As long as the government does not enforce the law and prosecute fraud, it will continue to exist.

Well, the worst part is that rating agencies are corrupt as hell.

At this point, there's really little way of knowing if a rating is legit or not without digging into the mess to figure things out.

The credit industry is about as scummy as it gets.

Phrozenbot wrote:

Legalize drugs.

That would definitely help.

Turquoise wrote:

Well, the worst part is that rating agencies are corrupt as hell.

At this point, there's really little way of knowing if a rating is legit or not without digging into the mess to figure things out.

The credit industry is about as scummy as it gets.

True. The subprime mortgage bonds had prospectuses that made it its own mini corporation (from the Big Short if I remember correctly) if you were to read all the legal jargon. They were very difficult to sift through and looking at the individual loans in these derivatives was near impossible. Derivatives are very opaque, but what do you expect with a financial asset meant to have a sucker at the receiving end?

Turquoise wrote:

Phrozenbot wrote:

Legalize drugs.

That would definitely help.

The question would be, would gang activity be as high with drugs that are now cheap, sold by legitimate businesses instead of criminals, and be able to regulate? That is what I think has done the most harm to those communities. Placing nice lending agencies in the ghetto most white people have the privilege to have won't fix drug torn neighborhoods, or massive imprisonment of minorities for victimless crimes. That is racist.

Last edited by Phrozenbot (2010-10-04 09:26:51)

They made them get loans. Wow !

Racial predatory loans pfffff.  That's what happens when banks are told to lend on fairness and equality instead of good credit and supporting income.

the practice is referred to as "reverse redlining".

Dilbert_X wrote:

JohnG@lt wrote:

It's a self defeating cycle and there isn't a damn thing you can do to protect them from themselves.

But you can regulate banks so they don't bring the entire financial system down when their loans-to-fuckwits scheme, which pays the CEOs such big bonuses, fails.

It wasn't the banks that were doing this lending though. It was sleazy mortgage brokers and bad HUD policy. The financial collapse would not have occurred if Fannie and Freddie did not exist to backstop all the mortgages that were originated. If the banks had to hold the loans on their own books like S&Ls used to, there wouldn't have been such widespread abuse. Loaning to poor customers is a political tool and not something that a bank would ever do. Banks are businesses, not charities. They aren't going to take overly risky bets like giving a loan to someone on Section 8 on their own.

KEN-JENNINGS wrote:

this little blurb stood out to me:

Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

I really don't get why packaging mortgage securities (among other things) and allowing them to be traded as commodities is a good thing?  The negative impacts far outweigh any positives.  Commodity trading in foodstuffs is going to result in more famine than any drought mother nature could possibly drop on us.

It's actually a fantastic way to get money into the system, far better than the old S&L system ever was. It hooks up investors directly with people who want to buy a home and spreads the risk around without putting any one bank under too much strain in case of a collapse in a local market.

The only negative comes about when there are more investors wanting to buy the bonds than there are reasonable mortgages to give out. This is what ultimately led to the collapse. The market got hyper-hot, sleazy mortgage brokers came in, gave out fake and/or unwarranted loans, had Fannie/Freddie back them, and the risk was dumped on investors who trusted the AAA ratings.

The problem was not with the bonds themselves, it was a whole torrent of mismanagement, fraud, and misguided beliefs in every other sector.

Dilbert_X wrote:

JohnG@lt wrote:

The problem was not with the bonds themselves, it was a whole torrent of mismanagement, fraud, and misguided beliefs in every other sector.

And people buying investments they didn't understand.

Whose fault is that? I rarely feel bad for investors. They expect to make easy risk free profits and cry when that doesn't happen. Fuck them. No such thing as a free lunch.

JohnG@lt wrote:

KEN-JENNINGS wrote:

this little blurb stood out to me:

Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

I really don't get why packaging mortgage securities (among other things) and allowing them to be traded as commodities is a good thing?  The negative impacts far outweigh any positives.  Commodity trading in foodstuffs is going to result in more famine than any drought mother nature could possibly drop on us.

It's actually a fantastic way to get money into the system, far better than the old S&L system ever was. It hooks up investors directly with people who want to buy a home and spreads the risk around without putting any one bank under too much strain in case of a collapse in a local market.

The only negative comes about when there are more investors wanting to buy the bonds than there are reasonable mortgages to give out. This is what ultimately led to the collapse. The market got hyper-hot, sleazy mortgage brokers came in, gave out fake and/or unwarranted loans, had Fannie/Freddie back them, and the risk was dumped on investors who trusted the AAA ratings.

The problem was not with the bonds themselves, it was a whole torrent of mismanagement, fraud, and misguided beliefs in every other sector.

No, loans and other securities are bundled after the fact - that is, after the loan is already made.  The broker and underwriter make their money up front and alleviate themselves from the risk.  It's not the same thing.