Who is to blame when someone loses money because they bought financial instruments they did not understand?
It sounds like Disneybama is blaming the seller.
It sounds like Disneybama is blaming the seller.
How Democrats destroyed the U.S. economy, and why Bush was unable to stop it.
- Thread starter Bama323
- Start date
F & F definitely set the table for the collapse. They basically got into tax payer subsidized housing. And we know how well that works. Any attempt to downplay the effect this had is either ignorant or dishonest.
With that said, there is plenty of blame to go around. Somehow we divorced risk from the loan making process; banks and companies like Countrywide went wild. Why uphold strong credit standards when you can bundle a bunch of the terrible loans and sell them to unsuspecting investors?
Example: WAMU. They are in dire straits because their mtgs are going south in a hurry. In rides Goldman Sachs on a white horse. They bundle the non performing loans, somehow get a strong rating from the rating agencies, then bet the short and make a bundle. So WAMU and Goldman Sachs make out like bandits with the implicit blessing of the credit rating agencies, while everyone else gets the shaft.
See why there's plenty of blame to go around?
With that said, there is plenty of blame to go around. Somehow we divorced risk from the loan making process; banks and companies like Countrywide went wild. Why uphold strong credit standards when you can bundle a bunch of the terrible loans and sell them to unsuspecting investors?
Example: WAMU. They are in dire straits because their mtgs are going south in a hurry. In rides Goldman Sachs on a white horse. They bundle the non performing loans, somehow get a strong rating from the rating agencies, then bet the short and make a bundle. So WAMU and Goldman Sachs make out like bandits with the implicit blessing of the credit rating agencies, while everyone else gets the shaft.
See why there's plenty of blame to go around?
To blame this problem entirely on the Democrats and Clinton would not entirely be fair, even though it accelerated during his Presidency with the evolution of securitization and the derivatives trade. However, the corruption which you speak of appears to have started with HUD under Bush I, possibly even earlier, under Reagan and earlier, which culminated with the S&L crisis in 1986.
Here is one (brave) woman's autobiography -- Catherine Austine Fitts -- who had worked in a Wall Street investment firm, served as assistant Secretary of HUD, and a owned a private enterprise who unknowingly challenged the powers that be. In her story she discusses the backhanded business tactics on Wall Street as well as government corruption and how extensive it actually is. It is a very long and sobering read, but well worth the study if you are that interested. Given the level of interest in the political process now, it is definitely worth one's time to understand the corruption and the number of layers one needs to deal with (exactly how stacked is the deck we are playing with) before deciding how to tackle the political issues.
Introduction - Dillon Read and the Aristocracy of Stock Profits
Here is one (brave) woman's autobiography -- Catherine Austine Fitts -- who had worked in a Wall Street investment firm, served as assistant Secretary of HUD, and a owned a private enterprise who unknowingly challenged the powers that be. In her story she discusses the backhanded business tactics on Wall Street as well as government corruption and how extensive it actually is. It is a very long and sobering read, but well worth the study if you are that interested. Given the level of interest in the political process now, it is definitely worth one's time to understand the corruption and the number of layers one needs to deal with (exactly how stacked is the deck we are playing with) before deciding how to tackle the political issues.
Introduction - Dillon Read and the Aristocracy of Stock Profits
Not at all - I am blaming a system that allows for these financial instruments to begin with. They were illegal for a reason. As soon as banking laws were relaxed, we started down this road.
A few more points.
- Clinton announces every american has the right to own a home.
- Interpretation: make loans to those who do not qualify
- Clinton lowered capital required by banks from 10% to 2% (note quote from Raines)
- Clinton required that 41% of loans on bank books be made to those that do not qualify
- Clinton enforced this through the justice department. Banks were sued for not meeting quotas. Largest settlement was close to 850 million.
- Banks were assuming a large amount of risk. Had to spread that risk across the market. Graham Leech bill allowed this to take place. Republicans required that only class A loans be sold as mortgage securities in the bill. Clinton threatened veto unless they dropped the requirement thus allowing the bad paper from F&F to be sold.
- The rest is history, F&F at the time of the collapse held 5.5 trillion of the mortgage market all backed by the taxpayer.
- They had quickly transformed the housing market into a social housing program through affirmative action. The result is We the taxpayer own a lot of homes at the moment.
- Last count I heard was 1 trillion dollars had been transferred from the fed to bail out F&F. They think it could go as high as 2 trillion.
- Just like it was said earlier "socialist ideals created this problem".
- Banks are in the business to make a profit, heaven forbid. Why would you make a loan to someone that is not going to pay you back?
The other component of the crisis that no one is talking about is the uptick rule change in 2007 and the mark to market rule change in 2007. Both of these changes were lobbied for by George Soros and his hedge fund cronies. The mark to market created an immediate liquidity crisis with all of the banks in 2008 thus destabilizing the markets and creating a perceived crisis in an election year. The uptick rule change allowed the theft and collapse of the markets in october 2008 to the tune of 6 trillion dollars. Barack Obama became 44th President. Mission accomplished.
Rest assured though it is somehow all Bush's fault!
- Clinton announces every american has the right to own a home.
- Interpretation: make loans to those who do not qualify
- Clinton lowered capital required by banks from 10% to 2% (note quote from Raines)
- Clinton required that 41% of loans on bank books be made to those that do not qualify
- Clinton enforced this through the justice department. Banks were sued for not meeting quotas. Largest settlement was close to 850 million.
- Banks were assuming a large amount of risk. Had to spread that risk across the market. Graham Leech bill allowed this to take place. Republicans required that only class A loans be sold as mortgage securities in the bill. Clinton threatened veto unless they dropped the requirement thus allowing the bad paper from F&F to be sold.
- The rest is history, F&F at the time of the collapse held 5.5 trillion of the mortgage market all backed by the taxpayer.
- They had quickly transformed the housing market into a social housing program through affirmative action. The result is We the taxpayer own a lot of homes at the moment.
- Last count I heard was 1 trillion dollars had been transferred from the fed to bail out F&F. They think it could go as high as 2 trillion.
- Just like it was said earlier "socialist ideals created this problem".
- Banks are in the business to make a profit, heaven forbid. Why would you make a loan to someone that is not going to pay you back?
The other component of the crisis that no one is talking about is the uptick rule change in 2007 and the mark to market rule change in 2007. Both of these changes were lobbied for by George Soros and his hedge fund cronies. The mark to market created an immediate liquidity crisis with all of the banks in 2008 thus destabilizing the markets and creating a perceived crisis in an election year. The uptick rule change allowed the theft and collapse of the markets in october 2008 to the tune of 6 trillion dollars. Barack Obama became 44th President. Mission accomplished.
Rest assured though it is somehow all Bush's fault!
No - to get people to trust banks after so many collapsed in the great depression. People were burying their money in their backyards for decades, so many lost so much to the corruption. Unlike this round of bank collapses, the country had no problem blaming corrupt bankers. This time we just blame the government. The people who did all of this for profit and became enormously wealthy doing it are held blameless. :cool2:
Anyone who invested in risky securities based on bad loans deserves to lose their investment, not be bailed out or have their investment options limited by a nanny state.
The banks bought and sold these derivatives to one another. That is what made is a criminally negligent scheme. Every time they sold these derivatives, they made money. So, they could make money on the loan, make money selling the loan (wrapped up in a derivative), loan more money because they put all this on their balance sheets, and not worry about any of it because it was legal - even if they knew that it was creating a bubble that had to burst eventually.
I agree that the banks should have been allowed to fail. This would all have ended for another few decades if they had to pay for their mistakes. The decision by the American people (yes, the American people) that these banks could not be allowed to fail has set us up again. These derivatives are still legal and more are sold every day. Banks can still write horribly bad loans and dump them.
This will happen again because no one wants to address the problem. The question that you should be asking yourself is, "Why has the government, which wants to regulate everything, suddenly decided that banks can be trusted?" :conf3:
This was collusion pure and simple. The govt. forced banks to do this and the banks tried to find creative ways to somehow not lose in the process. Fannie and Freddie took a lot of this worthless paper off their hands because they had an implicit guarantee that certain folks in Washington "had their back" and they bundled the rest. My point is that without the big hand of govt. starting this crap under the Carter and Clinton Administration these loans would not have been made. People just drive me nuts when they act as if these "Evil Banks and Lending Institutions" thought this crazy scheme up out of thin air just to exploit the "little" people who of course were forced to fraudlently sign up for mortgages they could never pay back. Yes, Bush and evil republicans forced these people into banks and loan offices with an invisible gun to their head. Whatever.
As I see it, there are two inherent problems with the whole idea of mortgage-backed securities - which, if memory serves, were essentially invented by the Fed govt with Fannie Mae.
First, there is the risk problem of separating the underwriting from the collecting. If the mortgage lenders make all their money on the origination and sale of mortgage loans and then pass on any risk to investors in mortgage-backed securities, then there is little or no incentive for the lenders to actively police their loans. Certainly much less than when the job of the banker who actually made the loan depended on a 99.5% collection rate.
Of course, the bankers who were making the loans knowing that their jobs depended on collecting them were not making enough loans to the right people to satisfy the govt. Some of this is a legitimate criticism, and some is naked politcal pandering.
The basic scheme that involves looks like bribery. Fannie and Freddie offered to buy almost all loans, so the original lenders could get off the hook. Of course, this had to be to shoehorn folks who could not otherwise afford houses, as we are now finding out, into houses. In some cases, much more house that they were qualified to buy. Remember that under all of this was an explicit threat that the Justice Department woudl be around shortly to look at your discriminatory lending practices if you don't have the right percentages in your loan portfolio. Really put any honest lenders in a tough spot; how do you responsibly lend money, even if you want to, while avoiding the Justice Department's housing police and their focus on the percentages? How quickly the avoidance of discriminatory lending practices turns into predatory lending practices when it hits the fan.
Yes, there are absolutely fraudulent lenders who took full advantage and should go to jail. But are you telling me that all of those subprime borrowers are so stupid that they could not compute what they could afford as being different than what the bank said it could lend them? I know I certainly had to do that when I bought a house.
Fannie and Freddie were not the sole causes of the collapse, but they certainly set the table.
First, there is the risk problem of separating the underwriting from the collecting. If the mortgage lenders make all their money on the origination and sale of mortgage loans and then pass on any risk to investors in mortgage-backed securities, then there is little or no incentive for the lenders to actively police their loans. Certainly much less than when the job of the banker who actually made the loan depended on a 99.5% collection rate.
Of course, the bankers who were making the loans knowing that their jobs depended on collecting them were not making enough loans to the right people to satisfy the govt. Some of this is a legitimate criticism, and some is naked politcal pandering.
The basic scheme that involves looks like bribery. Fannie and Freddie offered to buy almost all loans, so the original lenders could get off the hook. Of course, this had to be to shoehorn folks who could not otherwise afford houses, as we are now finding out, into houses. In some cases, much more house that they were qualified to buy. Remember that under all of this was an explicit threat that the Justice Department woudl be around shortly to look at your discriminatory lending practices if you don't have the right percentages in your loan portfolio. Really put any honest lenders in a tough spot; how do you responsibly lend money, even if you want to, while avoiding the Justice Department's housing police and their focus on the percentages? How quickly the avoidance of discriminatory lending practices turns into predatory lending practices when it hits the fan.
Yes, there are absolutely fraudulent lenders who took full advantage and should go to jail. But are you telling me that all of those subprime borrowers are so stupid that they could not compute what they could afford as being different than what the bank said it could lend them? I know I certainly had to do that when I bought a house.
Fannie and Freddie were not the sole causes of the collapse, but they certainly set the table.
According to disney you are Juan Williams CAAAARRRRRAAAAZZZZYYYY!!! for thinking like that.
Read here again what the former head of Fannie Mae, and some in the democratic Congress said when Republicans in Congress, the Bush Administration, and regulators tried to reign them in - then fast-forward to the financial crisis in 2008. The regulators were flat out telling them years in advance that the system was going to crash, yet the democrats in Congress chose to chastise the regulators, to ignore their warnings, and to play politics. Nothing more really needs to be said...
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Just having a little fun. :wink:According to disney you are Juan Williams CAAAARRRRRAAAAZZZZYYYY!!! for thinking like that.
First off, at the risk of ruining the party, I read the original post on Hot Air a few days back, so you need to go back in and credit the source.
Anyway, moderator junk out of the way...
The political left clearly played a big role in the sub-prime crisis. The roots of that crisis are embedded in their insistence that there should be some rough equality in mortgages issued and home ownership rates over a variety of socio-demographic and racial groups, regardless of the individual ability to actually pay for those mortgages. In the final analysis, it all goes back to a bunch of loans being given out to people who were not able to pay for them and who would have never been approved for those loans had there not been all of the external, political driven factors at play.
Having said that, I wouldn't be shedding any tears for the GOP, or hell even the American people at that rate. Yes Bush did try to stop it occasionally, or at least partially rein it in, but he never made it a priority, and of all the political capital that he had in 2005 and 2006, he never spent on meaningful amount trying to stop any of this. And likewise, the American people in many ways got what they wanted... they paid dearly for this notion that home ownership was an unmitigated good and that it should be actively increased through whatever means available. You can bash the Dems if you want, and some of that is fair enough, but there are no virgins in this whorehouse.
That's all pretty elementary, but the real intriguing aspect is what happened with the widespread reach of the MBS. That's where it gets interesting, and things cannot be so cut and dried.
The political left comes up with their old, typical line about deregulation being the root of all evil in that regard (shocking, I know). Problem is that doesn't hold up empirically. As Cato and some others have done a great job of showing -- including some left-wing think tanks -- there wasn't actually any deregulation prior to the financial crisis. For years and years on end, we actually had more regulation, not less, regardless of how you want to splice it... budgets of regulatory agencies, number of employees in regulatory agencies, number of rules issues by regulatory agencies, etc. It's a nice little ideological fairy tale for those on the left who want to think government must be there to save us from ourselves at all time, but empirically it just does not hold up.
The right, though, really hasn't come up with much on their own end. Some have made some good points about there being a government-created cartel with ratings agencies and the like, but even that doesn't seem to fully explain how the MBS spread so far throughout the financial system.
Anyway, moderator junk out of the way...
The political left clearly played a big role in the sub-prime crisis. The roots of that crisis are embedded in their insistence that there should be some rough equality in mortgages issued and home ownership rates over a variety of socio-demographic and racial groups, regardless of the individual ability to actually pay for those mortgages. In the final analysis, it all goes back to a bunch of loans being given out to people who were not able to pay for them and who would have never been approved for those loans had there not been all of the external, political driven factors at play.
Having said that, I wouldn't be shedding any tears for the GOP, or hell even the American people at that rate. Yes Bush did try to stop it occasionally, or at least partially rein it in, but he never made it a priority, and of all the political capital that he had in 2005 and 2006, he never spent on meaningful amount trying to stop any of this. And likewise, the American people in many ways got what they wanted... they paid dearly for this notion that home ownership was an unmitigated good and that it should be actively increased through whatever means available. You can bash the Dems if you want, and some of that is fair enough, but there are no virgins in this whorehouse.
That's all pretty elementary, but the real intriguing aspect is what happened with the widespread reach of the MBS. That's where it gets interesting, and things cannot be so cut and dried.
The political left comes up with their old, typical line about deregulation being the root of all evil in that regard (shocking, I know). Problem is that doesn't hold up empirically. As Cato and some others have done a great job of showing -- including some left-wing think tanks -- there wasn't actually any deregulation prior to the financial crisis. For years and years on end, we actually had more regulation, not less, regardless of how you want to splice it... budgets of regulatory agencies, number of employees in regulatory agencies, number of rules issues by regulatory agencies, etc. It's a nice little ideological fairy tale for those on the left who want to think government must be there to save us from ourselves at all time, but empirically it just does not hold up.
The right, though, really hasn't come up with much on their own end. Some have made some good points about there being a government-created cartel with ratings agencies and the like, but even that doesn't seem to fully explain how the MBS spread so far throughout the financial system.
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