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You should seriously stick to areas you know about, like pot.
the government forced fannie and freddie to buy up more loans for low to mid income people. this forced fannie and freddie to encourage banks to originate loans to people who should not be getting a mortgage.
ARM's were the result of needing a way to get someone who made shit and couldn't afford a fixed 30 year loan to be able to afford it for a couple years. if people had money, they would not have existed. same with zero down or liar's loans. these were created to be able to loan to people who should not be getting loans, which was caused by the government forcing fannie and freddie to get more poor people with bad credit into homes
they didn't force predatory lending? the government wanted to ease requirements for credit health... and banks were supposed to keep the same interest rates? HA! In no way is that fair. Shitty borrower and high risk = subprime loan time.
the government drove up predatory loans but they said it was for good reason and to help people into homes. if only they admitted people had criticism of the future in 1999! But government is too short sighted to see the consequences of involvementComment
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Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.
In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.
Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.
About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.
Conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods.
Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they’re lending and investing in their communities.
Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity."
Fannie and Freddie, however, didn’t pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.
What’s more, only commercial banks and thrifts must follow CRA rules. The investment banks don’t, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.
These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren’t subject to federal regulation or the CRA, originated most of the subprime loans.
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I see both sides on this - and honestly I blame the people not the banks.
However, was it absolutely necessary to hand out these variable mortgages when they knew very well they wouldn't be able to afford it when the rates went up?
I know the answer is going to be "they had to do it to offset the risk" - but doesn't that make the chances of forclosure significantly higher? It seems like a higher rate of interest (like 7-10%) would have sufficed."We praise or find fault, depending on which of the two provides more opportunity for our powers of judgement to shine."Comment
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It's more complicated than that . . .
There is a lot of blame to go around, but if I had to pick the main reason we are in this crisis it would be because financial institutions were able to leverage themselves at 40 to 1 via dubious financial instruments and now they have to pullback (and screw everyone in the process). They were able to do this because of something called the Credit Default Swap.
People like to talk about citizens getting over their heads in a house, buying a 300k house when they can only afford a 100k house. Some will lay the blame on stupid home buyers. Others, who desperately want a McCain presidency, will say Democrats MADE the homeowners buy and MADE banks lend this money, and Bill Ayers had Hamas fund Acorn to sue banks to ...blah blah blah.
But still, that's the equivalent of a 3 to 1 leverage. Not exactly smart, but not the end of the world, right?
Why not more outrage at WaMu at 40 to 1? In the scale of responsibility, isn't that much riskier? And it was made by people who are supposed to be good with numbers. The majority of their holdings weren't CRA loans. They just got in WAY over their heads by making an extremely risky bet. The equivalent of a college professor buying a 40 million dollar estate. How were they able to get so unbalanced?
They bought a type of insurance called a 'credit default swap' that insulated them on their loss. Except it's not really insurance. If they called it insurance, the sellers would have been regulated as an insurance company. By calling it a swap, they could sell it in an unregulated market. 40 to 1 price to earning looked OK, because they kept saying, 'we are hedged'. And because they believed that, they gave out more loans and more loans, and bought more mortgage backed securities. They had 'insurance' against loss, or so they thought.
The man who put together the legislation to create the Credit Default Swap is Phil Gramm, McCain's former chief economic advisor. The reason AIG went under is they were selling this 'insurance' to everyone under the sun, even though they didn't have enough money in reserve to payout if anyone filed a claim. They didn't need to maintain those reserves because, after all, they weren't selling actual insurance.
So WaMU and others like them loaded up on mortgages and bought 'insurance' to hedge their bet. WaMU wasn't being 'forced' by Democrats to give out loans. They were giving out loans because they thought they could make a boat load of money RISK FREE because they bought 'insurance'. When the home values starting going down, they 'doubled down'. They had to give out even MORE loans so they could still show a good balance sheet, because the returns on their previous investments weren't as high. Which means they had to buy even more 'insurance'. The majority of their loans weren't sub prime or CRA loans. The Credit Default Swap created an unregulated market where it was profitable, nay, damn near an imperative to give money away.
But eventually people started defaulting. This wasn't because the CRA. Less than a quarter of sub prime loans were CRA anyway. And a majority of loans that defaulted weren't CRA OR sub prime!!
If it only stopped there, it wouldn't be such a bad thing. Because it would mean that some bank held some mortgages, some mortgages failed, and they couldn't get 'insurance' to cover their losses, so they failed. But the underlying assets were still reasonably good, so they could be bought up by other companies. But no one else had any money to buy up these mortgages and the banks didn't trust each other anymore. Because they knew that their was a good chance that everyones balance sheet was as screwed up as they knew their phony balance sheets were.
The problem is in the scale of the Credit Default Swap operation. Because it was unregulated, there was no common exchange, so they could be bought and sold by anybody, counter party to counter party, with no oversight at all.
The size of the US budget is something like 2 trillion dollars. The US GDP is like 10 trillion dollars. The total amount of Mortgage debt is around 13 trillion dollars. 13 trillion is a lot of money, but it is based on something real. In other words it is the value of all of our homes. Less than %10 of mortgages are in trouble, so lets say 2 trillion in bad mortgages. Note, the house is still there, so it's not like those mortgages are worthless, they just aren't worth as much.
Here's the kicker. The size of the Credit Default Swap market is 62 trillion dollars. Just for reference, that is larger than the combined GDP of the entire planet. It got that big because everyone could buy them (or sell them) and it was completely unregulated. Essentially I could buy a contract that was a 'bet' that you, Sally Homeowner would default on your loan. It would cost be a little bit of money, but not much, and the payout was the value of your house. I didn't get your house, just the cash value of it. So these big investment Banks have actually been bankrupt for 2 years or more, but their balance sheet looked good, because they show the credit default swap as INCOME, even though it is impossible for them to collect that money. It's impossible for these institutions to collect this money because there is not enough money in the entire world to effect a payout on their swaps. And when banks started to realize that, they all turned off the spigot and said 'no more money for anyone'.
So you had a vicious circle. Speculators liked to buy the swaps hoping you would default. Banks liked to buy them to give themselves a false sense of security and a better looking balance sheet to drive up their share price. Companies like AIG loved to sell them, because they were very profitable considering they could never payout. So they went round and round, essentially trading huge amounts of money between these three principle actors, like people buying and selling tulip bulbs amongst themselves.
But they couldn't feed this fire without Average Joe. They needed Average Joe to want to buy a home. Because they were dying to give money to him, at whatever the risks. These weren't Democrats, these were Wall Street Republicans. This was Bush saying we are 'an ownership society'. Trust me, they didn't need 'Libruls' to force them to give money to, ahem, 'minorities'. They were dying to give money away. If they didn't give him money, there was no mortgage to securitize . So there would be no security ( callled a CDO, also a republican invention) to buy and sell at a profit. There would be no reason to buy and sell credit default swaps. And that means they couldn't make a bazillion dollars in their sick financial circle jerk. So they sent out the mortgage brokers, and had banks advertising on TV 24x7. You think Democrats made, under the CRA, Countrywide Financial spam my TV every Sunday during football hocking low cost home equity loans? It was a business. A bad one, but a business. As the individual return on each mortgage fell, they didn't get out of the mortgage business, they just had to sell more of them. These were free market, Adam Smith loving Republicans at their finest!
What we're seeing now is that bazillion dollars made trading the same BS back and forth between each other evaporate and come back down to a sane level. Unitl itdoes, though, no one will give money to anyone else because no one trusts anyone else. So no home loans, no Coroporate paper debt for payroll, not small business loan...nada.
As you can see the CRA is entirely tangential to this issue.
CRA was meant to force banks that took deposits to give out loans in the same neighborhood as they operated. This is because it was impossible for some groups to get loans regardless of their credit. Banks just wouldn't give out loans to some individuals based on their skin color or based on what neighborhood the home was in. That is why some urban areas had zero renewal and investment, because it was impossible for people to get loans there. The institutions who were/are giving out the CRA loans are not the ones in trouble, and most loans under CRA aren't sub-prime.
This argument about the CRA really boils down to bigotry. It is a classic Republican argument. The caricature is: 'Democrats get dark people to vote for them by promising welfare, cheap housing blah blah blah'. It's really a sick argument.
It's used to paper over the last 30 years of Republican economic theory. At every turn, they propose deregulation, less oversight, and trickle down tax policy, and now they want to blame Democrats? They fundamentally think government is the problem, that oversight burdens productive capitalists, and that markets regulate themselves. It's no wonder government doesn't work when they are in charge. It's their whole damn philosophy. Welcome to their self-fulfilling prophecy. Government, as implemented by Republicans, failed. Go Figure.
In 2004, after Bush's 'mandate' of an election, the first initiative he chose to pursue was Social Security reform. His solution, supported by McCain, was to privatize Social Security, to put the our SS fund in the stock market where people could have more control and get a better return on their dollars, and putting our SS trust fund into the hands of the 'geniuses on Wall Street'. Thank God the Democrats stopped him, or right now we would be in a (HARD TO IMAGINE ) much, much worse place. Although I'm sure if that had happened, it would somehow be the Democrats fault for 'pandering to Senior Citizens and buying their vote with free SS handouts'. Barack Obama and Bill Ayers probably had something to do with it.Comment
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I guess it is more complicated. I'm patiently awaiting heeter's "I hate democrats" rebuttal.Last edited by Turf1600; 10-21-2008, 06:03 AM."We praise or find fault, depending on which of the two provides more opportunity for our powers of judgement to shine."Comment
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It's rebuttal, and I think Heeter's on the phone with his college right now asking about a refund.Comment
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Ragged, so following your logic, because there are many car manufacturers using an assembly line, Ford didn't spark this change...Comment
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You are failing to differentiate between basic infrastructure, and smothering services.
The FEDERAL government needs to do 3 things, and 3 things only.
1: Protect our borders
2: Protect the value of the dollar
3: Administer tools for interstate commerce
EVERY SINGLE OTHER thing is the responsibility of the individual state. That way states can make their own rules, and people will gravitate towards the state that suits them best.Joe Funk -- Portland Oregon
That Guy.
03 X5. 3 liter obviously.Comment
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Ragged, I'll paypal you $10 if you can correct tell me who invented the first mortgage-based security in 3 minutes. GO!Comment
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Give the 10.00 to the first bum you see.
History
In 1938, a governmental agency named the National Mortgage Association of Washington was formed and soon was renamed Federal National Mortgage Association (FNMA or Fannie Mae). It was chartered by the US government as a corporation which buys Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages on the secondary market, pools them, and sells them as "mortgage-backed securities" to investors on the open market. FNMA was later privatized.
Additionally, in 1970 the Emergency Home Finance Act created a new secondary mortgage market participant, the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), which had as its stated objective providing secondary mortgage support for conventional mortgages originated by thrift institutions. The Act also allowed FNMA to buy conventional mortgages in addition to FHA & VA.
Freddie Mac was created to provide competition in the secondary market, where Fannie Mae had continued to have a monopoly.
[IMG]https://cimg4.ibsrv.net/gimg/my350z.com-vbulletin/550x225/80-parkerbsig_5096690e71d912ec1addc4a84e99c374685fc03 8.jpg[/IMG
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Oh so close. Was not a corporation but was in the same family (Mae)Comment
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