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It's the [Economy Thread], Stu... Silly Goose!

135

Posts

  • HenroidHenroid Mexican kicked from Immigration Thread Centrism is Racism :3Registered User regular
    edited January 2010
    Deebaser wrote: »
    ronya wrote: »
    Or maybe there's a bank that mysteriously doesn't care about creditworthiness and offers house loans to people who can't realistically pay it back.

    This is kind of exactly what happened. Mortgage banks made money selling loans to other banks who made money bundling these loans into RMBSes and CDOs. The more loans they made, the more money they made. I did closings for a mortgage bank pre-crash. They were literally giving $300K to people making $30K a year and had fuck all for a downpayment.

    I heard loan agents in closings assure people that when the interest payment jumps up on their interest only loans, they'll be able to refi and their houses and have equity because the value on their house will be higher!

    The reason they didn't give a shit is because they sold pretty much all of their loans to BOA so they could make more money selling loans.

    Explain the bolded part more, I'm interested. Wasn't there legislation passed in the 90's to incentivize or demand banks loan more to people who couldn't really afford it? What was the intent of the legislation, and I don't mean to make more people home owners, I mean what was the hope that would make it so people would eventually afford it?

    Henroid on
  • juice for jesusjuice for jesus Registered User regular
    edited January 2010
    You are thinking of the CRA, which was intended to stop practices like "redlining". It's a common boogey-man used to distract from the real problem(s) which Deebaser touched on. To my understanding, banks were not forced to give loans to unqualified borrowers, they simply had to offer the same services to everyone, instead of drawing a "red line" around the minority neighborhoods. In fact, some banks were steering minority borrowers into sub-prime loans when they would have qualified for a normal loan.

    juice for jesus on
    Lanlaorn wrote: »
    That's just insulting, I think DBZ is bad but I'm not going to insinuate that it only appeals to people who are equal parts retards and psychopaths.
  • big lbig l Registered User regular
    edited January 2010
    Henroid wrote: »
    Deebaser wrote: »
    ronya wrote: »
    Or maybe there's a bank that mysteriously doesn't care about creditworthiness and offers house loans to people who can't realistically pay it back.

    This is kind of exactly what happened. Mortgage banks made money selling loans to other banks who made money bundling these loans into RMBSes and CDOs. The more loans they made, the more money they made. I did closings for a mortgage bank pre-crash. They were literally giving $300K to people making $30K a year and had fuck all for a downpayment.

    I heard loan agents in closings assure people that when the interest payment jumps up on their interest only loans, they'll be able to refi and their houses and have equity because the value on their house will be higher!

    The reason they didn't give a shit is because they sold pretty much all of their loans to BOA so they could make more money selling loans.

    Explain the bolded part more, I'm interested. Wasn't there legislation passed in the 90's to incentivize or demand banks loan more to people who couldn't really afford it? What was the intent of the legislation, and I don't mean to make more people home owners, I mean what was the hope that would make it so people would eventually afford it?

    The Community Reinvestment Act or CRA was passed to encourage more mortgages at lower rates to black people. Research should that the mortgage market systematically discriminated against blacks, charging black people higher mortgage rates than white people with equal credit histories. The CRA subsidized loans to black people at fair, "white" rates and mandated that certain minimum numbers of these loans be made. Many Republicans believe this to be the start of the mortgage crisis - that these were the first "subprime" loans and these people who got CRA-subsidized home loans shouldn't have gotten them. Convenient that Republicans manage to blame black people for a crisis in an industry dominated and ruled by white faces. Not to mention that actual subprime loans to people of all ethnicities vastly outnumbered CRA loans and surely did far more to contribute to the crisis, the policies followed at banks, investment and otherwise, that made so much money available for speculative growth in the market, and the monetary policies of the Fed that made the money available for the bankers. But sometimes, things are just about race.

    big l on
  • HachfaceHachface Not the Minister Farrakhan you're thinking of Registered User regular
    edited January 2010
    It is also my understanding that the most important component of the subprime debacle was the securitization of these bad mortgages, which would not have been possible without the early 90s deregulation (Gramm-Leach-Bliley Act) that the industry had lobbied for.

    Hachface on
  • Salvation122Salvation122 Registered User regular
    edited January 2010
    Hachface wrote: »
    It is also my understanding that the most important component of the subprime debacle was the securitization of these bad mortgages, which would not have been possible without the early 90s deregulation (Gramm-Leach-Bliley Act) that the industry had lobbied for.

    This is likely what Henroid was thinking of.

    Salvation122 on
  • HenroidHenroid Mexican kicked from Immigration Thread Centrism is Racism :3Registered User regular
    edited January 2010
    big l wrote: »
    Henroid wrote: »
    Deebaser wrote: »
    ronya wrote: »
    Or maybe there's a bank that mysteriously doesn't care about creditworthiness and offers house loans to people who can't realistically pay it back.

    This is kind of exactly what happened. Mortgage banks made money selling loans to other banks who made money bundling these loans into RMBSes and CDOs. The more loans they made, the more money they made. I did closings for a mortgage bank pre-crash. They were literally giving $300K to people making $30K a year and had fuck all for a downpayment.

    I heard loan agents in closings assure people that when the interest payment jumps up on their interest only loans, they'll be able to refi and their houses and have equity because the value on their house will be higher!

    The reason they didn't give a shit is because they sold pretty much all of their loans to BOA so they could make more money selling loans.

    Explain the bolded part more, I'm interested. Wasn't there legislation passed in the 90's to incentivize or demand banks loan more to people who couldn't really afford it? What was the intent of the legislation, and I don't mean to make more people home owners, I mean what was the hope that would make it so people would eventually afford it?

    The Community Reinvestment Act or CRA was passed to encourage more mortgages at lower rates to black people. Research should that the mortgage market systematically discriminated against blacks, charging black people higher mortgage rates than white people with equal credit histories. The CRA subsidized loans to black people at fair, "white" rates and mandated that certain minimum numbers of these loans be made. Many Republicans believe this to be the start of the mortgage crisis - that these were the first "subprime" loans and these people who got CRA-subsidized home loans shouldn't have gotten them. Convenient that Republicans manage to blame black people for a crisis in an industry dominated and ruled by white faces. Not to mention that actual subprime loans to people of all ethnicities vastly outnumbered CRA loans and surely did far more to contribute to the crisis, the policies followed at banks, investment and otherwise, that made so much money available for speculative growth in the market, and the monetary policies of the Fed that made the money available for the bankers. But sometimes, things are just about race.

    Is this why the one guy a month or two ago felt the need to point out the % of his state that was black, indicating it was a problem?

    Henroid on
  • YarYar Registered User regular
    edited January 2010
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    Yar on
  • Mr. PokeylopeMr. Pokeylope Registered User regular
    edited January 2010
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    No as others have said it was driven by deregulation giving the banks the ability to sell bad loans at a profit as securities. Changes that were lobbied for by the industry itself to allow it make huge amounts of money and supported by a foolish Republican Ideology that worships the Free Market. Since bad loans could be sold at even greater profit the incentive was made to make any loan no matter the borrowers ability to pay it back.

    You may naively believe this was about home ownership but it was all about money. Fat profits for banks and money for politicians so they could be reelected.

    Mr. Pokeylope on
  • enlightenedbumenlightenedbum Registered User regular
    edited January 2010
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    No as others have said it was driven by deregulation giving the banks the ability to sell bad loans at a profit as securities. Changes that were lobbied for by the industry itself to allow it make huge amounts of money and supported by a foolish Republican Ideology that worships the Free Market. Since bad loans could be sold at even greater profit the incentive was made to make any loan no matter the borrowers ability to pay it back.

    Couldn't have been done without Larry Summers and the other corporate Democrats.

    enlightenedbum on
    Herbert Hoover got 40% of the vote in 1932. Friendly reminder.
    Warren 2020
  • HachfaceHachface Not the Minister Farrakhan you're thinking of Registered User regular
    edited January 2010
    Under no circumstances should the Democrats escape blame for this crisis. Gramm-Leach-Bliley went through under Clinton's watch, with his support. Just make sure you blame the Democrats for the right reasons -- like complicity with Republicans to destroy vital regulation -- and not the wrong reasons (letting black people buy houses).

    Hachface on
  • ScalfinScalfin __BANNED USERS regular
    edited February 2010
    Crossposting:
    big l wrote: »
    Kipling217 wrote: »
    Scalfin wrote: »
    Krugman is a "micro/trade" guy? Krugman's been writing on macroeconomics and monetary policy this whole time.

    As for "name a guy that saw this coming": Krugman. I'm not necessarily saying he should be the fed chief but to say that he has no background in macroeconomics (he spent much of last decade writing about Japan's monetary policy) isn't true, and to say whoever suggests him is "smoking crack" is just noise.

    As for why we should dislike Bernanke, the reasons have been floating around for a while: too cozy with big banks. The AIG thing.

    He wrote a treatise on interstellar economics.

    Fixed that for you. Not trading with Pandora yet.

    Fixed it back. Read the PDF, it is what it says.
    This paper extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer travelling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved.
    Hachface wrote: »
    Ahahaha:
    These complications make the theory of interstellar trade appear at fist quite alien to our usual trade models; presumably it seems equally human to alien trade theorists.

    Kudos to Krugman for avoiding the trap of cultural absolutism

    Scalfin on
    [SIGPIC][/SIGPIC]
    The rest of you, I fucking hate you for the fact that I now have a blue dot on this god awful thread.
  • tsmvengytsmvengy Registered User regular
    edited February 2010
    Hachface wrote: »
    It is also my understanding that the most important component of the subprime debacle was the securitization of these bad mortgages, which would not have been possible without the early 90s deregulation (Gramm-Leach-Bliley Act) that the industry had lobbied for.

    This is likely what Henroid was thinking of.

    Nah, the way he described it made it sound like he was thinking of the CRA, which is really just a red herring the anti-regulation people are using to say, "see, they MADE us do it!"

    The 90s deregulation mentioned above (gramm-Leach...) also ended the separation of investment banking and "traditional" banking, which meant that plenty of banks got into ibanking who probably shouldn't have been there and put their deposits etc. at risk.

    tsmvengy on
    steam_sig.png
  • ronyaronya Arrrrrf. the ivory tower's basementRegistered User regular
    edited February 2010
    Scalfin wrote: »
    Crossposting:
    big l wrote: »
    Kipling217 wrote: »
    Scalfin wrote: »
    Krugman is a "micro/trade" guy? Krugman's been writing on macroeconomics and monetary policy this whole time.

    As for "name a guy that saw this coming": Krugman. I'm not necessarily saying he should be the fed chief but to say that he has no background in macroeconomics (he spent much of last decade writing about Japan's monetary policy) isn't true, and to say whoever suggests him is "smoking crack" is just noise.

    As for why we should dislike Bernanke, the reasons have been floating around for a while: too cozy with big banks. The AIG thing.

    He wrote a treatise on interstellar economics.

    Fixed that for you. Not trading with Pandora yet.

    Fixed it back. Read the PDF, it is what it says.
    This paper extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer travelling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved.
    Hachface wrote: »
    Ahahaha:
    These complications make the theory of interstellar trade appear at fist quite alien to our usual trade models; presumably it seems equally human to alien trade theorists.

    Kudos to Krugman for avoiding the trap of cultural absolutism

    I feel obliged to point that that Krugman is indeed (as far as his academic writings go) a micro/trade guy. Indeed, international trade is precisely what his Nobel was for.

    While he writes macro and monetary policy for a popular audience, it is not - unlike Bernanke - his academic focus.

    This said, his grasp of the monetary issue and solutions at hand was indeed faster and more accurate than many other influential economists; there is currently a large group of influential right-wing economists who grudgingly agree that his popular writings correctly anticipated the chain of events that occurred (google Scott Sumner). They do disagree with his proposed solutions, naturally, but his knowledge of the issue is conceded to be mostly correct.

    ronya on
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  • mrt144mrt144 King of the Numbernames Registered User regular
    edited February 2010
    Henroid wrote: »
    Deebaser wrote: »
    ronya wrote: »
    Or maybe there's a bank that mysteriously doesn't care about creditworthiness and offers house loans to people who can't realistically pay it back.

    This is kind of exactly what happened. Mortgage banks made money selling loans to other banks who made money bundling these loans into RMBSes and CDOs. The more loans they made, the more money they made. I did closings for a mortgage bank pre-crash. They were literally giving $300K to people making $30K a year and had fuck all for a downpayment.

    I heard loan agents in closings assure people that when the interest payment jumps up on their interest only loans, they'll be able to refi and their houses and have equity because the value on their house will be higher!

    The reason they didn't give a shit is because they sold pretty much all of their loans to BOA so they could make more money selling loans.

    Explain the bolded part more

    If you get paid by for originating mortgages and selling them off, there is no reason not to originate as many as possible since by the time they went bad, they were in CDO.

    mrt144 on
  • ronyaronya Arrrrrf. the ivory tower's basementRegistered User regular
    edited February 2010
    Henroid wrote: »
    Deebaser wrote: »
    ronya wrote: »
    Or maybe there's a bank that mysteriously doesn't care about creditworthiness and offers house loans to people who can't realistically pay it back.

    This is kind of exactly what happened. Mortgage banks made money selling loans to other banks who made money bundling these loans into RMBSes and CDOs. The more loans they made, the more money they made. I did closings for a mortgage bank pre-crash. They were literally giving $300K to people making $30K a year and had fuck all for a downpayment.

    I heard loan agents in closings assure people that when the interest payment jumps up on their interest only loans, they'll be able to refi and their houses and have equity because the value on their house will be higher!

    The reason they didn't give a shit is because they sold pretty much all of their loans to BOA so they could make more money selling loans.

    Explain the bolded part more, I'm interested. Wasn't there legislation passed in the 90's to incentivize or demand banks loan more to people who couldn't really afford it? What was the intent of the legislation, and I don't mean to make more people home owners, I mean what was the hope that would make it so people would eventually afford it?

    This is a very polarised issue. Feel free to consult the Internet.

    Here's Tyler Cowen, on the CRA (he says it did not. Weirdly enough, he cites Steve Sailer, notorious racist, for support. He also links Yglesias, though). Here's TC again, on Gramm-Leach-Bliley (also no).

    My personal view is that you're probably not going to find one factor that did it all, and you're definitely not going to be able to start pinning blame. No one made you put so many bananas on your roof.

    ronya on
    aRkpc.gif
  • mrt144mrt144 King of the Numbernames Registered User regular
    edited February 2010
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    This is actually a cultural thing that I think got more people, every day people interested in the bubble; It's part of the American Dream, and goddamnit, I (the American Person) deserve to own a house.

    mrt144 on
  • YarYar Registered User regular
    edited February 2010
    mrt144 wrote: »
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    This is actually a cultural thing that I think got more people, every day people interested in the bubble; It's part of the American Dream, and goddamnit, I (the American Person) deserve to own a house.
    Exactly.

    If you guys are completely blind to the "we need to get more home ownership for the poor/minorities" that began in the late 90s and fueled a lot of this, then you are just putting on partisan blinders. The large investment houses that got so heavily into MBSs and such weren't even regulated by Glass-Stegall or GLB. Fannie and Freddie certainly weren't, either.

    The idea that home ownership was the solution to society's ills was widely held by both parties as well as the people who got rich off of it, and all pursued it. When a few Republicans tried to rein it in, Barney Frank called them racists.

    Yar on
  • tsmvengytsmvengy Registered User regular
    edited February 2010
    Yar wrote: »
    mrt144 wrote: »
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    This is actually a cultural thing that I think got more people, every day people interested in the bubble; It's part of the American Dream, and goddamnit, I (the American Person) deserve to own a house.
    Exactly.

    If you guys are completely blind to the "we need to get more home ownership for the poor/minorities" that began in the late 90s and fueled a lot of this, then you are just putting on partisan blinders. The large investment houses that got so heavily into MBSs and such weren't even regulated by Glass-Stegall or GLB. Fannie and Freddie certainly weren't, either.

    The idea that home ownership was the solution to society's ills was widely held by both parties as well as the people who got rich off of it, and all pursued it. When a few Republicans tried to rein it in, Barney Frank called them racists.

    Sure, there was an overarching idea that "people should own homes," but it's not like there were regulations forcing banks to lend to poor minorities who couldn't afford homes. In no way did that "fuel a lot of this." CDOs took the risk of giving out a loan away from lenders and gave it to "somebody else," which turned out to be everybody else. When there's no risk involved in giving out a shitty loan with no down payment to someone who obviously can't afford it, why the hell would you not loan to them? Banks made all their money up front on fees and didn't have to worry about whether the people they loaned to could actually pay or not.

    tsmvengy on
    steam_sig.png
  • SanderJKSanderJK Crocodylus Pontifex Sinterklasicus Madrid, 3000 ADRegistered User regular
    edited February 2010
    Didn't mortgages that fell under the CRA fail at a significantly lower rate then the ones that had nothing to do with it? Isn't that enough evidence that the CRA could not have been a core problem?

    SanderJK on
    Steam: SanderJK Origin: SanderJK
  • ronyaronya Arrrrrf. the ivory tower's basementRegistered User regular
    edited February 2010
    Yar wrote: »
    mrt144 wrote: »
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    This is actually a cultural thing that I think got more people, every day people interested in the bubble; It's part of the American Dream, and goddamnit, I (the American Person) deserve to own a house.
    Exactly.

    If you guys are completely blind to the "we need to get more home ownership for the poor/minorities" that began in the late 90s and fueled a lot of this, then you are just putting on partisan blinders. The large investment houses that got so heavily into MBSs and such weren't even regulated by Glass-Stegall or GLB. Fannie and Freddie certainly weren't, either.

    The idea that home ownership was the solution to society's ills was widely held by both parties as well as the people who got rich off of it, and all pursued it. When a few Republicans tried to rein it in, Barney Frank called them racists.

    Late 90s? The CRA was passed in 1977.

    Which is the main problem with the minority-ownership-legislation-did-it narrative - the timing is just wrong. Even if you think that the CRA was harmful on net, it makes no sense to link it to the subprime fiasco. The people pushing this theory in the media are just being unsubtly racist.

    ronya on
    aRkpc.gif
  • PantsBPantsB Registered User regular
    edited February 2010
    ronya wrote: »
    Yar wrote: »
    mrt144 wrote: »
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    This is actually a cultural thing that I think got more people, every day people interested in the bubble; It's part of the American Dream, and goddamnit, I (the American Person) deserve to own a house.
    Exactly.

    If you guys are completely blind to the "we need to get more home ownership for the poor/minorities" that began in the late 90s and fueled a lot of this, then you are just putting on partisan blinders. The large investment houses that got so heavily into MBSs and such weren't even regulated by Glass-Stegall or GLB. Fannie and Freddie certainly weren't, either.

    The idea that home ownership was the solution to society's ills was widely held by both parties as well as the people who got rich off of it, and all pursued it. When a few Republicans tried to rein it in, Barney Frank called them racists.

    Late 90s? The CRA was passed in 1977.

    Which is the main problem with the minority-ownership-legislation-did-it narrative - the timing is just wrong. Even if you think that the CRA was harmful on net, it makes no sense to link it to the subprime fiasco. The people pushing this theory in the media are just being unsubtly racist.

    And just factually CRA loans were paid back more than other sub-prime loans and were rarely turned into securities because of additional restrictions on that for those loans. And that was the problem. CRA loans not only don't make sense on a timeline but they were simply factually not the problem

    PantsB on
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  • nexuscrawlernexuscrawler Registered User regular
    edited February 2010
    Didn't help that banks were allowed to hold CD Swaps for more than Banks themeselves were fucking worth

    nexuscrawler on
  • DeebaserDeebaser on my way to work in a suit and a tie Ahhhh...come on fucking guyRegistered User regular
    edited February 2010
    ronya wrote: »

    My personal view is that you're probably not going to find one factor that did it all, and you're definitely not going to be able to start pinning blame. No one made you put so many bananas on your roof.

    I disagree, in my view the lionshare of the blame falls on (in no particular order) the mortgage banks, the investmentment banks, and HGTV.

    The mortgage banks were only doing due diLOLgence, because the investment banks figured out a way to make sausages out of mortgages of wildly varying quality in a way that they would be rated well and people would actually buy these shitlinks.

    And HGTV.... FUCK THOSE GUYS. Half of their shows were about people that bought a house for pocket change, put a fresh coat of paint on it and flipped it for $TEXAS.

    Deebaser on
  • YarYar Registered User regular
    edited February 2010
    SanderJK wrote: »
    Didn't mortgages that fell under the CRA fail at a significantly lower rate then the ones that had nothing to do with it? Isn't that enough evidence that the CRA could not have been a core problem?
    No, for several reasons. But I would hesitate to call CRA a "core" problem and I didn't even mention it in my post. It was one definite piece of the puzzle: it basically required that firms come up with crazy mortgages and give them to people with worse credit, or else face regulatory trouble, which helped push financial firms into realizing how much money they could make by tapping into riskier and complicated mortgage markets during a housing boom.

    It may have been signed in 1977, but it wasn't given teeth until 1989, and then several times again throughout the 90s. Finally in 2000, when Fannie went nuts on CRA, it really took off. We're talking massive securitization here.

    But in the end, the subprime monster grew far bigger than what banks do to meet CRA requirements. As the CEO of Fannie put it, CRA was a catalyst, not the single cause or majority of the problem.

    CRA-regulated entities were only big retail banks. Comparing CRA loans to non-CRA loans is basically comparing big banks to mortgage brokers, so you are going to get different stats for a number of different reasons.

    What I was specifically referring to was financial policy and pressure across the board starting in the 90s to increase home ownership among the poor and minorities. This took many forms through the Clinton and Bush years. The politics are pretty simple. Republicans thought more home ownership reduced crime and helped the economy and bankers. Democrats felt it was a jumpstart for the disadvantaged and that there was too much discrimination in lending and ownership. And it was not Republican laissez-faire deregulation of Glass-Steagall any more than it was Democratic command economics through Fed policy, Fannie and Freddie, CRA, etc. All were aimed at the same goal - give everyone in the country a home and a mortgage.

    Yar on
  • SpeakerSpeaker Registered User regular
    edited February 2010
    ronya wrote: »
    Yar wrote: »
    mrt144 wrote: »
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    This is actually a cultural thing that I think got more people, every day people interested in the bubble; It's part of the American Dream, and goddamnit, I (the American Person) deserve to own a house.
    Exactly.

    If you guys are completely blind to the "we need to get more home ownership for the poor/minorities" that began in the late 90s and fueled a lot of this, then you are just putting on partisan blinders. The large investment houses that got so heavily into MBSs and such weren't even regulated by Glass-Stegall or GLB. Fannie and Freddie certainly weren't, either.

    The idea that home ownership was the solution to society's ills was widely held by both parties as well as the people who got rich off of it, and all pursued it. When a few Republicans tried to rein it in, Barney Frank called them racists.

    Late 90s? The CRA was passed in 1977.

    Which is the main problem with the minority-ownership-legislation-did-it narrative - the timing is just wrong. Even if you think that the CRA was harmful on net, it makes no sense to link it to the subprime fiasco. The people pushing this theory in the media are just being unsubtly racist.

    I think I also heard that only one of the twenty firms that lost the most in the bubble were involved in the minority lending programs.

    So . . . yeah.

    Speaker on
    Being walkers with the dawn and morning,
    Walkers with the sun and morning, we are not afraid of night,
    Nor days of gloom, nor darkness -
    Being walkers with the sun and morning.
  • SaammielSaammiel Registered User regular
    edited February 2010
    I think a case can be made that the huge number of government incentives for home ownership (it goes far beyond CRA) contributed to housing being the bubble. But a bubble was probably forthcoming in some sector even without those incentives.

    That said, I think we over-subsidize home ownership and that if a bubble occured in some other area, it likely would have been far less destructive than a housing bubble. I think there is a large difference between a bubble that is so pervasive that it effects an asset a majority of Americans hold, and one that is focused on something such as business spending like the dot-com crash.

    Saammiel on
  • YarYar Registered User regular
    edited February 2010
    Speaker wrote: »
    I think I also heard that only one of the twenty firms that lost the most in the bubble were involved in the minority lending programs.

    So . . . yeah.
    Did the Community Reinvestment Act—the 1977 federal law pressing banks to lend to low- and moderate-income borrowers—fuel toxic lending and thus play a significant role in causing the financial meltdown? “CRA was not the cause of the crisis,” Comptroller of the Currency John Dugan maintained this past August. Though he had little quantitative detail about the performance of CRA-related loans, Dugan claimed that they had performed better than loans made by lenders not subject to the CRA. Further, he contended, borrowers of CRA loans had defaulted at much lower rates than borrowers of subprime mortgages. Other defenders of the act assert that almost all CRA loans originated at “prime” interest rates, rather than the higher rates that lenders offered risky “subprime” borrowers. And they add that the mortgages made under CRA were almost entirely fixed-rate, not the notorious adjustable-rate mortgages with quick rate resets and high payment shock that led so many borrowers to default.

    The question of how well CRA loans have performed is of vital importance because of the trillions of dollars in such lending. During the first 15 years of the act’s existence, total announced commitments under the CRA totaled $9 billion. But starting in 1992, volume exploded. Over the next 16 years, from 1992 to 2008, announced CRA commitments totaled $6 trillion. And incredible though it may seem, the same federal regulators who forced the CRA on banks have neglected to track the performance of trillions of dollars of loans made to satisfy it. But there is a strong prima facie case that they constitute toxic lending—that is, lending that leads to unsustainable loans, resulting in an unacceptable level of foreclosures.

    To begin with, the CRA defenders’ claim that CRA lending mostly wasn’t subprime is highly misleading. It would be more accurate to say that 90 percent of CRA lending wasn’t classified as subprime. CRA lenders, along with Fannie Mae and Freddie Mac—the two government-sponsored entities that bought loans from lenders, enabling them to make more loans—commonly classified CRA loans as “subprime” only if they contained such features as high fees, high rates, or low initial payments with adjustable interest rates. But approximately 50 percent of CRA loans for single-family residences were nevertheless made to borrowers who made down payments of 5 percent or less or had low credit scores—characteristics that indicated high credit risk. Whether or not anyone called these loans “subprime,” in other words, the chances are good that many of them have defaulted or remain at high risk of doing so.

    Though the feds, again, haven’t collected figures for CRA loans’ performance as a whole, we do have statistics from a few lenders that are troubling indeed. In Cleveland, Third Federal Savings and Loan has a 35 percent delinquency rate on its CRA-mandated “Home Today” loans, versus a 2 percent delinquency rate on its non–Home Today portfolio. Chicago’s Shorebank—the nation’s first community development bank, with largely CRA-related loans on its books—has a 19 percent delinquency and nonaccrual rate for its portfolio of first-mortgage loans for single-family residences. And Bank of America said in 2008 that while its CRA loans constituted 7 percent of its owned residential-mortgage portfolio, they represented 29 percent of that portfolio’s net losses.

    Whatever the precise magnitude of the CRA’s role, there is no question that as the government pursued affordable-housing goals—with the CRA providing approximately half of Fannie’s and Freddie’s affordable-housing purchases—trillions of dollars in high-risk lending flooded the real-estate market, with disastrous consequences. Over the last 20 years, the percentage of conventional home-purchase mortgages made with the borrower putting 5 percent or less down more than tripled, from 8 percent in 1990 to 29 percent in 2007. Adding to the default risk: of these loans with 5 percent or less down, the average down payment declined from 5 percent to 3 percent of the loan’s value.

    As for Fannie and Freddie, most of the loans with 5 percent or less down that they had acquired by 2005 had down payments of 3 percent or even no down payment at all. From 1992 to 2007, the two entities acquired over $3.1 trillion in low-down-payment or credit-impaired loans and private securities backed by credit-impaired loans—and these are performing horribly: the delinquency rate on Fannie’s and Freddie’s remaining $1.1 trillion in such high-risk loans is 15.5 percent as of this past June 30, about 6.5 times the rate on the entities’ traditionally underwritten loans. All this risky lending, of course, drove the nation’s homeownership rate up and inflated a housing-price bubble.

    Taxpayers deserve to know why not one regulator had the common sense to track the performance of CRA loans. They also deserve to know why the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and other regulators appear to have no idea how trillions of dollars in CRA loans are performing now. But above all, they deserve to know that the damage done by the CRA won’t happen again. Incredibly, the House Financial Services Committee is considering legislation that would broaden the scope of the CRA. Before it takes any action on HR 1479—which would expand the CRA’s mandates from banks to bank subsidiaries, mortgage bankers, credit unions, insurance companies, and other nonbank financial institutions—the committee should demand that regulators request detailed CRA performance data from Fannie Mae and Freddie Mac, as well as from the four banks that have announced 94 percent of the nation’s $6 trillion in CRA commitments: Wells Fargo, JPMorgan Chase, Citibank, and Bank of America. These six institutions should be able to provide performance information for an estimated 70 percent of outstanding CRA loans.

    The pain and hardship that CRA has likely spawned are immeasurable. What is measurable, though, is exactly how the trillions in past CRA loans are performing and what we can learn from this debacle.

    Yar on
  • override367override367 ALL minions Registered User regular
    edited February 2010
    The vast, vast majority of subprime loans occured outside anything to do with the CRA. That's a bullshit republican talking point that has been widely discredited by every source that doesn't have a personal interest in making the Republicans look good.

    Seriously do some research on the subject, try websites that end in "edu" or something that looks like some actual investigation went into it.


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    override367 on
  • mrt144mrt144 King of the Numbernames Registered User regular
    edited February 2010
    Yar wrote: »
    mrt144 wrote: »
    Yar wrote: »
    Mechanically, it's pretty simple.

    Bush's policies helped push us toward overheating. Lowering taxes during boomtimes promoted speculation, leading to one sector or another becoming a bubble.
    The reason the boom and bust was so significant this time is because it was driven strongly by forecs supported by practically all politicians in both parties.

    Few thought that more home ownership was a bad thing, at any cost.

    This is actually a cultural thing that I think got more people, every day people interested in the bubble; It's part of the American Dream, and goddamnit, I (the American Person) deserve to own a house.
    Exactly.

    If you guys are completely blind to the "we need to get more home ownership for the poor/minorities" that began in the late 90s and fueled a lot of this, then you are just putting on partisan blinders. The large investment houses that got so heavily into MBSs and such weren't even regulated by Glass-Stegall or GLB. Fannie and Freddie certainly weren't, either.

    The idea that home ownership was the solution to society's ills was widely held by both parties as well as the people who got rich off of it, and all pursued it. When a few Republicans tried to rein it in, Barney Frank called them racists.

    This wasn't a minority/poor thing, it is a home ownership at any cost kinda thing. CRA may have been part of this ownership at any cost mentality but only as a symptom of something far greater and with far more history. And as others have pointed out, CRA loans didn't perform nearly as bad as sub prime loans. In California, Florida, Arizona, the sub prime in these markets was pretty much the way shit was done as a starting point.

    mrt144 on
  • override367override367 ALL minions Registered User regular
    edited February 2010
    home ownership as a way to make a profit is what started it

    override367 on
  • The Crowing OneThe Crowing One Registered User regular
    edited February 2010
    Yar wrote: »
    What I was specifically referring to was financial policy and pressure across the board starting in the 90s to increase home ownership among the poor and minorities. This took many forms through the Clinton and Bush years. The politics are pretty simple. Republicans thought more home ownership reduced crime and helped the economy and bankers. Democrats felt it was a jumpstart for the disadvantaged and that there was too much discrimination in lending and ownership. And it was not Republican laissez-faire deregulation of Glass-Steagall any more than it was Democratic command economics through Fed policy, Fannie and Freddie, CRA, etc. All were aimed at the same goal - give everyone in the country a home and a mortgage.

    Yar has a pretty good grasp on this, I'll say.

    From a personal perspective: I graduated school in 2007 with a degree in English. Like many of my peers, I ended up working for non-profits doing "Foreclosure Prevention" counseling.

    Now please understand that this is just a small part of the problem, but I want to share this to demonstrate how everyone involved did the wrong thing and helped spur the crisis.

    Small, local non-profits have existed since '77 in response to the CRA. It became an industry to give "Homebuyer Education" and to provided screened "preapprovals" for mortgage loans. These non-profits were duped into believing that homeownership (CRA) was a good thing for their communities. The activities were generally fairly limited until the 1990's when we got the deregulation and the beginning of "sub-prime" loans.

    What many of these outfits became were "preapproval mills" in which, due to the ease of qualification and the fact that these entities were paid per homeowner by a combination of state and corporate funds, the focus became not on creating "default resistant" homeowners, but on putting as many people through the system as possible to collect the biggest paycheck possible.

    So what we were left with are corporations who wanted to make money, non-profits who wanted to expand their budgets, government which allowed downright crazy mortgages to be written, and working-class citizens who were often under-educated and reliant on non-profits to "do the work for them".

    It was no surprise, at least in my eyes, that many, many factors contributed to the problem. The working-class ended up in mortgages where they didn't understand the mechanics and complex financial calculations. When the recession hit, the working-class was hit hard and the loans that were hardly scrutinized in preapproval came back to bite these people in the ass. The inflation of the housing market kept people from doing the only thing they could, which was sell the property, and eventually it all came to a head allowing for the bust.

    It wasn't, in my view, a "failure" of any specific entity but a massive confluence of capitalist forces driving wealth-creation in a sector where it didn't belong.

    Non-profits thought they were helping their communities, and they still do believe so. The issue is simply that our system is faulted for having a two-party system, both parties of "business", and the working-class having no ideological representation for their inherent position against capital.

    The Crowing One on
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  • nexuscrawlernexuscrawler Registered User regular
    edited February 2010
    home ownership as a way to make a profit is what started it

    Most bubbles start as a belief that a certain kind of investment is a "sure thing"

    people need to learn that all investments have inherent risk.

    nexuscrawler on
  • mrt144mrt144 King of the Numbernames Registered User regular
    edited February 2010
    home ownership as a way to make a profit is what started it

    But theres always been people who have done that. It didn't catch on until the credit standards were dropped because there was so much money available to lend and the incentive structure was borked. Loose money encourages recklessness.

    mrt144 on
  • DeebaserDeebaser on my way to work in a suit and a tie Ahhhh...come on fucking guyRegistered User regular
    edited February 2010
    Edward Pinto is a conservative lobbiest who worked at Fannie for two years over two decades ago.

    I don't take his anecdotes in place of data, especially when he has incentive to spin/lie.

    Deebaser on
  • DeebaserDeebaser on my way to work in a suit and a tie Ahhhh...come on fucking guyRegistered User regular
    edited February 2010
    government which allowed downright crazy mortgages to be written...

    The free market can never fail. The government failed the free market.

    Deebaser on
  • mrt144mrt144 King of the Numbernames Registered User regular
    edited February 2010
    Deebaser wrote: »
    government which allowed downright crazy mortgages to be written...

    The free market can never fail. The government failed the free market.

    I question whether or not the government should only allow specific types of mortgages. 30 year, 15 year fixed may not be the best mortgage for some people.

    mrt144 on
  • The Crowing OneThe Crowing One Registered User regular
    edited February 2010
    mrt144 wrote: »
    Deebaser wrote: »
    government which allowed downright crazy mortgages to be written...

    The free market can never fail. The government failed the free market.

    I question whether or not the government should only allow specific types of mortgages. 30 year, 15 year fixed may not be the best mortgage for some people.

    I mean, no mortgage is the best mortgage.

    The Crowing One on
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  • mrt144mrt144 King of the Numbernames Registered User regular
    edited February 2010
    mrt144 wrote: »
    Deebaser wrote: »
    government which allowed downright crazy mortgages to be written...

    The free market can never fail. The government failed the free market.

    I question whether or not the government should only allow specific types of mortgages. 30 year, 15 year fixed may not be the best mortgage for some people.

    I mean, no mortgage is the best mortgage.

    This better not be going towards "We should live in this kind of society" cause that warrants its own thread.

    mrt144 on
  • The Crowing OneThe Crowing One Registered User regular
    edited February 2010
    mrt144 wrote: »
    mrt144 wrote: »
    Deebaser wrote: »
    government which allowed downright crazy mortgages to be written...

    The free market can never fail. The government failed the free market.

    I question whether or not the government should only allow specific types of mortgages. 30 year, 15 year fixed may not be the best mortgage for some people.

    I mean, no mortgage is the best mortgage.

    This better not be going towards "We should live in this kind of society" cause that warrants its own thread.

    Just the concept that being poor is expensive.

    A mortgage is immensely expensive vs. property value (investment) when you actually carry out a full 15/30/40 year term. It comes down to the perplexing concept that each dollar spent by someone without wealth is less valuable than a dollar spent by a wealthy person when you factor in interest.

    I find something fundamentally wrong with the concept, and the working-class has bought into the myth that in order to better themselves they need to take on enormous debt.

    Practically, a working-class family is better off with a new high speed rail to expand job markets rather than a home in a dying, working-class city.

    The Crowing One on
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  • PantsBPantsB Registered User regular
    edited February 2010
    Deebaser wrote: »
    Edward Pinto is a conservative lobbiest who worked at Fannie for two years over two decades ago.

    I don't take his false claims such as no one tracking CRA and vague gestures melding into assertions of immeasurable damage in place of data, especially when he has incentive to spin/lie.

    New and Improved^

    He's a conservative lobbyist for the mortgage industry. He even tried to blame this all on ACORN when that was what all the kids were doing. Its all not-subtle racism. The facts point to the exact opposite conclusion:
    FedReserve wrote:
    Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA. In addition, more than 20 percent of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by independent nonbank institutions--that is, institutions not covered by the CRA.6

    Putting together these facts provides a striking result: Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes. This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.
    <SNIP more analysis>
    Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.
    FDIC wrote:
    I think we can agree that a complex interplay of risky behaviors by lenders, borrowers, and investors led to the current financial storm. To be sure, there's plenty of blame to go around. However, I want to give you my verdict on CRA: NOT guilty.

    Point of fact: Only about one-in-four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending (2004-2006). The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.

    You've heard the line of attack: The government told banks they had to make loans to people who were bad credit risks, and who could not afford to repay, just to prove that they were making loans to low- and moderate-income people.

    Let me ask you: where in the CRA does it say: make loans to people who can't afford to repay? No-where! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth ... pure and simple.
    Harvard analysis (pdf)
    There are many causes to the collapse of the housing market and the recent financial
    turmoil, but the contribution of the CRA appears marginal. While banks did engage in subprime
    lending in their assessment areas, they did so at a lower rate than the market in general and
    accounted for only a small fraction of subprime loans to lower-income borrowers and lowerincome
    neighborhoods.

    Summary: The CRA didn't even apply to nearly 90% of the institutions that led to the crisis, CRA area loans defaulted less than in the market in general and subprimes were offered to the population in general at a higher rate than in CRA covered areas. Loans that could in anyway be linked to CRA make up around 1 in 20 of the loans on the market and were on average smaller.

    There's no reason to blame CRA except racism and/or an ideological need to blame this not on the market (or your employers) but on government interference, even if it makes no sense.

    PantsB on
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