Bloomberg: Congress, not banks, caused the mortgage crisis

[DarrinS]

http://www.capitalnewyork.com/article/culture/2011/11/3971362/bloomberg-plain-and-simple-congress-caused-mortgage-crisis-not-banks





Mayor Michael Bloomberg said this morning that if there is anyone to blame for the mortgage crisis that led the collapse of the financial industry, it's not the "big banks," but Congress.

Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters.

"I hear your complaints," Bloomberg said. "Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that.

"But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."

Bloomberg went on to say it's "cathartic" and "entertaining" to blame people, but the important thing now is to fix the problem.

The breakfast was hosted at the Hilton in midtown by the Association for a Better New York, an organization of New York City businesses celebrating its 40th anniversary. The event featured former New York City mayors Ed Koch and David Dinkins. Former mayor Rudy Giuliani was in California and sent in a brief video.




mPXVZONjqek

[Viva Las Espuelas]

Wabbit season!!

[ChumpDumper]

Congress forced firms to create and trade credit default swaps?

[EVAY]

Congress forced firms to create and trade credit default swaps?

Thank you.


Bloomberg is not reasonable on this, and he flies in the face of every single serious economist on both sides of the political aisle.

[ChumpDumper]

Thank you.


Bloomberg is not reasonable on this, and he flies in the face of every single serious economist on both sides of the political aisle.His cause of the mortgage crisis is debatable -- no one has proved how banks were "forced" to make these loans -- but the wider financial crisis was something else entirely. If it was just a bunch of defaulted bad home loans, it would not have had the effect that we saw in 08.

[MannyIsGod]

What city is wall St in? What city has Bloomberg as a mayor?

[silverblk mystix]

Congress has done worse shit than this...Congress has been bought and paid for for decades and the predictable results are surfacing and will continue to do so.

[greyforest]

Bloomberg is not reasonable on this, and he flies in the face of every single serious economist on both sides of the political aisle.

Bloomberg is a multi-millionaire mayor of the town in which Wall Street uses as its headquarters. He has every reason to lay in bed with the financiers of his town.

[DarrinS]

BMPPGlOpUiM

[DarrinS]

http://home.howstuffworks.com/real-estate/mortgage16.htm

[Cry Havoc]

http://www.capitalnewyork.com/article/culture/2011/11/3971362/bloomberg-plain-and-simple-congress-caused-mortgage-crisis-not-banks

It's pretty funny that you even think this is debatable. Every post you make like this is further proof that you lack the requisite intelligence necessary to form a discerning opinion. It's been shouted from the rooftops on this forum what caused the crisis, hell, DR made a post more than 2 years ago about it if I recall, and yet you still cling to political scapegoating. Lawl.

[FuzzyLumpkins]

Wow Darrin with another rehash of the what percentage of the defaults were subprimes mandated by the federal lending agencies. Wasn't it was showed what percentage of the bad debt did indeed fall under that category was not even a majority?

i will grant that such lending practices by those agencies were horrible and needed to be stopped. funny thing is that they have been stopped. The problem is that the packaging of such debts into investment packaging in order to play the game of hide the financial liability is still allowable because Glass-Steagal is still repealed.

Also citing Clinton who helped champion the deregulation of the banking industry is cute and all but completely not an objective analyst as its after all his legacy.

This is another example of why I treat Darrin as such. He has no interest in moving forward. He just throws the exact same shit out there as what argued months ago all the while the regulation panel is being lobbied incessantly by the same people that pay Bloombergs campaign.

Its more than cathartic to blame people. its how politics works nowadays. What he should be concerned about is how much european debt our major holding houses are responsible for because every time the Greeks fart the DOW drops 200 points. That speaks to troubling derivatives being peddled by more than jsut the firm that went under.

But hey its all Fannie Mae's fault that Goldman Sachs et al created derivatives of said loans plus all the other toxic debt and was allowed to trade it.

Another shitty attempt at obfuscation by Darrin. Bravo for doing your part to keep our country on the track of marginalization.

[Ignignokt]

Congress forced firms to create and trade credit default swaps?

by this criteria, govt doesn't cause crisis unless it directly forces agents to commit errors.

But that's not a realistic view of the role of govt, and it's naive to think in such simplistic terms.

The govt can cause or create scenarios in which crisis occur through legislation that allows for risky investments, or providing incentive unwittingly to cause people to behave badly.

In the end, it wasn't govt that issued out the loans, you're right. But govt regulations that secured risky behaviour provided the environment for such things to happen.

Would we have the same risky investments if there were no federally backed guarantees on mortgages, or if we didn't artificially allow for risky lending by keeping the interest rates low, we can never predict such scenarios to the tee, but what we do know from history is that there is a boom and bust cycle, and that govt intervention can create artificial bubbles that lead to catastrophic recessions. Just look at how loose credit was in the 20's due to govt manipulating interest rates to spur growth..

Sure your always gonna have bad actors and dumb investors, but it would be stupid to just blame them and not the govt for providing the incentives and rewarding their behaviour.

If it wasn't for Freddie and Fannie Mae getting into the mortgage market, the credit bubble would have been less catastrophic, it would have been a choice few mortgage holders and mainly real estate investors who would have suffered the consequences and not normal people for which those loans were guaranteed.


Yes, govt is the reason we are fucked right now in this particular way. The lobbyist don't hold a gun to govt, Govt holds the guns. They have free will, but they choose to allow for cronyism for a short term gain.

Bloomberg is right.

[Ignignokt]

Wow Darrin with another rehash of the what percentage of the defaults were subprimes mandated by the federal lending agencies. Wasn't it was showed what percentage of the bad debt did indeed fall under that category was not even a majority?

i will grant that such lending practices by those agencies were horrible and needed to be stopped. funny thing is that they have been stopped. The problem is that the packaging of such debts into investment packaging in order to play the game of hide the financial liability is still allowable because Glass-Steagal is still repealed.

Also citing Clinton who helped champion the deregulation of the banking industry is cute and all but completely not an objective analyst as its after all his legacy.

This is another example of why I treat Darrin as such. He has no interest in moving forward. He just throws the exact same shit out there as what argued months ago all the while the regulation panel is being lobbied incessantly by the same people that pay Bloombergs campaign.

Its more than cathartic to blame people. its how politics works nowadays. What he should be concerned about is how much european debt our major holding houses are responsible for because every time the Greeks fart the DOW drops 200 points. That speaks to troubling derivatives being peddled by more than jsut the firm that went under.

But hey its all Fannie Mae's fault that Goldman Sachs et al created derivatives of said loans plus all the other toxic debt and was allowed to trade it.

Another shitty attempt at obfuscation by Darrin. Bravo for doing your part to keep our country on the track of marginalization.


that's right doofus.


we need more regulation to secure that people never get screwed and that no one suffers the effects of bad investing. If only we could provide safety nets and more govt security of loans, it will discourage bad investing.

If a dad (govt) tells his son(the public) that he would cover his mistakes, that would encourage his son to make wiser decisions. LOL

[Ignignokt]

Thank you.


Bloomberg is not reasonable on this, and he flies in the face of every single serious economist on both sides of the political aisle.

what? lol okay.

You just proved how unscientific that profession is with that statement. Why should we give a shit?

[MannyIsGod]

This particular issue should be the litmus test to see how much of a political hack any particular person is.

[MannyIsGod]

The mortgage bubble bursting wasn't catastrophic. How badly the banks and financial district were leveraged against that bubble with instruments of their creation that had nothing to do with government (other than they lobbied like hell to keep government from regulating them) was what was catastrophic.

[DarrinS]

The mortgage bubble bursting wasn't catastrophic. How badly the banks and financial district were leveraged against that bubble with instruments of their creation that had nothing to do with government (other than they lobbied like hell to keep government from regulating them) was what was catastrophic.

You know who else was fighting regulation?

NQXbT5ZMYaY

[FuzzyLumpkins]

that's right doofus.


we need more regulation to secure that people never get screwed and that no one suffers the effects of bad investing. If only we could provide safety nets and more govt security of loans, it will discourage bad investing.

If a dad (govt) tells his son(the public) that he would cover his mistakes, that would encourage his son to make wiser decisions. LOL

Its about telling banks what they can package and call an investment. its about disclosing the nature of the firm peddling the investment. Its not about a guarantee of anything. Maybe you think snake oil salesmanship is good business practices but I do not.

One of the biggest problems we have right now is there is absolutely no way to track how much our major trading houses have tied up into European debt. A firm did just go under. The market is literally tied to the european debt market.

And its funny that you bring up suffering the effects of bad investments. What do you think the point of packaging bad debt and selling it was? I will give you a hint: it was not about owning up to the mistakes of your bad investments.

i know you want to paint this picture where we should just trust them and the market to work itself out beautifully but that is willfully ignorant.

[ChumpDumper]

by this criteria, govt doesn't cause crisis unless it directly forces agents to commit errors.

But that's not a realistic view of the role of govt, and it's naive to think in such simplistic terms.

The govt can cause or create scenarios in which crisis occur through legislation that allows for risky investments, or providing incentive unwittingly to cause people to behave badly.

In the end, it wasn't govt that issued out the loans, you're right. But govt regulations that secured risky behaviour provided the environment for such things to happen.

Would we have the same risky investments if there were no federally backed guarantees on mortgages, or if we didn't artificially allow for risky lending by keeping the interest rates low, we can never predict such scenarios to the tee, but what we do know from history is that there is a boom and bust cycle, and that govt intervention can create artificial bubbles that lead to catastrophic recessions. Just look at how loose credit was in the 20's due to govt manipulating interest rates to spur growth..

Sure your always gonna have bad actors and dumb investors, but it would be stupid to just blame them and not the govt for providing the incentives and rewarding their behaviour.

If it wasn't for Freddie and Fannie Mae getting into the mortgage market, the credit bubble would have been less catastrophic, it would have been a choice few mortgage holders and mainly real estate investors who would have suffered the consequences and not normal people for which those loans were guaranteed.


Yes, govt is the reason we are fucked right now in this particular way. The lobbyist don't hold a gun to govt, Govt holds the guns. They have free will, but they choose to allow for cronyism for a short term gain.

Bloomberg is right.How did government force (with their guns) banks to give bad loans?

How did government (with their guns) force investment firms to create and trade derivatives?

[DarrinS]

How did government force (with their guns) banks to give bad loans?

How did government (with their guns) force investment firms to create and trade derivatives?

They encouraged it and guaranteed it.

[ElNono]

But they don't guarantee all loans. And furthermore, they were scammed, since they were sold loans rated as AAA which were nowhere near AAA.
The government simply provided a tool to make credit more accessible, and that tool was abused by the lenders. Trying to frame it any other way it's pretty silly, IMO.

[greyforest]

http://www.businessinsider.com/what-wall-street-protesters-are-so-angry-about-2011-10?op=1

[ElNono]

There's also the fact that a lot of these companies didn't give a shit about their shareholders either. It's baloney to say "if the incentive wasn't there, they wouldn't have taken the risk". Well, you're supposed to know what kind of risks you're taking on even when there's an incentive. Obviously, some of that people didn't give a shit about it.

[MannyIsGod]

You know who else was fighting regulation?

NQXbT5ZMYaY

Where did I say the democrats weren't culpable? See my above comment about the litmus test, dumb ass.

[DarrinS]

There's also the fact that a lot of these companies didn't give a shit about their shareholders either. It's baloney to say "if the incentive wasn't there, they wouldn't have taken the risk". Well, you're supposed to know what kind of risks you're taking on even when there's an incentive. Obviously, some of that people didn't give a shit about it.

http://www.sec.gov/answers/mortgagesecurities.htm

[MannyIsGod]

Keep posting, Darrin. Stupid talking points of 3 years ago that have been addressed time and time again only make you look like a genius. Its amazing how stupid you are. Flat out mind blowing.

[MannyIsGod]

I'll give you a hint: Government backed MBS were never a problem. Privately formed derivates were. What you're doing is basically trying to say that T bills are bad because Greece is about to default.

[MannyIsGod]

http://upload.wikimedia.org/wikipedia/en/4/42/MBS.png

Says a whole hell of a lot, to be quite honest.

[ChuckD]

Even if Congress caused it, which is debatable, it's the Congress that the banking industry paid for, so they still don't get out of responsibility. It's like hiring a hit man. You're still guilty of murder one, yourself.

[DarrinS]

http://upload.wikimedia.org/wikipedia/en/4/42/MBS.png

Says a whole hell of a lot, to be quite honest.

Yes, it does. What do you think it says?

Edit>. And maybe I'm old school, but I prefer titles and units on axes.

[Ignignokt]

Keep posting, Darrin. Stupid talking points of 3 years ago that have been addressed time and time again only make you look like a genius. Its amazing how stupid you are. Flat out mind blowing.

It's amazing how dense you are. So what that the majority of assets lost in the mortgage crisis weren't from Govt guarnteed mortgages.


If it was only rich private investors who got fucked in this whole mess none of us would have given a shit.

But it's because normal everyday people were sold the dream by Bush, Clinton, Carter, Reagan that owning a home was a perogative and that we the govt will insure it, is the reason to why we even give a shit now.

It's because the smiths lost their home, it's because regular people were fucked, and it's because govt felt the need to bail out a whole financial sector.

But we wouldn't have this problem in a free market because no one would want to buy securities that aren't backed by govt agencies from broke ass people and we wouldn't have those people fucked.

Who gives a shit that private investors lost billions and billions of dollars in subprime? Do you think they're gonna go back to those type of loans? Do we need govt to tell us that eating shit taste bad, or putting your hand near a stove will hurt?


Apparently you dumbfucks do.

[MannyIsGod]

You have no fucking clue how this happend, gtown. You and darrin are posting out of so much ignorance.


But we wouldn't have this problem in a free market because no one would want to buy securities that aren't backed by govt agencies from broke ass people and we wouldn't have those people fucked.

This is especially laughable. THEY did buy securities that weren't backed by the government. Why? Because those pieces of shit were given the same ratings AS securities backed by they government even though they were piles of garbage.


Who gives a shit that private investors lost billions and billions of dollars in subprime? Do you think they're gonna go back to those type of loans? Do we need govt to tell us that eating shit taste bad, or putting your hand near a stove will hurt?


Um, LOL?


It's amazing how dense you are.

You apparently don't know shit about the financial crisis, how it played out, or how it was caused.

Why the hell do you speak out of such blatantly obvious ignorance?

[MannyIsGod]

But we wouldn't have this problem in a free market because no one would want to buy securities that aren't backed by govt agencies from broke ass people and we wouldn't have those people fucked.

:lmao :lmao :lmao :lmao :lmao :lmao

[Ignignokt]

This is especially laughable. THEY did buy securities that weren't backed by the government. Why? Because those pieces of shit were given the same ratings AS securities backed by they government even though they were piles of garbage.




Are you saying that artificially lowering interest rates didn't allow for riskier investments???


lololololololol!!!!


Not to mention that all deposits are FDIC insured, and it is because precisely this problem that Glass Steagall was invented. We created one regulation because of another.

So we took away market discipline by insuring deposits, and then found out that we needed more regulation to prevent from the effects of the first regulation.


You're fucking pathetic, you have done 0 economic research besides doing a cursory glance at a Huffington Post article about the bubble.


Come back to me when you're more informed.

[MannyIsGod]

I said what I meant in very simple plain English. If you can't understand that people bought the crap securities because the 3 main ratings firms gave them all AAA ratings when they merited nothing of the sort then I don't know what to tell you. It has nothing to do with interest rates at all. You said that in a free market this would never happen when its pretty god damn obvious to anyone not sleeping with a free market dildo in their ass that it actually would.

When the people the free market entrusts to give them good information pretty much defraud them it will always happen. What in the hell does that have to do with interest rates?

[MannyIsGod]

But firms like AIG didn't know these securities were shit when they sold them. Thats why they ran about bought so many credit default swaps on the very piles of crap they were selling. Thats not indicative of a scam at all and thats not a conflict of interest, at all. But yeah, these guys wouldn't pull shit like this in a "free market".

[Ignignokt]

I said what I meant in very simple plain English. If you can't understand that people bought the crap securities because the 3 main ratings firms gave them all AAA ratings when they merited nothing of the sort then I don't know what to tell you. It has nothing to do with interest rates at all. You said that in a free market this would never happen when its pretty god damn obvious to anyone not sleeping with a free market dildo in their ass that it actually would.

When the people the free market entrusts to give them good information pretty much defraud them it will always happen. What in the hell does that have to do with interest rates?

because interest rates have alot to do with the ability for people to get loans and having low interest rates encourages lax restricitons on qualified applicants for loans.

[MannyIsGod]

Oh here, buy this AAA rated bond full of great subprime loans and ignore the fact that I"m going to buy the 40 or so credit default swaps on that bond (which I no longer have any interest in - nice!) which will pay ME once that bond that I just sold you fails. Oh, you're going to lose everything you put into that bond? Well thats only because this is not a free market, not because I'm actively selling you a crappy bond that will make me a ton of money because it fails.

Obviously financial firms making money off of selling their customers bonds that fail WHEN they fail is not a conflict of interest and only happening because of too much regulation.

[Ignignokt]

If depositers don't give a shit what banks do with their money because it's backed by govt, how the fuck is this going to stop banks from committing stupid lending????


the whole reason why banks can get away with it and consumers don't care is because govt encourages it.

[MannyIsGod]

because interest rates have alot to do with the ability for people to get loans and having low interest rates encourages lax restricitons on qualified applicants for loans.

NOTHING I said has to do with loans. You REALLY need to go read up on this then come back and talk about the subject again.

When ratings agencies pass off bad investments as good investments THAT is not the fault of ANYTHING related to the government but a complete and utter failure of the financial system. THEY KNEW exactly what they were doing.

Whats worse was listening to these guys sit in front of congress and testify that their ratings should not be used for investment decisions. UM what?

[MannyIsGod]

If depositers don't give a shit what banks do with their money because it's backed by govt, how the fuck is this going to stop banks from committing stupid lending????


the whole reason why banks can get away with it and consumers don't care is because govt encourages it.

You really had the nerve to call me dense and keep with this? You don't seem to understand that I agree with you on much of this but where the disagreement lies - and at this point i'm attributing it mostly to ignorance - is that this was not the most important factor in why the financial crisis occurred.


Lets say that there were no CDS markets and that the financial institutions had never leveraged themselves against the sub prime loans. Lets say that they actually wrote twice as many loans and thus the bubble was twice as big. If that happens, but there are no derrivates markets that are built off of the loans, do we still have the financial crisis we did? Yes or no?

[ElNono]

http://www.sec.gov/answers/mortgagesecurities.htm

http://www.time.com/time/business/article/0,8599,1923197,00.html

[ElNono]

because interest rates have alot to do with the ability for people to get loans and having low interest rates encourages lax restricitons on qualified applicants for loans.

Loans still get rated on the paying ability of the borrower, and are paid accordingly. You know, except when some fraudsters start passing shitty rated loans as AAA loans.

[DarrinS]

http://www.time.com/time/business/article/0,8599,1923197,00.html



Then again, decisions made by Congress, the Bush and Clinton administrations and federal regulators in the years before the crisis also played a key role in allowing things to get so bad. From ill-considered deregulation of banking and derivatives to over-the-top encouragement of home ownership, Washington's fingerprints were all over the crisis.

[ElNono]

There's no doubt there was certain complicity from government. Actual regulators definitely were looking the other way at some point or another. You can't pull that kind of scam without some major lack of oversight.

That said, to put the entire blame on them when bankers couldn't pump shit/fraudulent mortgages fast enough is just being naive.

[MannyIsGod]

If Bloombergs point was that the banks need regulation and thats why it was the governments fault then I agree. Too bad it wasn't so the quote you responded with is moot.

Yes, the government didn't babysit enough. Probably because they're in the financial sector's pocket. Thats not the financial sectors fault though. Its not their fault they lobbied against that regulation, is it, Darrin?

I swear its like you don't realize what the fuck you're posting.

[MannyIsGod]

There's no doubt there was certain complicity from government. Actual regulators definitely were looking the other way at some point or another. You can't pull that kind of scam without some major lack of oversight.

That said, to put the entire blame on them when bankers couldn't pump shit/fraudulent mortgages fast enough is just being naive.

Darrin just basically posted that the government is complicit because they didn't regulate properly. No one here is going to argue that outside of a partisan hack. Sadly, I don't think the point he's trying to make is that there needs to be more regulation. Rather, he saw blame and government in the same sentence and couldn't copy and paste fast enough.

[ElNono]

It should also be pointed out that not all banks were on the scam. Some of them didn't even want the TARP money and were forced to take it. Which further proves the point that those who wanted to be responsible, actually were responsible.

[Winehole23]

http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html

[FuzzyLumpkins]

Darrin, your critical thinking skills once again suck ass. It said it was their fault because they deregulated. I would tell you to think about it a bit but you are too stupid to figure it out given any amount of time.

I will break it down for you. It wasn't a law or regulation that caused it but a LACK OF A LAW OR REGULATION.

Do you even have a stance or do you just play the mindless partisan shill nonstop?

[boutons_deux]

"Govt guarnteed mortgages"

have been a policy for decades to stimulate home building and ownership. And there was never a problem until derivatives exploded in the 2000s. There's your causality. Not govt.

Bloomberg lies.

btw, when the Feds insure/buy a loan, it assumes it's being written/sold in good faith and the borrower has been qualified according to Fed mortgage regulations. That clearly was not the case in Ms of mortgages. "cram down" where the lenders would be forced to take back/eat the toxic mortgages they sold to taxpayers is still proposed as a solution (but of course the Wall-St-owned Exec/Congress will never do it).

The $800B in dubya estate and other tax cuts got into private, non-bank, non-REGULATED lending searching for high returns (ie, sub-prime high-rate mortgages and fees from mortgage writing/flipping).

Bloomberg tells THE BIG LIE that GOVT IS THE PROBLEM, hiding his own capitalistic ilk as the problem.

[Ignignokt]

If Bloombergs point was that the banks need regulation and thats why it was the governments fault then I agree. Too bad it wasn't so the quote you responded with is moot.

Yes, the government didn't babysit enough. Probably because they're in the financial sector's pocket. Thats not the financial sectors fault though. Its not their fault they lobbied against that regulation, is it, Darrin?

I swear its like you don't realize what the fuck you're posting.

The crisis started in the investment banking sector, and most of the damage caused was done by investment firms seperate of commercial banking for which glass steagall would have prevented.

So then it is the regulatory SEC's job to prevent bad loans from getting good ratings, but this indicates that regulation failed here to prevent risky investing.


The truth is that regulators are always late to the problem, and cause more problems than fix. Glass Steagall was enforced to fix a problem that early regulations caused which was the insuring of deposits by the federal govt.


Glass steagall wouldn't of had prevented this crisis because most of the investing was done seperate from the intermingling of commercial and investment banks.

[Ignignokt]

I still don't get how you people think glass steagall would have prevented the crisis when most of the damage was caused by investment firms independent of commercial banking.

The "if we would have had Glass Steagall" argument is another indicator of who is a political hack.

[Winehole23]

Did someone make that argument?

[boutons_deux]

G-S would have prevented boring retail banking getting into casino-risky investment banking, prevented retail banking from getting into insurance (Citi + Travellers).

btw, the Repugs are being paid by the banks to kill the provision in F-D that banks that write mortgages must keep just a tiny accountability/liability for the mortgage going bad. The lenders want NO RISK in writing a mortgage they sell to investors.

btw, Denmark requires lenders to service a mortgage to maturity, 100% liability. No creative financial instruments, innovations like MBS, etc allowed.

in short: the Banksters' Great (Jobs) Depression was a direct result of policies paid for by the financial industry, not some unforseeable, unfortunate Act of Economic Gods.

[Ignignokt]

http://www.voxeu.org/index.php?q=node/4710.



The hurricane of the global financial crisis has been withstood – but it has left behind a swath of destruction in the US. The US devoted $1.3 trillion to rescue banks and $800 billion for economic stimulus packages. Private real-estate financing has completely collapsed – 95% of loans for private real-estate in 2009 were channelled through government institutions. More than 200 banks went bankrupt during the crisis. The US debt-to-GDP ratio will approach the 100% mark this year and will probably exceed it in 2011 or early 2012.

Now that the storm has subsided, it is time to clear away the debris from the shattered financial system. After initial hesitation, US president Barack Obama now seems ready to take action and is supporting the proposals of former Fed chairman Paul Volcker (Obama 2010).

Volcker has proposed reactivating the American system of separate investment and commercial banks that was created by the Glass-Steagall Act. The Act was established in 1933, shortly after the worst phase of the Great Depression, and it forbade commercial banks from acting as investment banks. The commercial banks were allowed to lend deposited savings to private households, businesses, and other banks, but they were not allowed to buy securities or to assist in their exchange. The purchase of stocks was forbidden, as was the acquisition of securitised financial products. Even the purchase of corporate bonds and private debentures was limited to a negligible minimum. The goal of the legislation was to protect savers from risky financial transactions.

When the Glass-Steagall Act was repealed in 1999, some commercial banks made hesitant attempts at investment banking, which gave rise to suspicions that this could have been a reason for the financial crisis. But this is far from the truth. In reality the system of bank separation remained fairly intact up to the outbreak of the crisis.

As is well-known, the crisis was triggered in 2008 by the unexpected failure of the government to rescue Lehman Brothers. That destroyed banks’ trust in each other and froze up the interbank market. Deposited savings could no longer be channelled to investors but stayed with the commercial banks. The result was a crash of the real economy. If the US had not had a separation of banks, the economy would have been less susceptible to a breakdown of the interbank market, since the commercial banks could have routed at least part of deposited savings to businesses via the purchase of stocks or bonds.
What motivated Obama and Volcker?

The answer lies in an event on 22 September 2008 that took the financial world by surprise, i.e. the conversion of Goldman Sachs and Morgan Stanley, the last surviving large investment banks, into normal commercial banks. Behind this conversion was the desire of the two banks to attain access to cheap credit from the Fed and the protection of Federal Deposit Insurance Corporation (FDIC). The government actually wanted to exclude the investment banks from receiving special help, but they got around this by quickly changing their legal status. Now Obama is trying to square up accounts.

This is understandable but dangerous for Europe because, unlike the US, it has a universal banking system. If Obama succeeds in anchoring a separation of commercial and investment banks worldwide at the G20 negotiations, this would mean a destruction of the European banking world, whereas in the US the repercussions of the reform would be limited. Hopefully Obama’s advisers were not inspired by this prospect.

Crisis prevention will certainly not come from a return to a system of bank separation. It is true that the reduced likelihood of government help will induce investment banks to act more cautiously. But this plus point does not offset the increased susceptibility to crisis from the division of banking functions. Moreover, it is doubtful whether the likelihood of government rescue will really be reduced. The state will have to rescue large investment banks even if they do not manage customer savings since no one would accept a repeat of the Lehman Brothers disaster.

The banks’ cavalier risk taking that led to the crisis was due to their inadequate capital reserves. People are tempted to gamble if their own capital is hardly involved, because they can pocket the gains and only have to shoulder a small portion of the losses themselves, regardless of whether the state helps or not. The incentive to gamble can only be suppressed by drastically increasing capital reserve requirements.

Europe should not follow the US proposals at the next G20 summit but should concentrate fully and entirely on strengthening the capital reserves of the banks.




Even the German Wunderkind Central Planners know that Glass Steagall is really a red herring concerning the cause of the crisis.

[boutons_deux]

"The banks’ cavalier risk taking that led to the crisis was due to their inadequate capital reserves."

Bullshit. what led to the crisis was the excessive risk taking, bets (insurance) on bets on outcomes of bets, up to $50T+ (M-L alone has $75T of liabilities (now dumped on FDIC/taxpayers), no amount of capital reserve was available to cover that)

[MannyIsGod]

http://rortybomb.wordpress.com/2011/11/01/bloombergs-awful-comment-what-can-we-say-for-certain-regarding-the-gses/

[DarrinS]

http://rortybomb.wordpress.com/2011/11/01/bloombergs-awful-comment-what-can-we-say-for-certain-regarding-the-gses/


Regardless, the GSE's were largely responsible for the crisis, regardless what percentage of their portfolio were "subprime" and regardless of what percentage of their loans (the ones they bought) were originated by private lenders. The GSE's were clearly mismanaged and, instead of proper oversight, the Democrats in congress attacked the regulator.


A good read.


http://www.truthdig.com/report/item/the_whistleblower_they_ignored_20100414/





There aren’t too many genuine heroes to come out of the banking disaster, but Armando Falcon is one of them. You have probably never heard of him, but his testimony Friday before the Financial Crisis Inquiry Commission, available on the commission’s website, is must reading for anyone trying to figure out why U.S. taxpayers had to bail out companies to the tune of hundreds of billions of dollars.

Falcon was the chief regulator attempting to bring order to the houses of Fannie Mae and Freddie Mac during the first four years of this decade, and had he been listened to, a significant part of the housing crisis could have been mitigated. Instead his agency was denied serious regulatory power by Democrats in Congress including liberals such as Reps. Barney Frank and Maxine Waters, both of whom assumed he was undermining public support for more affordable housing.

He wasn’t, and instead was attempting to call attention to the reckless bundling of risky mortgages in which the government-chartered agencies acted like the other too-big-to-fail behemoths that together almost wrecked the entire economy. It was those on the lower end of the income scale who had put their life savings into risky mortgages that were most hurt when the bubble burst.

This is a guy whom Republican congressmen and the Wall Street Journal editorial writers have lionized, and for once they got it right. At least the part about Fannie and Freddie being out of control and their applauding Falcon’s past efforts to rein in the greed of their top executives. Where they go wrong is when they attribute the company’s misbehavior to the alleged liberal do-gooderism of the mostly Democratic Party hacks that ran the enterprises. The reality is that concern for affordable housing goals was simply a convenient mask for unfettered greed.

Conservatives make much of those goals, which both Bill Clinton and George W. Bush endorsed, but objectives of this sort had nothing to do with the sordid behavior of the executives who ran the companies. Asked by the commission to testify on the impact of those goals, Falcon responded:

“Your letter also asked me about the impact of affordable housing goals on the enterprises’ financial problems. In my opinion, the goals were not the cause of the enterprises’ demise. The firms would not engage in any activity, goal fulfilling or otherwise, unless there was a profit to be made. Fannie and Freddie invested in subprime and Alt A mortgages in order to increase profits and regain market share. Any impact on meeting affordable housing goals was a byproduct of the activity.”

The problem with the so-called government-sponsored but essentially private institutions that the conservatives are so happy to vilify and that liberals feel the need to defend is that they represented the worst of both worlds. Although originally chartered by the government, they had morphed into super for-profit monstrosities run by executives whose huge bonuses depended on the price of the company stock. As Falcon put it in his testimony:

“Ultimately the companies were not unwitting victims of an economic down cycle or flawed products and services of theirs. Their failure was deeply rooted in a culture of arrogance and greed.”

In short, they behaved like the other financial conglomerates, but the government-sponsored housing enterprises were protected by powerful members of Congress and what turned out to be a strong guarantee that their bad paper would be covered by the taxpayers.

They do deserve considerable blame for the banking disaster that ensued, and while it is hardly the whole story, it gave the free-market conservatives a convenient target. But it also presents them with a contradiction that they refuse to confront. The housing enterprises failed not because they were do-gooder public entities but because they weren’t. Their top executives were driven by the same desire for outlandish profit that their counterparts at AIG and Citigroup had. As Falcon put it referring to then Fannie Mae’s CEO Franklin Raines:

“While all of this political power satisfied the egos of Fannie and Freddie executives, it ultimately served one primary purpose: the speedy accumulation of personal wealth by any means. … In the case of CEO Franklin Raines, he collected over $90 million in total compensation from 1998 to 2003. Of that amount, $52 million was directly tied to achieving earnings-per-share goals. However, the earnings goal turned out to be unachievable without breaking rules and hiding risks.”

It only adds insult to injury to blame the unfettered greed of folks like Raines, and his congressional allies who were lavishly attended to by those agencies, on a concern for the low-income homebuyers who were their main victims.

[MannyIsGod]

So the GSE's were responsible regardless of the facts?

:lmao !!!!!!!!

[MannyIsGod]

A gunshot victim is brought into the morgue. Darrin looks at him and notices that the victim was overweight. Darrin concludes that regardless of the bullet lodged in the victim's brain, the actual killer was the obesity because obesity is bad. Darrin then posts a youtube about Obesity being bad.

[Winehole23]

You're seem to be missing the nuance in the source Darrin is standing behind at the moment, but in fairness he probably missed it too.

[MannyIsGod]

You're seem to be missing the nuance in the source Darrin is standing behind at the moment, but in fairness he probably missed it too.

Help me out.

[Winehole23]

This is a guy whom Republican congressmen and the Wall Street Journal editorial writers have lionized, and for once they got it right. At least the part about Fannie and Freddie being out of control and their applauding Falcon’s past efforts to rein in the greed of their top executives. Where they go wrong is when they attribute the company’s misbehavior to the alleged liberal do-gooderism of the mostly Democratic Party hacks that ran the enterprises. The reality is that concern for affordable housing goals was simply a convenient mask for unfettered greed.

[Winehole23]

They do deserve considerable blame for the banking disaster that ensued, and while it is hardly the whole story...

[boutons_deux]

Congress made him do it:

Feds File Massive Fraud Case Against Allied Home Mortgage

Federal prosecutors sued Allied Home Mortgage Capital Corp. and two top executives Tuesday, accusing them of running a massive fraud scheme that cost the government at least $834 million in insurance claims on defaulted home loans.

Houston-based Allied and its founder and chief executive, Jim Hodge, were the subject of July 2010 stories by ProPublica, which detailed a trail of alleged misconduct, lawsuits and government sanctions spanning at least 18 states and seven years. Borrowers recounted how they had been lied to by Allied employees, who in some cases had siphoned the loan proceeds for personal gain. Some borrowers lost their homes.
Related

Despite years of warnings, the federal government had not — until this week — impaired the company's ability to issue new mortgages.

The suit, filed Tuesday in U.S. District Court in Manhattan, seeks triple damages and civil penalties, which could total $2.5 billion. Simultaneously, the U.S. Department of Housing and Urban Development suspended the company and Hodge from issuing loans backed by the Federal Housing Administration. The company was also barred from issuing mortgage-backed securities through the Government National Mortgage Association (Ginnie Mae).


"Allied has billed itself as the nation's largest, privately held mortgage broker, with some 200 branches."

http://www.propublica.org/article/feds-file-massive-fraud-case-against-allied-home-mortgage

====

And there's Mozilo/CountryWide, and .... and .... and .... etc.

All forced into fraud by the govt, the GSEs. :lol

[Winehole23]

The truthdig article acknowledges the role of GSE's without making it the sole scapegoat. It's far more balanced than the point Darrin seems to be trying to make.

[MannyIsGod]

The truthdig article acknowledges the role of GSE's without making it the sole scapegoat. It's far more balanced than the point Darrin seems to be trying to make.

Oh I don't think I missed that. I don't think I've ever denied that the GSEs were poorly run and did not effectively execute what they were meant to do.

That was kind of my point with the analogy I made above. The GSE's role was bad, but when taken into context of what the private sector did it was minor. That being said, the private influence on government - and specifically those GSE's - is one of the big reasons we need reform. Its the same people but these happen to work under the umbrella of "government".

[MannyIsGod]

When Gtown says that this isn't a true free market he's absolutely correct. When others say that there isn't enough regulation, they're also correct. The problem doesn't lie with regulation, IMO, it lies with influence covered up in cheap tawdry ineffective regulation.

The problem as I see it, is that a free market doesn't provide that. The financial sector merely molds legislation right now to its liking through lobbying. If there was no regulation, the end results would be the same as having ineffective regulation, however.

[FuzzyLumpkins]

http://www.voxeu.org/index.php?q=node/4710.


Even the German Wunderkind Central Planners know that Glass Steagall is really a red herring concerning the cause of the crisis.

In your zeal for preventing the reregulation of the banking industry you neglected to note that your little article supports regulation of minimum reserves. There is more than just Glass Steagal in banking regulation.

You call people ignorant but the board 'conservatives' seem to be doing a lot of self ownage in this thread.

[EVAY]

The folks that are saying that Glass-Steagal repeal had a hand in the debacle are correct inasmuch as the "chinese wall" that was SUPPOSED to exist between the investment side of a bank and the deposit side of a bank failed in way too many respects after it was repealed, and some bankers were actually using depositor funds to 'speculate' in credit default swaps and other derivatives for the banks' own investment activities. I KNOW this happened because I was on a bank board when they started doing it...I went ballistic and was reminded that Board of Director members were not really there to question management's day-to-day decisions...I didn't ask what we were actually supposed to be doing then...but I did leave shortly thereafter.

There is so much blame to go around in this area it is useless in the extreme to try to lay it off on politicians. They understood less of the issue than anyone else involved, and the people who understood the most didn't care enough to fight for the right thing (these folks include some of the traders and all of the rating agency personnel). Believe me, if a rating agency had said that the derivatives were based on underlying junk rated bonds, the buy side investors would have been prevented by their own boards from investing in them.

It is part of almost every buy-side (think pension funds etc.) investment guidance that they are prohibited from purchasing anything less than aaa or aa rated securities of any kind.

[MannyIsGod]

Someone should tell those fund managers that those ratings aren't supposed to be used for investment decisions.

[boutons_deux]

"The truth is that regulators are always late to the problem,"

the REAL TRUTH is that SEC is staffed by Wall St people who have NO INTEREST in being early, late, or addressing any problems. Enforcement, even of SEC weak regs, IS KNOWN, by ex-staffers' own admission, to be of no interest to the SEC.

And the Repugs have defunded/understaffed the SEC, just like they're doing to the IRS

btw, when Wall ST Sheriff Spitzer and 18 others state AG tried to get predatory lending shutdown, dubya's Repug operative running the OCC shut the AGs down, saying lending was a Fed domain, not the states' domain (Repug hypocrisy and irony!!)

Then there's the Treasury (full of Wall Streeters) and the Fed (a private club with secret members who are mostly (ex)Wall St bankers).

The finance sector has completely captured the financial regulators, but you right-wing assholes only bitch about the regulators as uniquely culpable, never about the corrupters in the finance sector.

[Winehole23]

http://www.rollingstone.com/politics/blogs/taibblog/one-last-note-on-michael-bloomberg-20111105

[ChumpDumper]

http://www.rollingstone.com/politics/blogs/taibblog/one-last-note-on-michael-bloomberg-20111105lol forced

[Winehole23]

I want to move beyond what I call “the squishy narrative” — an imprecise, sloppy way to think about the world — toward a more rigorous form of analysis. Unlike other disciplines, economics looks at actual consequences in terms of real dollars. So let’s follow the money and see what the data reveal about the causes of the collapse.


Rather than attend a college-level seminar on the complex philosophy of causation, we’ll keep it simple. To assess how blameworthy any factor is regarding the cause of a subsequent event, consider whether that element was 1) proximate 2) statistically valid 3) necessary and sufficient.

Consider the causes cited by those who’ve taken up the big lie. Take for example New York Mayor Michael Bloomberg’s statement that it was Congress that forced banks to make ill-advised loans to people who could not afford them and defaulted in large numbers. He and others claim that caused the crisis. Others have suggested these were to blame: the home mortgage interest deduction, the Community Reinvestment Act of 1977, the 1994 Housing and Urban Development memo, Fannie Mae and Freddie Mac, Rep. Barney Frank (D-Mass.) and homeownership targets set by both the Clinton and Bush administrations.


When an economy booms or busts, money gets misspent, assets rise in prices, fortunes are made. Out of all that comes a set of easy-to-discern facts.
Here are key things we know based on data. Together, they present a series of tough hurdles for the big lie proponents.


•The boom and bust was global. Proponents of the Big Lie ignore the worldwide nature of the housing boom and bust.
>
http://www.ritholtz.com/blog/wp-content/uploads/2011/11/Sept09_CF1.jpg (http://www.ritholtz.com/blog/wp-content/uploads/2011/11/Sept09_CF1.jpg)
The housing boom and bust was global — Source: McKinsey Quarterly (http://www.mckinseyquarterly.com/newsletters/chartfocus/2009_10.htm)
>
A McKinsey Global Institute (http://www.mckinseyquarterly.com/newsletters/chartfocus/2009_10.htm) report noted “from 2000 through 2007, a remarkable run-up in global home prices occurred.” It is highly unlikely that a simultaneous boom and bust everywhere else in the world was caused by one set of factors (ultra-low rates, securitized AAA-rated subprime, derivatives) but had a different set of causes in the United States. Indeed, this might be the biggest obstacle to pushing the false narrative. How did U.S. regulations against redlining in inner cities also cause a boom in Spain, Ireland and Australia? How can we explain the boom occurring in countries that do not have a tax deduction for mortgage interest or government-sponsored enterprises? And why, after nearly a century of mortgage interest deduction in the United States, did it suddenly cause a crisis?


These questions show why proximity and statistical validity are so important. Let’s get more specific.The Community Reinvestment Act of 1977 is a favorite boogeyman for some, despite the numbers that so easily disprove it as a cause.It is a statistical invalid argument, as the data show.


For example, if the CRA was to blame, the housing boom would have been in CRA regions; it would have made places such as Harlem and South Philly and Compton and inner Washington the primary locales of the run up and collapse. Further, the default rates in these areas should have been worse than other regions.
>
http://www.ritholtz.com/blog/wp-content/uploads/2011/11/defaultChart.jpg (http://www.ritholtz.com/blog/wp-content/uploads/2011/11/defaultChart.jpg)
CRA were less likely to default than Subprime Mortgages — Source: University of North Carolina at Chapel Hill (http://www.ccc.unc.edu/cra.php)
>
What occurred was the exact opposite: The suburbs boomed and busted and went into foreclosure in much greater numbers than inner cities. The tiny suburbs and exurbs of South Florida and California and Las Vegas and Arizona were the big boomtowns, not the low-income regions. The redlined areas the CRA address missed much of the boom; places that busted had nothing to do with the CRA.
>
http://www.ritholtz.com/blog/wp-content/uploads/2011/11/Natl-map-of-foreclosures.jpg (http://www.ritholtz.com/blog/wp-content/uploads/2011/11/Natl-map-of-foreclosures.jpg)
Suburbs and Exurbs were where the boom & bust occurred — and not the CRA regions — Source: Washington Post (http://www.washingtonpost.com/wp-dyn/content/graphic/2010/10/18/GR2010101806640.html)
>
The market share of financial institutions that were subject to the CRA has steadily declined since the legislation was passed in 1977. As noted by Abromowitz & Min, CRA-regulated institutions, primarily banks and thrifts, accounted for only 28 percent of all mortgages originated in 2006.


•Nonbank mortgage underwriting exploded from 2001 to 2007, along with the private label securitization market, which eclipsed Fannie and Freddie during the boom.


Check the mortgage origination data: The vast majority of subprime mortgages — the loans at the heart of the global crisis — were underwritten by unregulated private firms. These were lenders who sold the bulk of their mortgages to Wall Street, not to Fannie or Freddie. Indeed, these firms had no deposits, so they were not under the jurisdiction of the Federal Deposit Insurance Corp or the Office of Thrift Supervision. The relative market share of Fannie Mae and Freddie Mac dropped from a high of 57 percent of all new mortgage originations in 2003, down to 37 percent as the bubble was developing in 2005-06.
>
http://www.ritholtz.com/blog/wp-content/uploads/2011/11/fannieFreddie2.jpg (http://www.ritholtz.com/blog/wp-content/uploads/2011/11/fannieFreddie2.jpg)
Nonbank mortgage underwriting exploded from 2001 to 2007, along with the private label securitization market, which eclipsed Fannie and Freddie during the boom – Source: University of North Carolina at Chapel Hill (http://www.ccc.unc.edu/FannieFreddie.php)
>
•Private lenders not subject to congressional regulations collapsed lending standards. Taking up that extra share were nonbanks selling mortgages elsewhere, not to the GSEs. Conforming mortgages had rules that were less profitable than the newfangled loans. Private securitizers — competitors of Fannie and Freddie — grew from 10 percent of the market in 2002 to nearly 40 percent in 2006. As a percentage of all mortgage-backed securities, private securitization grew from 23 percent in 2003 to 56 percent in 2006
>
Subprime Lenders were (Primarily) Private
http://www.ritholtz.com/blog/wp-content/uploads/2011/11/647-20081013-ECONOMY-subprime.large_.prod_affiliate.91.jpg (http://www.ritholtz.com/blog/wp-content/uploads/2011/11/647-20081013-ECONOMY-subprime.large_.prod_affiliate.91.jpg)
Only one of the top 25 subprime lenders in 2006 was directly subject to the housing laws overseen by either Fannie Mae, Freddie Mac or the Community Reinvestment Act — Source: McClatchy (http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html)
>
These firms had business models that could be called “Lend-in-order-to-sell-to-Wall-Street-securitizers.” They offered all manner of nontraditional mortgages — the 2/28 adjustable rate mortgages, piggy-back loans, negative amortization loans. These defaulted in huge numbers, far more than the regulated mortgage writers did.


Consider a study by McClatchy (http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html): It found that more than 84 percent of the subprime mortgages in 2006 were issued by private lending. These private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. And McClatchy found that out of the top 25 subprime lenders in 2006, only one was subject to the usual mortgage laws and regulations.
A 2008 analysis (http://www.ocregister.com/articles/loans-20542-subprime-banks.html) found that the nonbank underwriters made more than 12 million subprime mortgages with a value of nearly $2 trillion. The lenders who made these were exempt from federal regulations.
>
http://www.ritholtz.com/blog/wp-content/uploads/2009/06/cra-chartg1109.gif (http://www.ritholtz.com/blog/wp-content/uploads/2009/06/cra-chartg1109.gif)
Lenders made 12 million subprime mortgages with a value of nearly $2 trillion. Mortgage Companies and Thrifts NOT affiliated with CRA made 75% of Subprime Loans from 2004-07, Source: Orange County Register (http://www.ritholtz.com/blog/2011/11/2009/06/most-subprime-lenders-werent-covered-by-cra/)
>
A study by the Federal Reserve (http://www.federalreserve.gov/pubs/feds/2011/201136/index.html)shows that more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. The study found that the government-sponsored enterprises were concerned with the loss of market share to these private lenders — Fannie and Freddie were chasing profits, not trying to meet low-income lending goals.
>
http://www.ritholtz.com/blog/wp-content/uploads/2011/11/fannieFreddie4.jpg (http://www.ritholtz.com/blog/wp-content/uploads/2011/11/fannieFreddie4.jpg)
Fannie and Freddie risky loan purchases was dwarfed by Private Label Securitization Source: University of North Carolina at Chapel Hill (http://www.ccc.unc.edu/cra.php)http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/

[MannyIsGod]

Great post.

[Agloco]

Agreed WH, that's really good info.

I'm a bit slow in these matters, still trying to wrap my head around the social aspect of it all.

[Winehole23]

Not easy to master. I doubt anyone's mastered it yet. Devilishly complex.

[Winehole23]

Socially, politically and technically.

[boutons_deux]

Remember the BIG LIES WC, Yoni, etc were repeating here from their thought dictators in the Repug/VRWC hate media:

mortgage crisis was exclusively caused by F&F and CRA, where CRA forced the banks to lend to unqualified "red line" borrowers. Total lies.

[spursncowboys]

It's pretty funny that you even think this is debatable. Every post you make like this is further proof that you lack the requisite intelligence necessary to form a discerning opinion. It's been shouted from the rooftops on this forum what caused the crisis, hell, DR made a post more than 2 years ago about it if I recall, and yet you still cling to political scapegoating. Lawl.

You and fuzzy do this schtick alot. belittle someone as questioning what you believe. There is not much in this world where the other point of view cannot have a clear intelligent debatable view on something. But if you want to be regarded as the new DOK or Chump the good luck with all that.

[SnakeBoy]

Congress forced firms to create and trade credit default swaps?

In the late 90's Brooksley Born was the chairperson of the Commodity Futures Trading Commission. She recognized the dangers in the derivatives and swaps markets and attempted to regulate them as the CFTC had the authority to do. Congress passed legislation prohibiting regulation of derivatives by the CFTC and Born was forced to resign.

So no congress didn't force firms to do what they did but they aren't exactly without blame.

[Winehole23]

http://www.spurstalk.com/forums/showthread.php?t=119165&highlight=brooksley+born
http://www.spurstalk.com/forums/showthread.php?t=130300&highlight=brooksley+born
http://www.spurstalk.com/forums/showpost.php?p=3782904&postcount=13

[MannyIsGod]

In the late 90's Brooksley Born was the chairperson of the Commodity Futures Trading Commission. She recognized the dangers in the derivatives and swaps markets and attempted to regulate them as the CFTC had the authority to do. Congress passed legislation prohibiting regulation of derivatives by the CFTC and Born was forced to resign.

So no congress didn't force firms to do what they did but they aren't exactly without blame.

I agree with you. But why did Congress take these actions?

[Winehole23]

so as not to stifle financial innovation and the relentless extension of credit

[MannyIsGod]

My point was more to the idea that Congress does nothing without being asked. So who asked? (Asked is use loosely here)

[Winehole23]

Sommers and Rubin shepherded financial innovation in the late 1990's

[Winehole23]

Clinton era innovation is a crucial precondition

[Winehole23]

of the fiasco we're moiling (http://dictionary.die.net/moil) around in now

[FuzzyLumpkins]

You and fuzzy do this schtick alot. belittle someone as questioning what you believe. There is not much in this world where the other point of view cannot have a clear intelligent debatable view on something. But if you want to be regarded as the new DOK or Chump the good luck with all that.

I come to a conclusion based on logic. If you cannot follow that then you bet your ass I am going to point it out. When you lack the ability to create a similar train to come to your conclusion then you bet your ass I will point it out.

Can does not mean does and its not my fault if people suck at critical thinking and logic.

[FuzzyLumpkins]

Clinton era innovation is a crucial precondition

by innovation you mean devolution to pre-1930s right?

[ChumpDumper]

I actually blame all those house flipping shows on basic cable.

[Borat Sagyidev]

This blame game is really pathetic, Bloomberg says blaming may be entertaining but does not solve the problem, all this while blaming congress.

Do we really need laws and congress to prevent some of this bullshit? Are banks that pathetic and devoid of common sense? If this is what it comes down to, we're doomed. This stuff is not complicated as much as these finance professionals want it to be.

These credit default swaps are on par with any normal person purchasing an insurance policy for their neighbor's house and hoping the house burns down. It's just so obviously self destructive that the mere fact so many people agreed to participated in it is a shock.

Well not really, most of them are still filthy rich because they can get away with it. Emphasis on filthy.

I need a new career.

[Wild Cobra]

Well, my take is that congress made it possible and promoted the banks to do this dangerous scheme. Still, I cannot believe that these banks were stupid enough to lend on market value when the value was inflated. I say it was their own stupidity, and those holding the bad cards... well, they are stuck with the debt. Bankruptcy should have followed if they couldn't recover with no bailout.

Nobody is too big to fall. That is utter stupidity.

[Winehole23]

by innovation you mean devolution to pre-1930s right?that's what you said

[boutons_deux]

"My point was more to the idea that Congress does nothing without being asked"

WRONG!

The point was more to the idea that Congress does nothing without being PAID

NOTHING happens in DC unless someone is paid to make it happen

[boutons_deux]

"Do we really need laws and congress to prevent some of this bullshit"

Glass-Steagall law kept commercial banking BORING, STABLE, and USEFUL for 80 years.

"Are banks that pathetic and devoid of common sense"

Backed by the Fed and Treasury, they KNOW they can take risks way beyond common sense and taxpayers will bail them out.

[Winehole23]

The point was more to the idea that Congress does nothing without being PAIDThe payment en efectivo is usually only hinted at, but campaign contributions and super PACS are just as real as the subsequent votes.

[Winehole23]

lol house flipping shoes

[ChumpDumper]

lol house flipping shoes:lol

[Winehole23]

tbh I set very little store by official announcements be they corporate or political. none of them are accurate: at best, they represent enlightened guesses.

[Winehole23]

imminent domain rears it's ugly head in California: http://gawker.com/a-housing-crisis-solution-sure-to-panic-wall-street-963479870

[boutons_deux]

imminent domain rears it's ugly head in California: http://gawker.com/a-housing-crisis-solution-sure-to-panic-wall-street-963479870

this is a wonderful move. I'm pretty sure Mortgage Resolution Partners has done its legal homework.

Financial sector stole 4M homes (and fraudulent MERS still exists), it's way past time for the people to fuck the lenders back.

imminent domain is supported by right wingers and corps to screw up people's property for pipelines or resource extraction, but if people use imminent domain, they get trashed.

[rjv]

the efficient market hypothesis is infallible

[Winehole23]

assuming the world is fair, politics stable, and all of the people in it motivated by rational self interest, absolutely infallible.

[boutons_deux]

assuming the world is fair, politics stable, and all of the people in it motivated by rational self interest, absolutely infallible.

has fucking all to with "markets", it's all about lawyering.

[Winehole23]

"fuck all," as we say in English

[rjv]

assuming the world is fair, politics stable, and all of the people in it motivated by rational self interest, absolutely infallible. are you suggesting the market's eye for the odds is dangerously myopic ?

[Winehole23]

economics isn't called the dismal science for nothing; all the explanations have been refuted by experience or soon will be.

[rjv]

economics isn't called the dismal science for nothing; all the explanations have been refuted by experience or soon will be. perhaps our government and economists suffer from anosognosia.

[Winehole23]

that's not distinctive, so, probably, yes.

[boutons_deux]

Beware Private Equity Guys Bearing Gifts: Eminent Domain Mortgage Scam Hit with Well-Deserved Lawsuit (http://www.nakedcapitalism.com/2013/08/beware-of-private-equity-guys-bearing-gifts-eminent-domain-mortgage-scam-hit-with-well-deserved-lawsuit.html)

But as we’ve written, the private equity firm Mortgage Resolution Partners looks to be well on its way to getting the good uses of eminent domain torpedoed by getting some not-too-swift municipalities to sign up for its self-serving scheme. One indicator of how dubious the MPR program is that investors who have been complacent in the face of all sorts of abuses by originators and servicers, have roused themselves to act in a unified manner and push back against the MRP plan, in the form of a suit filed in Federal court in California on Wednesday (http://online.wsj.com/article/SB10001424127887324522504578654690187664354.html?m od=djemalertNEWS).


Key to understanding why this plan is a terrible idea and why investors are outraged is that there is a large gap between MRP’s well-funded messaging and how its program would actually work. The key thing to understand is that MPR’s plan isn’t about helping distressed borrowers. If communities wanted to condemn delinquent or defaulted mortgages, they don’t need MRP. It wouldn’t be hard to find dozens of hedge funds and other investors to bid on them and their aim would be to restructure the loans.

And investors would be delighted to see this happen. Investors and homeowners lose in foreclosures. Both would do better with a modification, provided the borrower still has a reasonable income. It’s the servicers who win by continuing to wring servicing, foreclosure-related, and junk fees out of the securitizations.

MRP’s initial effort was with several government entities in the San Bernardino, California area. They signed up with a plan to condemn performing mortgages, meaning ones where borrowers were paying on time. MRP and the San Bernardino cohort tried passing off the canard that because the homes were underwater, the mortgage was worth less than the value of the house. No, sports fans, with a collateralized loan, the collateral is a backup source of value. It reduces losses in the event of default. You look to the borrower payment stream as the primary source of value. These were all seasoned mortgages, five years or more of current payments. These are borrowers who are clearly committed to keeping their homes and have income to do so. An arm’s length transaction would allow for some risk of default due to death, disability, or job loss, so a mortgage with a face amount of $300,000 would not go for $300,000. But if you have a current borrower with a solid payment history, you wouldn’t expect it to fetch much less than $250,000.

But the MRP scheme relied on condemning those mortgages at a large discount to their value by the bait and switch of claiming the mortgage value was based strictly on the value of the home, which is inaccurate, and then arguing for a discount from that. Look at how much the investors get ripped off, per this summary from Nick Iimiraos of the Wall Street Journal last year (http://www.nakedcapitalism.com/2012/07/the-mortgage-condemnation-plan-fleecing-municipalities-as-well-as-investors.html):


For a home with an existing $300,000 mortgage that now has a market value of $150,000, Mortgage Resolution Partners might argue the loan is worth only $120,000. If a judge agreed, the program’s private financiers would fund the city’s seizure of the loan, paying the current loan investors that reduced amount. Then, they could offer to help the homeowner refinance into a new $145,000 30-year mortgage backed by the Federal Housing Administration, which has a program allowing borrowers to have as little as 2.25% in equity. That would leave $25,000 in profit, minus the origination costs, to be divided between the city, Mortgage Resolution Partners and its investors.


The difference between my working figure of $250,000 and $120,000 is a whole chunk of change. You can see why investors are irate.

http://www.nakedcapitalism.com/2013/08/beware-of-private-equity-guys-bearing-gifts-eminent-domain-mortgage-scam-hit-with-well-deserved-lawsuit.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29

[RandomGuy]

Congress forced firms to create and trade credit default swaps?

Congress forced changes in underwriting for loans?

[RandomGuy]

You and fuzzy do this schtick alot. belittle someone as questioning what you believe. There is not much in this world where the other point of view cannot have a clear intelligent debatable view on something. But if you want to be regarded as the new DOK or Chump the good luck with all that.

Your calls for intelligent debating on the internets would ahve more gravitas, were you to stop running away from the indefensibily stupid threads you start.

[spursncowboys]

Your calls for intelligent debating on the internets would ahve more gravitas, were you to stop running away from the indefensibily stupid threads you start.
1. I wouldn't run. I would yell fire and sneak away.

2. All my threads are classics in their own right. As if walt whitman were blogging.

ftr you did it again. as if on cue

[TeyshaBlue]

Congress forced changes in underwriting for loans?
Forced? no. Allowed? yes.
It was mentioned by snakeboy upstream that congress had been asked to examine this....to no avail.

[boutons_deux]

Forced? no. Allowed? yes.
It was mentioned by snakeboy upstream that congress had been asked to examine this....to no avail.

as the charts above show, unregulated private lenders, aka shadow bankers, wrote a lot of shitty mortgages, probably with lots of capital freed up with dubya's tax cuts on the wealthy.

Congress was not involved "allowing". dubya actually shutdown the attempt by 19 states' AGs to stop predatory lending (and then Wall St got dubya to take down Spitzer)

[TeyshaBlue]

Again.

http://www.spurstalk.com/forums/showthread.php?t=186162&page=3&p=5483842&viewfull=1#post5483842


Subsequent posts by WH shows that congress was very much involved.

[Winehole23]

Fed to reduce MBS holdings to zero?

https://wolfstreet.com/2018/05/16/will-the-new-fed-shed-all-its-mortgage-backed-securities-that-seems-to-be-the-plan/

[Winehole23]

non-bank mortgage lending at pre-crisis levels in 2018:


Much less understood, and largely absent from the standard narratives, is the role playedby liquidity crises in the nonbank mortgage sector. While important post-crisis research did focus on pre-crisis liquidity problems in short-term debt-financing markets,1the literature has been largely silent on the liquidity vulnerabilities of the short-term loans that funded nonbank mortgage origination in the pre-crisis period, as well as the liquidity pressures that are typical in mortgage servicing when defaults are high. These vulnerabilities in the mortgage market were also not the focus of regulatory attention in the aftermath of the crisis.Of particular importance, these liquidity vulnerabilities are still present in 2018, and arguably the potential for liquidity issues associated with mortgage servicing is even greaterthan pre-financial crisis. These liquidity issues have become more pressing because the nonbank sector is a larger part of the market than it was pre-crisis, especially for loan ssecuritized in pools with guarantees by Ginnie Mae. As noted in 2015 by the Honorable Ted Tozer, President of Ginnie Mae from 2010 to 2017, there is now considerable stress on Ginnie Mae operations from their nonbank counterparties:


“. . . Today almost two thirds of Ginnie Mae guaranteed securities are issued by independent mortgage banks. And independent mortgage bankers are using some of the most sophisticated financial engineering that this industry has ever seen.We are also seeing greater dependence on credit lines, securitization involving multiple players, and more frequent trading of servicing rights and all of these things have created a new and challenging environment for Ginnie Mae. . . . In other words, the risk is a lot higher and business models of our issuers are a lot more complex. Add in sharply higher annual volumes, and these risks are amplified many times over. . . . Also, we have depended on sheer luck. Luck that the economy does not fall into recession and increase mortgage delinquencies.Luck that our independent mortgage bankers remain able to access their lines of credit. And luck that nothing critical falls through the cracks. . . ”
https://www.brookings.edu/wp-content/uploads/2018/03/5_kimetal.pdf

[Winehole23]

Varoufakis reviews Adam Tooze's "Crashed"


Many economies (e.g. Ireland, South Korea) that were run according to what the global establishment considered ‘best practice’ (i.e. government and trade surpluses, light regulation of banks and employers) crashed the moment ninety percent of global money flows ceased up. Why? Because the establishment’s prescription had skilfully left out the crucial truth that the main threat came from the banking system (not the state) and from private (not public) debt. That there were no runs on banks (perhaps with the exception of Northern Rock) meant little: financiers froze up (once called upon to repay unpayable debts, often in excess of their country’s national income) while operating a system whose survival depended on tsunamis of money rushing hither and thither. Meanwhile, American and European politicians, who had grown used to a cosy relationship with the bankers, began to convert a crisis of (super-rich and super-inane) creditors into a crisis of (poor and middle class) debtors, pushing the losses of the former upon the latter – also known as socialism for bankers and austerity for the many. https://www.yanisvaroufakis.eu/2018/08/13/crashed-long-version-of-my-observer-review-of-adam-toozes-new-book-on-the-crash-of-2008/

[Winehole23]

at post #86


I agree with you. But why did Congress take these actions?

Close
https://pbs.twimg.com/media/CbYaSFOUYAAUdBg.jpg:large

[Winehole23]

In 1997, the Commodity Futures Trading Commission (http://topics.nytimes.com/top/reference/timestopics/organizations/c/commodity_futures_trading_commission/index.html?inline=nyt-org), a federal agency that regulates options and futures trading, began exploring derivatives regulation. The commission, then led by a lawyer named Brooksley E. Born, invited comments about how best to oversee certain derivatives.

Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses.

Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin (http://topics.nytimes.com/top/reference/timestopics/people/r/robert_e_rubin/index.html?inline=nyt-per), the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

[Winehole23]

https://www.pbs.org/wgbh/frontline/film/warning/

[boutons_deux]

more, deeper evidence that America is operated by the vampire-squid oligarchy, which is deeply, totally, untouchably corrupt.

The oligarchy has corrupted the govt into subservience to enable/empower/protect/enrich the oigarchy.

There is effectively NO WAY For The People, totally disenfranchised, to "take back" their country, which the white, male wealthy Founding Fathers never wanted them to have anyway.

iow, America is fucked and unfuckable.

[Winehole23]

Ladies and, gentlemen, please give it up for a very funny man, Johnny One Note!

He'll be here all week, please be sure to tip your bartenders and waitresses, they're working hard for you.

[Winehole23]

http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/Preemptively rebutting the myth that careless borrowers and the CRA of 1977 caused the 2008-9 crash. That zombie will not die.

[Winehole23]

UBS AG and several of its U.S.-based affiliates (together, UBS) have agreed to pay $1.435 billion in penalties to settle a civil action filed in November 2018 alleging misconduct related to UBS’ underwriting and issuance of residential mortgage-backed securities (RMBS) issued in 2006 and 2007. This settlement resolves the last case brought by a Justice Department working group dedicated to investigating conduct of banks and other entities for their roles in creating and issuing RMBS leading up to the 2008 financial crisis.https://www.justice.gov/opa/pr/ubs-agrees-pay-1435-billion-fraud-sale-residential-mortgage-backed-securities

[RandomGuy]

https://www.justice.gov/opa/pr/ubs-agrees-pay-1435-billion-fraud-sale-residential-mortgage-backed-securities

bit ofa reach back. how you find all this old shit?

[Winehole23]

bit ofa reach back. how you find all this old shit?the settlement is brand new, just popped up on twitter for me.

[RandomGuy]

the settlement is brand new, just popped up on twitter for me.

No I mean all these old threads you update.

[Winehole23]

No I mean all these old threads you update.Some of the thread titles I more or less recall. For those I don't recall, plugging keywords into the thread search usually works.

[Winehole23]

Key concept: "the bezzle"


The bezzle, a word coined in the 1950s by a Canadian-American economist, is the temporary gap between the perceived value of a portfolio of assets and its long-term economic value. Economies at times systematically create bezzle, unleashing substantial economic consequences that economists have rarely understood or discussed.



https://carnegieendowment.org/chinafinancialmarkets/85179