The myth live on that Fannie Mae and Freddie Mac started the housing crisis.

[JoeChalupa]

http://www.nytimes.com/2011/12/24/opinion/nocera-the-big-lie.html?_r=1&src=tp&smid=fb-share

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings.

You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point.

Allies? Start with Congressional Republicans, who have vowed to eliminate Fannie and Freddie — because, after all, they caused the crisis! Throw in The Wall Street Journal’s editorial page, which, on Wednesday, published one of Wallison’s many articles repeating the Big Lie. It was followed on Thursday by an editorial in The Journal making essentially the same point. Repetition is all-important to spreading a Big Lie.

In Wallison’s article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light. Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.’s allegations show is that the Big Lie is, well, a lie.

Central to Wallison’s argument is that the government’s effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis. Fannie and Freddie, which were required by law to meet certain “affordable housing mandates,” were the primary instruments of that government policy; their need to meet those mandates, says Wallison, is what caused them to dive so heavily into those “risky” mortgages. And because they were powerful forces in the housing market, their entry into subprime dragged along the rest of the mortgage industry.

But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages — belatedly, contrary to the Big Lie — because they were trying to reclaim lost market share, and thus maximize their bonuses.

As Karen Petrou, a well-regarded bank analyst, puts it: “The S.E.C.’s facts paint a picture in which it wasn’t high-minded government mandates that did [Fannie and Freddie] wrong, but rather the monomaniacal focus of top management on market share.” As I wrote on Tuesday, Fannie and Freddie, rather than leading the housing industry astray, got into riskier mortgages only after the horse was out of the barn. They were becoming irrelevant in the most profitable segment of the market — subprime. And that they couldn’t abide.

(The S.E.C., I should note, had its own criticism of my column, saying that I conflated its allegations regarding the lack of disclosure of subprime mortgages, with an entirely different set of charges it has brought regarding disclosure of so-called Alt-A loans. I still maintain that the S.E.C.’s charges are weak, and that the agency brought the case in part for political reasons: how better to curry favor with House Republicans than to go after former Fannie and Freddie executives?)

Three years after the financial crisis, the country would be well served by a real debate about the role of government in housing. Should the government be helping low- and moderate-income Americans own their own homes? If so, is there an acceptable level of risk? If not, how do we recast the American dream?

To have that debate, though, we need a clear understanding of what role the government’s affordable-housing goals did — and did not — play in the crisis. And that is impossible as long as the Big Lie holds sway.

Which, now that I think of it, may be the whole point of the exercise.


~~What say you? Scott?

[boutons_deux]

When the crisis hit, lying wrongies were in here blaming F&F and CRA for forcing lenders to write sub-prime/exploding-ARM mortgages, perpetrating The BIG LIE literally from day one of the economic/mortgage catastrophe.

As we see now with HAMP and other mortgage modification/relief programs, the govt can't force the banks/lenders to do anything.

Repeating the lies from many places and 1000s of times convinces disengaged/unserious/stupid people that lies are the truth.

AEI's and other VRWC stink tanks' lies have been a very effective campaign to deflect blame from the real causes and criminals. Even Obama punted by saying the financial sector may have been unethical, but was not illegal. And of course Congress will never make the destructive "ethics" of their benefactors' financial sector illegal.

[boutons_deux]

btw, untouchable mortgage interest tax deductions so beloved by everyone actually subsidize the lenders, who also benefit enormously from the govt insuring mortgages. Private gain, taxpayer risk.

[Viva Las Espuelas]

nice opinion......

[Opinionater]

nice opinion......

:tu

[boutons_deux]

nice contribution.

[boutons_deux]

GFY

Stiglitz on what really happened, what didn't happen (bailing out finance didn't bail out the real economy), etc

The Book of Jobs

Two conclusions can be drawn from this brief history. The first is that the economy will not bounce back on its own, at least not in a time frame that matters to ordinary people. Yes, all those foreclosed homes will eventually find someone to live in them, or be torn down. Prices will at some point stabilize and even start to rise. Americans will also adjust to a lower standard of living—not just living within their means but living beneath their means as they struggle to pay off a mountain of debt. But the damage will be enormous. America’s conception of itself as a land of opportunity is already badly eroded. Unemployed young people are alienated. It will be harder and harder to get some large proportion of them onto a productive track. They will be scarred for life by what is happening today. Drive through the industrial river valleys of the Midwest or the small towns of the Plains or the factory hubs of the South, and you will see a picture of irreversible decay.

Monetary policy is not going to help us out of this mess. Ben Bernanke has, belatedly, admitted as much. The Fed played an important role in creating the current conditions—by encouraging the bubble that led to unsustainable consumption—but there is now little it can do to mitigate the consequences. I can understand that its members may feel some degree of guilt. But anyone who believes that monetary policy is going to resuscitate the economy will be sorely disappointed. That idea is a distraction, and a dangerous one.

What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.

The second conclusion is this: If we expect to maintain any semblance of “normality,” we must fix the financial system. As noted, the implosion of the financial sector may not have been the underlying cause of our current crisis—but it has made it worse, and it’s an obstacle to long-term recovery. Small and medium-size companies, especially new ones, are disproportionately the source of job creation in any economy, and they have been especially hard-hit. What’s needed is to get banks out of the dangerous business of speculating and back into the boring business of lending. But we have not fixed the financial system. Rather, we have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.

That we should tolerate such a confusion of ends and means says something deeply disturbing about where our economy and our society have been heading. Americans in general are coming to understand what has happened. Protesters around the country, galvanized by the Occupy Wall Street movement, already know.

http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201.print

=============

[boutons_deux]

Housing Bubble and the Big Lie

http://www.motherjones.com/files/images/blog_fannie_freddie_peak_2.jpg

This is butt simple stuff. All you have to do is look at one simple chart to see exactly what happened. And yet, conservatives don't care. As Paul Krugman says, this "isn’t just a case where different people look at the same facts but reach different conclusions. Instead, we’re looking at a situation in which one side of the debate just isn’t interested in the truth, in which alleged scholarship is actually just propaganda."

Fannie and Freddie were bad actors in a lot of ways, and that makes them an easy target for conservatives who are desperate to absolve the private sector of any blame for the financial crisis. But when it comes to assigning blame for the housing bubble, the evidence against them is laughably thin. Like it or not, this was Wall Street's fault.

http://motherjones.com/kevin-drum/2011/12/housing-bubble-and-big-lie

[scott]

Hey Joe, this isn't really a big area of academic study for me and I probably won't be able to educate myself enough to make a good comment anytime soon, so I won't provide any economic analysis to the story (which I can admit to not even reading, for the aforementioned reasons)

[JoeChalupa]

Hey Joe, this isn't really a big area of academic study for me and I probably won't be able to educate myself enough to make a good comment anytime soon, so I won't provide any economic analysis to the story (which I can admit to not even reading, for the aforementioned reasons)

Yeah, I kind of thought so afterwards. :tu

[Winehole23]

...it's a fact, Viva.

81% of subprime loans originated from private lenders. True, a bunch of them ended up parked at Fannie and Freddie later, starting around August of 2007 when the market began to perceive the real estate bubble (i.e. credit contracted)

The GSE's weren't the cause of the mess, but they were used as sponges afterward to help mop up the blood on the trading floor.

[boutons_deux]

And many of regulated banks created non-regulated subsidiaries to get in on the sub-prime fee action.

The unregulated shadow banking system and hedge/capital funds remain a huge risk to the country, even to the world's financial system.

Ain't unregulated, greed-driven, predatory, sociopathic capitalism wonderful?

The financial system is so complex, opaque, and powerful ($$$ to politicians) that I have little hope that it will ever be controlled and rendered harmless to the non-financial system.

[Wild Cobra]

They were only doing what they were pressured to do by those who held they kkey to their success.

Congress.

[boutons_deux]

You NEVER stop your LYING

[Wild Cobra]

You NEVER stop your LYING

Really now. Everyone who participated is at fault. However, congress pressured the banking industry to make bad loans. The banks said we will not carry that burden of responsibility for bad loans, so congress made a legal method to move those loans off the banks books.

The banks that got caught with bad house loans on their hands should have had to deal with their own mismanagement as well.

There should have been no bailouts. Period.

[boutons_deux]

"congress pressured the banking industry to make bad loans"

again, the banks can't be forced to do shit by govt.

the selling mortgages was a govt "innovation", I doubt that, but if it were, the financial sector paid Congress to approve it.

The bailout should have been nationalization of all the big banks who were ALL bankrupt, split them up, sell off the good stuff, wipe out the shareholders and bond holders, start over, re-implement a hard-core Glass-Steagall.

[CosmicCowboy]

But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages — belatedly, contrary to the Big Lie — because they were trying to reclaim lost market share, and thus maximize their bonuses.

So a quasi-governmental agency was mis-managed by crooks that were not accountable to anyone (including free market losses) trying to pad their bonuses which led to the housing crisis...

And your point was?

[boutons_deux]

7 of the Nastiest Scams, Rip-Offs and Tricks From Wall Street Crooks

Fraudclosure/Robosigning

Pushing Subprime Loans

Betting Against Designed-to-Fail Bonds

An “Epidemic” Of Mortgage Fraud

Ratings Agencies Gave AAA to CDOs

Banksters Who Made Out Like … Bandits

Insiders Profiting From Being … Insiders

Again, no one is being prosecuted.

After the “S&L Crisis” there were 1,100 prosecutions and more than 800 bank officials went to jail. This time – even with the appearance of widespread criminality in the financial industry – not so much. In fact, not any.

http://www.alternet.org/module/printversion/153530

=====

Of course, MSM won't touch these crimes.

[Winehole23]

dp

[RandomGuy]

Hey Joe, this isn't really a big area of academic study for me and I probably won't be able to educate myself enough to make a good comment anytime soon, so I won't provide any economic analysis to the story (which I can admit to not even reading, for the aforementioned reasons)

My understanding is that the Fanny/freddy slice of the mortgage backed derivatives is dwarfed by the other institutions.

They started the ball rolling, and the other banks jumped on the chance to do something similar.

In the process the demand for good new loans to package up exceeded the capacity of the economy to supply it quickly, driving incentives to relax standards and increase the amount supplied.

The end result is that Fanny/Freddy are neither entirely blameless, nor entirely to blame.

As usual, the Free Marketeers will only push the side of the narrative they like, as is the case here, i.e. it is all Fanny/Freddy's fault and the private larger banks are innocent victims of evil government interference.

[RandomGuy]

Really now. Everyone who participated is at fault. However, congress pressured the banking industry to make bad loans. The banks said we will not carry that burden of responsibility for bad loans, so congress made a legal method to move those loans off the banks books.

The banks that got caught with bad house loans on their hands should have had to deal with their own mismanagement as well.

There should have been no bailouts. Period.

I would almost agree.

The banks should face up to their part. People should be out of jobs or in jail.

BUT

Such sentiments miss the larger picture.

Let's add in the externalities.

First, let's add in the fact that the credit default swaps on these institutions are not tied to the value of their assets. There is effectively no cap at all to the CDS's issued on their debt, somewhere in the hudreds of trillions of dollars worth and climing daily. We could be using the words "quadrillions of dollars" in my lifetime.

Let's assume you get your policy solution. The bank goes under.

How much does the wider economy lose?

Debt = worthless.

1) Your insurance premiums go up for everything from car insurance, house insurance, EVERYTHING. The insurers have to make up for the lost value/revenue somehow, and there is only one other way outside of getting lucky on the bond market.

2) For every ONE dollar of loss to the direct bond holders, you also get multiples of that in losses from those CDS'

3) Who issued those CDS'?
Hedge funds. Hedge funds will have to sell assets to cover those losses.
Who invests in hedge funds? Banks and insurance companies, in part, retirement funds for the rest of it.

4)So what happens to the perfectly healthy banks whose assets are now impaired? Their equity gets wiped or reduced. They can't loan as much money.

5) When the banks stop loaning money, financial needs aren't met, and customers start missing payments to other lenders.

6) Loans are assets on the books of banks. What happens when their investments AND their loans are suddenly worth less money? They go bankrupt, and default on THEIR debt.

Do you like where this is going? Do you really think that is better than the bailouts that happened?

Now what is your solution to preventing it in the future?

[boutons_deux]

Bloomberg reported last week that the Republican line has been rejected “by the chairman of the Federal Reserve, many economists and even three of the four Republicans on the government commission that investigated the meltdown,” but Romney & Co. don’t care about facts; they care about convincing voters to believe ideologically-satisfying nonsense. Sure, the evidence points to a lack of regulations, but since when does evidence matter?

The thing that makes this storyline so absurd is that it requires one to pretend that there was no profit motive at play. Wall Street, having broken the traditional connection between lender and borrower through the securitization process, was making a fortune, and it was the hunger for a fat stream of fees, rather than desire to conform with some nonexistent regulatory requirement, that caused them to lower lending standards to nothing.

This story, by Michael Hudson, offers a glimpse behind-the scenes in the mortgage industry:

Greg Saffer says conscience and common sense prevented him from pushing the product his bosses wanted him to sell – “Option ARM” home loans that, he says, put homeowners at risk.

“I’m not going to steer people into a loan program that might not be good for them just because it’s more profitable for the company,” he says.

JP Morgan Chase Bank counters that Saffer didn’t sell because he didn’t have the chops to close deals.

[...]

Saffer charged in a lawsuit filed in 2009 in Los Angeles Superior Court that he was forced out of his job for refusing to take part in “fraudulent schemes.” In testimony in the lawsuit and in documents in arbitration proceedings, he claims WaMu retaliated against him because he refused to push “toxic” Option ARMs and mislead borrowers about how the loans worked and how much they would cost.



Saffer’s case is notable because, as a salesman, his job description was different from most of the ex-employees who’ve made whistleblower claims against mortgage lenders. Many were fraud investigators or loan underwriters who claim they were punished for uncovering fraud by sales reps and sales executives.

Saffer’s legal claims paint him as one of what may have been a distinct minority among the mortgage industry’s sales corps during the nation’s home-loan frenzy – a salesman who said no to the dirty tactics that became pervasive during the boom. Former industry insiders say salespeople who refused to go along were often weeded out, to make way for others who had a more pliable sense of right and wrong.

Saffer’s attorney, Carney Shegerian, represents two other former WaMu sales reps who, like Saffer, claim that WaMu fired them because they resisted pressure to engage in improper lending tactics. Their case has also been ordered into arbitration.

Shegerian says his clients not only lost their jobs because they refused to go along with the practices at the bank, “their good names were totally soiled for having been employed by WaMu.

[...]



WaMu, the nation’s largest savings and loan, was putting up big numbers peddling exotic home-loan products that, just a few years before, had been on the margins of the mortgage industry.

These included subprime mortgages designed for borrowers with weak credit as well as “payment-option” adjustable-rate mortgages generally targeted at borrowers with good credit.

Option ARMs allowed borrowers to make minimum payments that didn’t keep pace with interest charges on their loans. In other words, loan balances would grow rather than drop as each month ticked by. It’s known as a negative amortization loan, or “NegAm” in industry parlance.

Option ARMs accounted for roughly half of Washington Mutual’s home-loan production during the mortgage boom years, according to federal regulators.

WaMu chief executive Kerry Killinger touted Option ARMs as the bank’s “flagship product.”

It was no wonder.

WaMu earned more than five times as much on Option ARMs as it did on fixed-rate home loans, according to internal company documents. Mortgage investors on Wall Street loved them because their growing loan balances and escalating interest rates translated into big returns.

http://www.alternet.org/module/printversion/newsandviews/753853

[Winehole23]

http://www.bloomberg.com/news/2011-12-21/romney-gingrich-bid-to-pin-crisis-on-government-ignores-culprits.html

[boutons_deux]

Just another BIG LIE from the Repugs. It's in their genes.

[Winehole23]

it fits the preexisting narrative that minorities and welfare recipients have ruined everything

[CosmicCowboy]

it fits the preexisting narrative that minorities and welfare recipients have ruined everything

Quite an oversimplification, obviously.

It was an unholy combination of the banks and mortgage brokers, Fannie and Freddie that gobbled up whatever crap they threw at them, The wall street giants that repackaged the crap for Fannie and freddie as CDO's, and the rating agencies and insurance companies that were all in on the scam.

The stupid belief that all you had to do in real estate to make money was to get your loan closed fooled them all from top to bottom.

[DMX7]

There should have been no bailouts. Period.

This is almost a seperate argument. If they didn't get a bailout, we'd all be paying. Markets would crash, FDIC would be drowning (and we wouldn't get that money back) and the U.S. economy would look 3x worse than it is now.

[boutons_deux]

"minorities and welfare recipients have ruined everything"

and are to be criminalized and discarded as garbage.

[Winehole23]

Hedge funds have mostly been exonerated in the typical narrative of the financial crisis, which concentrates blame on some combination of mortgage lenders, investment banks and government agencies.

A new paper (http://www.econ.yale.edu/%7Ego49/pdfs/CC.pdf) by Yale professors Gary Gorton and Guillermo Ordonez, however, may indicate that hedge funds and other well-informed, aggressive traders played a much more important role in triggering the crises than is widely understood.



The paper, titled “Collateral Crises,” examines the important role short-term collateralized debt plays in the financial system. In other papers Gorton has argued that short-term collateralized lending between banks and money market funds is a form of private money within the banking system. It is the medium of exchange within this 'private' system. In order for collateralized debt to perform this function, the debt needs to be “information insensitive.” Which is to say, the institutions lending the money need to be able to implicitly trust quality of the collateral without investigating to make sure it is sound—largely because a money market fund doesn't have the resources to investigate the quality of every triple-A rated mortgage-backed security that backs up its short-term loan to a bank.
But how can a money market fund avoid being given the worst quality collateral? Here the complexity of the collateral comes in to play. In order to prevent borrowers from engaging in adverse selection—i.e. giving the money market fund junk collateral—the collateral must be complex enough that it isn't profitable for anyone to produce enough information about the debt to carry out any kind of predatory behavior.



In short, predatory trading must be too expensive to work.



“In other words, optimal collateral would resemble a complicated, structured, claim on housing or land, e.g., a mortgage-backed security,” the authors argue.
Mortgage-backed securities were complex and opaque enough that they made ideal collateral. A party on one side of a collateralized loan could count on the fact that the other side was just as ignorant about the collateral as he was.
Although Gorton and Ordonez do not go into the collateralized debt obligation market, it is easy to extend the argument to CDOs. The higher the level of complexity, the more expensive it would be to engage in predatory collateralization. A CDO would be even more “information insensitive” than a MBS. And a CDO-squared would be even more so.



The trouble is that the lack of information means that borrowing occurs against good and bad collateral. This leads to a credit boom, with “blissful ignorance” leading to increased consumption and more lending. Over time, ignorance about the quality of collateral and the financial health of the lenders and borrowers becomes more and more pronounced.

It would stand to reason that a type of Gresham’s law would develop in this kind of situation. Bad collateral would drive out good collateral. Once someone starts to figure out how to affordably detect collateral quality, he would begin to hoard high quality collateral and trade with only low quality collateral. Or, even more aggressively, he might begin to explore ways to short the low quality collateral.
Gorton and Ordonez talk about “aggregate shocks” inducing the production of information about credit quality. But I’m not sure we need any shock at all. All we need is a few guys to see an opportunity to decide to trade on the decay of information about the collateral.



In other words, you just need a few guys at hedge funds or on trading desks at investment banks to find a way to acquire or produce information about credit quality. They might not even need accurate information—just a hunch will do.
http://www.cnbc.com/id/46191784

[Wild Cobra]

The housing market had to burst at some time. I blame the people who drove the prices of houses artificially high... the consumers...

[Winehole23]

who gave them the money to do so and failed to tally the risk?

[Wild Cobra]

who gave them the money to do so and failed to tally the risk?
That should have been their loss. They shouldn't have been bailed out.

[Winehole23]

consumers couldn't buy too many houses without banks lending to builders and buyers basically blindfolded. just sayin. bubbles are overdetermined in more than one direction usually.

[DarrinS]

The myth live on

[boutons_deux]

"I blame the people who drove the prices of houses artificially high... the consumers..."

You Lie

The Fed/Greenspan extremely low interest rates after the dot-com bubble popped were an attempt to lessen the post-bubble dip, but were continued too long, and enabled the low-interest rate mortgages. Greenspan himself admits he fucked up by trusting the financial sector to Do The Right Thing.

The other factor was that the Repugs' conciliation-rammed-through 2001 tax cuts, and the estate tax cuts, etc of 2003 freed up $100Bs in private, non-bank/shadow-bank lending capital that went looking for high returns (sub-prime mortgage rates). Those lenders like Indy Mac and Nationwide wrote millions of stated-income/liars loans in contravention of FHA lending regulations.

Just applying those regulations would have prevented the bubble.

As always with WC, it's Human-Americans that fuck up, not the institutions.

[Winehole23]

The myth live onThe myth that it's simple rather than complex? Agree 100%

[Winehole23]

not either/or, but both/and...

and...

etc..

[The Reckoning]

Hey Joe, this isn't really a big area of academic study for me and I probably won't be able to educate myself enough to make a good comment anytime soon, so I won't provide any economic analysis to the story (which I can admit to not even reading, for the aforementioned reasons)


good thing everyone else here is an expert

[Winehole23]

well, we can at least try to follow the news. this place is still called SpursTALK, isn't it?

[Winehole23]

it's hard for me to see why any particular disdain should be reserved for trying to understand things we probably can't understand, when basically all time spent in this subforum is time presumptively wasted.

[Winehole23]

I can understand why it would bother a doctor of economics, but very few of us are that. Are we all to hold our tongues on that account?

[The Reckoning]

not at all. proceed.

[Winehole23]

lol disdaining idle talk on a discussion board

[The Reckoning]

never in my life!

[Wild Cobra]

consumers couldn't buy too many houses without banks lending to builders and buyers basically blindfolded. just sayin. bubbles are overdetermined in more than one direction usually.
So they were suppose to be our nanny's?

[Winehole23]

not at all.

due diligence in evaluating risk is a normal fiduciary/professional responsibility. banks do it to cover their own asses, not ours. in this case they not only failed to, they threw caution to the wind.

[boutons_deux]

"So they were suppose to be our nanny's"

they were/are supposed to qualify the borrower as able to pay the mortgage, like two years of tax returns, bank statements, property tax stubs, etc, etc. The banks and lenders know perfectly, exhaustively how to weed out liars and unqualifieds, they just didn't do it.

btw, CRA borrowers weren't sup-prime and had/have no more defaults than non-CRA borrowers, killing another Yoni,etc lie.

[Wild Cobra]

"So they were suppose to be our nanny's"

they were/are supposed to quality the borrower as able to pay the mortgage, like two years of tax returns, bank statements, property tax stubs, etc, etc. The banks and lenders know perfectly, exhaustively how to weed out liars and unqualifieds, they just didn't do it.

btw, CRA borrowers weren't sup-prime and had/have no more defaults than non-CRA borrowers, killing another Yoni,etc lie.
I'm not saying the banks didn't have fault in their own financial problems. I'm saying it's the buyers who drove prices up unreasonable. The banks were stupid in thinking these houses would also retain value, not having a problem with foreclosing on stupid people. The banks should have seen the bubble would burst, but somehow didn't.

[boutons_deux]

"buyers who drove prices up unreasonable"

the background was the historically low Greenspan interest rates and many $100Bs in investor funds looking for high returns. That created the feeding frenzy, not the borrowers.

If Greenspan had raised interest rates, no frenzy.

If dubya hadn't handed $100Bs in tax cuts to the wealthy, no so much greedy money in investors' pockets as chum.

[Winehole23]

Money-market mutual funds, an alternative to bank accounts for individuals and companies, will test the resolve of the U.S. Federal Reserve (http://topics.bloomberg.com/federal-reserve/) and Treasury Department to prevent another financial crisis after the $2.6 trillion industry successfully lobbied against more regulation by the Securities and Exchange Commission.


Fed Governor Daniel Tarullo (http://topics.bloomberg.com/daniel-tarullo/) has said the central bank could tighten rules on banks’ borrowing from money-market funds (http://topics.bloomberg.com/money-market-funds/), and Boston (http://topics.bloomberg.com/boston/) Fed President Eric Rosengren (http://topics.bloomberg.com/eric-rosengren/) has said officials have the option to force banks to back their money funds with capital. The Fed and the Treasury could also work through the Financial Stability Oversight Council, a new regulatory panel formed under the Dodd-Frank Act, to seize oversight of money funds from the SEC and grant that power to the Fed.



“There’s real unanimity in the bank regulatory arena about the need to do something about money-market funds,” Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc., said in an interview. “What the Fed can do, and I think will try to, is put the funds back in a much more limited corner, by isolating them from integration with the banking sector.”



SEC Chairman Mary Schapiro (http://topics.bloomberg.com/mary-schapiro/) this week abandoned a four-year effort to adopt tougher rules for money funds as three fellow commissioners said they wouldn’t support her proposal. The announcement marks a victory for the fund industry, which had lobbied against the plan.
http://www.bloomberg.com/news/2012-08-23/money-funds-test-geithner-bernanke-resolve-as-schapiro-defeated.html

[CosmicCowboy]

Boutons must still be living in his mothers sewing room and never actually gotten a mortgage loan of his own. If he had, he would know that the Underwriter (Fannie/Freddie) establishes guidelines of what documentation it DEMANDS before approving and funding a loan. Loan Originators (banks, mortgage brokers, etc.) work with the buyer to assemble this package...extended application and financial statement, Bank statements, at least two years tax returns, at least 2 months proof of income (pay check stubs) survey, current appraisal, etc.etc.etc. Once the buyer has submitted all the required documentation demanded by the underwriter to the loan originator they go over it and make sure that every bit of information requested by the originator has been included and then submit it. (Fannie/Freddie) goes over it again to make sure the loan meets their guidelines and everything they asked to be documented has been documented. THEN they fund the loan.

If Fannie and Freddie bought undocumented shit loans it is because they allowed undocumented shit loans. It's that simple. Banks weren't out there forging tax returns and pay check stubs...Fannie and Freddie weren't ASKING for them.

[Winehole23]

neither was anyone else. Fannie and Freddie didn't start hoovering up subprime until after August of 2007. whole sector had the jump on Fannie and Freddie, tbh

[Winehole23]

the etiology that blames it on Fannie and Freddie has it exactly backwards. the GSEs were used as a heat sink to fade the damage to the out of control private sector, after the credit crunch of 2007.

[Winehole23]

before end of August 2007, subprime was less than a third of the GSE's portfolio. A year later, that ratio had grown to nearly 2/3. they loaded up when they knew the housing sector was going to shit.

[Wild Cobra]

In the end, the people are to blame.

We all know, if we enter into a contract, and renege on that contract, certain things will happen. All these people had to do was pay their mortgages. The only fault of the banks was not seeing the epidemic coming from an unnatural increase in values, and the bursting of a bubble. Bubbles always burst.

Life is always a gamble. Some had bad luck and lost jobs. Some bet they could sell at a higher price getting over their heads.

Bottom line. Those who lost their homes put themselves there.

[Winehole23]

gross simplification suits you

[Wild Cobra]

gross simplification suits you
The bottom line usually is simple, isn't it?

Really not. people have been buying and losing homes for ages.

Corporations have been rising and falling for as long as they existed.

Too big to fail... My Ass... They failed! We would have been so much better off not reviving them with tax dollars.

Did regulations enable this? Hell yes. Still, the responsibility was those who made the decisions. Those using the regulations to their advantage should have been allowed to fail when the shit hit the fan.

[Spurminator]

The bottom line usually is simple, isn't it?

Simple bottom lines are for simple minded people who, for whatever reason, get tired head from the idea that many problems are caused by a number of factors.

[Wild Cobra]

Simple bottom lines are for simple minded people who, for whatever reason, get tired head from the idea that many problems are caused by a number of factors.
Did anyone who could pay their mortgages on time have problems?

Did any banks who properly controlled their risks have problems?

I'm sure you can find rare cases of improper paper work, but otherwise...

[Wild Cobra]

Housing Bubble and the Big Lie

http://www.motherjones.com/files/images/blog_fannie_freddie_peak_2.jpg

http://motherjones.com/kevin-drum/2011/12/housing-bubble-and-big-lie
I just took another look at this.

Shazbot...

Do you even understand what that chart shows, or are you believeing what Mother says?

[Winehole23]

Please unpack it for us, Professor Wild Cobra. I love it when you explain graphs.

[Wild Cobra]

Please unpack it for us, Professor Wild Cobra. I love it when you explain graphs.
It's a simple percentage allotment or mortgage types. the spike in secured mortgages and drop of government backed mortgages have nothing to do with sub-prime rates. Sure, those may have come to, but they were always around as well.

Lenders got smart, and in the uncertain market, more loans required collateral.

It also doesn't show actual numbers. Only percentages. To use the chart like Mother did, is laughable in my opinion.