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Timetheos
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PostPosted: Wed Dec 10, 2008 8:45 pm    Post subject: How we got into this financial mess Reply with quote
http://www.vanityfair.com/maga.....litz200901

No. 1: Firing the Chairman (Volcker)
No. 2: Tearing Down the Walls (the repeal of Glass-Steagall Act)
No. 3: Applying the Leeches (i.e. Bush tax cuts)
No. 4: Faking the Numbers (bogus ratings and stock pumping)
No. 5: Letting It Bleed (Bush/Paulson erratic response)
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Portland
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PostPosted: Tue Jan 13, 2009 12:02 pm    Post subject: Reply with quote
Sorry? I had to do a paper on this subject. It did not exactly happen as you put it.
In the mid 1990s, there was a huge drop in regulation of housing loans, which allowed for something called subprime loans. Chiefly there are four problems with this.
First, the subprime loan is no money down loan. Which means you can buy a house and have no down payment so the tenets of that house feel nothing if they just abandon the house because they did not have to put 25k into the house to get it.
Second, subprime loans are called high-risk loans. As such, if you miss a payment extremely harsh penalties ensue. In addition, most of them had very low introductory rates after which the rates would balloon to extremely high rates that are darn near impossible to pay.
Third, these loans were not limited to how much a person made. Therefore, it was possible for people who made min wage to buy a house that cost as much as 10 times out of their range.
Fourth, Most of our banks in America are Mega Corporation Banks. Meaning that are both the lender the banker and the investor market. So when a loan like this was approved it went right to the stock market.
What is wrong with the last one you may be asking? Well it is a little hard to explain. The loan is packaged with about 10 loans. Then take two packages and package them together to make them worth huge amounts of money. This packaging of loans is called securities. Well these securities are sold on market for money. Many people bought them at about half their value expecting the loan to pay them more in the end. Here is where the problem hits people couldn’t afford the loans, and started leaving their houses because they never had any money down. So the loans that people expected high returns from all of a sudden were worthless. The Securities became not so secure. This was a huge hit to the market, which has for the last few years believed in the secure housing market.
The market lost huge amounts of money to the subprime loans. If you want to know how bad it got Fannie Mae and Freddy Mac over half their portfolio of loans were subprime. What helped this market is the artificially enlarging of housing prices. What happened was this lets say a man buys ten houses in Florida then keeps off market for a year. Demand would grow and supply was not there. So the man would then sell the houses at inflated prices. Now imagine if thousands of people did this all over America, well you get the picture. So when President Bush talked about the need to let the market settle he was right. Because housing prices are deflating, I am sorry to all those experiencing those falling prices but they helped cause the economic freefall.
There are several other reasons for the economic problems but this post is long enough as it is.
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Timetheos
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PostPosted: Wed Jan 21, 2009 8:56 pm    Post subject: Reply with quote
The 5 items listed led to and exacerbated the problem with morgages.

"In the mid 1990s, there was a huge drop in regulation of housing loans"

How did this magic deregulation occur?

"The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation." http://en.wikipedia.org/wiki/Glass-Steagall_Act

The repeal of this, and a hands off attitude by the Fed, led to a broken market. (The Fed, by defining reserve requirements, can exert some control over mortgage loans.)

Furthermore, the artificially low interest rate amounted to a double-down on this ponzi scheme.

"It did not exactly happen as you put it." As I put it? Sounds like you didn't read the article.
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Portland
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PostPosted: Wed Jan 28, 2009 6:06 am    Post subject: Reply with quote
You made 5 statements I only agree with one. being the Glass-Steagall act being taken down. Also you made the statements on this website yes you. If you had not made the statements we all in this forum would have been without your thoughts.

You should really put blame on the chairman of the housing market in congress. He had not only sexual relationship with the CEO of I believe Fannie Mae. He was also a business partner with him. That is a suicidal cocktail for corruption if I ever saw one. Further More the government pushed for subprime loans in the mid 1990s. Another thing to look at was the fact that the housing market was going and going after the dotcom era popped so they were afraid to touch the one golden spot in the market.

But if you get right down to it. look at gas prices why have they fallen? our dollar is not worth more. we at not using so much less gas. it is speculation in the market. the wall could never protect us from that. primarily that is where the problem is. plus that wall only stopped banks from being both public mortgage and market banks. So it could not have stopped that problem. It is because of the poor economy that scared off the speculators.
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Timetheos
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PostPosted: Wed Jan 28, 2009 9:25 pm    Post subject: Reply with quote
Quote:
Further More the government pushed for subprime loans in the mid 1990s.


Do you have any evidence that CRA loans failed more often than regular loans?

Quote:
You should really put blame on the chairman of the housing market in congress. He had not only sexual relationship with the CEO of I believe Fannie Mae. He was also a business partner with him.


Correlation is not causation.

Quote:
Another thing to look at was the fact that the housing market was going and going after the dotcom era popped so they were afraid to touch the one golden spot in the market.


Which has a relationship with the other items in the list.
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TrespassersW
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PostPosted: Thu Jan 29, 2009 9:02 pm    Post subject: Reply with quote
Timetheos wrote:
Do you have any evidence that CRA loans failed more often than regular loans?

The graph below should provide evidence enough to prove the point.



From: http://online.wsj.com/article/.....whats_news
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Timetheos
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PostPosted: Thu Jan 29, 2009 11:05 pm    Post subject: Reply with quote
LOL, not a bit of evidence then.

Subprime does not equal CRA.

Furthermore, the fine print says "Data don't include loans guaranteed by Fannie Mae, Freddie Mac, or other agencies."

http://www.prospect.org/cs/art.....ime_crisis

Quote:
But CRA has always had critics, and they now suggest that the law went too far in encouraging banks to lend in struggling communities. Rhetoric aside, the argument turns on a simple question: In the current mortgage meltdown, did lenders approve bad loans to comply with CRA, or to make money?

The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households."

Yellen is hardly alone in concluding that the real problems came from the institutions beyond the reach of CRA. One of the only regulators who long ago saw the current crisis coming was the late Ned Gramlich, a former Fed governor. While Alan Greenspan was cheering the sub-prime boom, Gramlich warned of its risks and unsuccessfully pushed for greater supervision of bank affiliates. But Gramlich praised CRA, saying last year, "banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business."

It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did.

And that is not political correctness. It is correctness.
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Portland
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PostPosted: Sat Jan 31, 2009 6:03 am    Post subject: Reply with quote
I am sorry but you seemed to have mixed up my meaning. I never said CRA loans. Just the fact that government wants something done carries weight.

Furthermore to the point. Almost all subprime loans are ARM (Adjustable Rate Mortgage) which are tied to the treasury rate. Now just imagine for a second a man buys subprime ARM loan. The introductory rate it is 3% after a year goes to 6%. The treasury rises its rate. now the 6% does not include the treasury rate of lets say 2%. It is raised to 3% so that man is now paying 9% interest. You may not realize it but depending on how large the loan it can mean $1,800 or more per-month.

On top of that subprime loans were put into securities and were thought to be a really safe investment. So hedge funds, investment banks, foreign banks, local banks. They all bought into those subprime loan securities.

Between the years 2002-2005 in certain cities housing prices saw as much as 50% increases. Which subprime loans being the loan of choice. Is it any wonder the world markets crashed.

In the year 2000 right before president bush was in office. Bill Clinton Signed a bill which made it possible for securities to take place again. In the great depression that bill was signed to stop securities.

Between the American Civil War and WW2 there were 6 Crashes because of securities.
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Timetheos
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PostPosted: Mon Feb 02, 2009 2:51 am    Post subject: Reply with quote
Please read the article that the 5 items are associated with!
Quote:
I am sorry but you seemed to have mixed up my meaning. I never said CRA loans. Just the fact that government wants something done carries weight.


Executive Orders/Legislation or it didn't happen.

CRA loans were the primary mechanism for low income lending sponsered by the government.



Quote:
Furthermore to the point. Almost all subprime loans are ARM (Adjustable Rate Mortgage)...


Which really doesn't have anything to do with the list of 5 items.

Quote:
In the year 2000 right before president bush was in office. Bill Clinton Signed a bill which made it possible for securities to take place again. In the great depression that bill was signed to stop securities.


If you had read the article (link in the first post) that had these 5 items, you would have seen in the "entry": It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II

Specifically, items 1 and 2 are addressing exactly what you are refering to. Firing Volker and hiring Greenspan led to a detached Fed that didn't get involved in lending practices. "Tearing Down the Walls" was te repeal of the Glass-Steagall Act in 1999. Clinton should have vetoed it. The people pushing for it were the radical freemarket asses such as Phil Gramm.

But this wasn't the only thing. For example:
Quote:
There were other important steps down the deregulatory path. One was the decision in April 2004 by the Securities and Exchange Commission, at a meeting attended by virtually no one and largely overlooked at the time, to allow big investment banks to increase their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed securities, inflating the housing bubble in the process.
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