Dont be too quick to judge the 1%

[msj]

The thing is it wasnt banks. Its was investment banks that are not even subject to the CRA, and FDIC regulations.

And the point being missed here is that this was profitable activity. Wall street made a lot of money on these securities. Nobody had to force them to do any of this stuff, they did it to make money, and people made a FORTUNE while the bubble was building.

Good point dre.

When I stated banks I was being too general.

[blueblood]

You cannot really compare a body to a society because a body does not have its different components betraying each other to eke out an advantage. For example, for the 'rehab' to work everyone - including public sector unions - would have to accept a large decrease in absolute wages/benefit. The unions would fight bitterly to protect their advatage even though it screws the rest of society. The same story plays out with any number of entitements that need to be cut back.

I think you can compare it to a body, some people think that getting through withdrawal means shooting up again to numb the pain.

As for getting too mad at the banks, yes they got drunk like high school kids at prom drinking spiked punch and acted like buffoons, and they've been chastised for it, but you have to look at who spiked the punch, and that would be a do gooder government. That involves CRA, complex regulations, housing tax deductions, and fooling around with the interest rates.

The best regulation would be a higher interest rate at that time and gov't staying out of the housing sector.

[dre]

I think you can compare it to a body, some people think that getting through withdrawal means shooting up again to numb the pain.

As for getting too mad at the banks, yes they got drunk like high school kids at prom drinking spiked punch and acted like buffoons, and they've been chastised for it, but you have to look at who spiked the punch, and that would be a do gooder government. That involves CRA, complex regulations, housing tax deductions, and fooling around with the interest rates.

The best regulation would be a higher interest rate at that time and gov't staying out of the housing sector.

You are still assuming this was some kind of mistake or accident, but youre ignoring the point that the ENTIRE KEYNESIAN PLAN to deal with economic slowdowns is to dump zillions of dollars into the economy by pegging the interest rates at zero. Thats how our system works. They couldnt raise rates because they were still trying to deal with the LAST burst asset bubble.

And the spiked punch was investors not banks. Commercial Banks were some of the most responsible players in the whole mess. CRA regulated FDIC insured banks accounted for only a tiny percentage of bad loans. Read the report I linked to by economists at the Federal Reserve. The data simply does not support this whole bogus narrative. It was INVESTMENT BANKS... Market makers that cooked up all these different securities. And they arent subject to the CRA, or FDIC regulations at all.

What the real record shows is that the most regulated players behaved the best. Commercial banks for the most part stayed out of the sub prime market. It shows that unregulated investment banks and mortgage companies like Country Wide and New Century Financial were the ones generating all the bad paper.

Edited November 23, 2011 by dre

[blueblood]

You are still assuming this was some kind of mistake or accident, but youre ignoring the point that the ENTIRE KEYNESIAN PLAN to deal with economic slowdowns is to dump zillions of dollars into the economy by pegging the interest rates at zero. Thats how our system works. They couldnt raise rates because they were still trying to deal with the LAST burst asset bubble.

And the spiked punch was investors not banks. Commercial Banks were some of the most responsible players in the whole mess. CRA regulated FDIC insured banks accounted for only a tiny percentage of bad loans. Read the report I linked to by economists at the Federal Reserve. The data simply does not support this whole bogus narrative. It was INVESTMENT BANKS... Market makers that cooked up all these different securities. And they arent subject to the CRA, or FDIC regulations at all.

What the real record shows is that the most regulated players behaved the best. Commercial banks for the most part stayed out of the sub prime market. It shows that unregulated investment banks and mortgage companies like Country Wide and New Century Financial

were the ones generating all the bad paper.

Forbes

This shows that countrywide and the likes had only 5%. However it supports your claim that CRA banks you like to state accounted for 3%. The culprits it seems were our best friends Fannie and Freddie and low Interest rates.

They dealt with the dot com bubble the wrong way by trying to inflate their way out of that recession. By kicking the can down the road. They would have been better off going through the hangover in 2001 by allowing the market to liquidate the bad assets.

The bankers/investors were the students who drank the spiked punch.

The low interest rates explain the growth of the bubble, however our friends gov't intervention explain the low quality of the mortgages which put the bubble on steroids.

Edited November 23, 2011 by blueblood

[msj]

Forbes

This shows that countrywide and the likes had only 5%. However it supports your claim that CRA banks you like to state accounted for 3%. The culprits it seems were our best friends Fannie and Freddie and low Interest rates.

I would take a look at some charts (Chart 5 in particular) before making such a claim.

Fannie and Freddie came late to the game.

They dealt with the dot com bubble the wrong way by trying to inflate their way out of that recession. By kicking the can down the road. They would have been better off going through the hangover in 2001 by allowing the market to liquidate the bad assets.

The bankers/investors were the students who drank the spiked punch.

The low interest rates explain the growth of the bubble, however our friends gov't intervention explain the low quality of the mortgages which put the bubble on steroids.

I agree.

Better to let the market wash away the weak/stupid/reckless.

Instead we have Bush/Obama propping up a sick financial system with low interest rates and mark to make believe magic.

I would find a link to some good articles about the shame that is the accounting setting board in the US that has allowed this sham to be passed on to them from the government but I know no one's gonna read it so tough luck.

[TimG]

The CRA is nowhere near being any kind of first cause for CDO's.

Unfortunately, I can't find a newspaper article I read before quoting a bank exec in the 90s going on about how great CDOs were because they allowed banks to meet the CRA requirements. I believe the link is there but I am going have to drop this topic do to lack of concrete evidence. Edited November 23, 2011 by TimG

[Michael Hardner]

Unfortunately, I can't find a newspaper article I read before quoting a bank exec in the 90s going on about how great CDOs were because they allowed banks to meet the CRA requirements.

That may be so, and I think I have read acknowledgments that the CRA sparked the change, but without deregulation they could have made changes without being so reckless, don't you think ?

[msj]

Unfortunately, I can't find a newspaper article I read before quoting a bank exec in the 90s going on about how great CDOs were because they allowed banks to meet the CRA requirements. I believe the link is there but I am going have to drop this topic do to lack of concrete evidence.

Even if true, clearly CDO's, MBS's etc were used and abused for subprime and prime mortgage purposes and, per the charts that I have already linked to above, clearly show that the problem is not CRA mortgages going bad (and, therefore, the AAA rating on those products being suspect) but subprime/prime mortgages going bad.

The government never forced the banks to underwrite liar loans.

If you were to actually read the CRA you would find nowhere in that Act where the government was forcing banks to loan money to people who were not worthy of being loaned to.

Once again, the problems were banks were shoveling money to anyone with a pulse because interest rates were low, real estate "only goes up," and CDO's/MBS' etc allowed Dusseldorf to take the risk.

The government never forced these loans which were the vast majority that were issued and the vast majority that are in foreclosure and are underwater.

[TimG]

If you were to actually read the CRA you would find nowhere in that Act where the government was forcing banks to loan money to people who were not worthy of being loaned to.

This is where reality does not meet theory. It is true the CRA had language that protected banks but Democratic politicians and community activist groups like ACORN would regularily used the CRA to blackmail banks. Many banks made a business decision to make loans they did not believe were sound as a result. I provided a youtube link above with Democratic politician bragging about how he was able to blackmail banks into making risky loans. In fact, Obama himself was one of the 'community activists' who engaged in this practice.

[blueblood]

I would take a look at some charts (Chart 5 in particular) before making such a claim.

Fannie and Freddie came late to the game.

I agree.

Better to let the market wash away the weak/stupid/reckless.

Instead we have Bush/Obama propping up a sick financial system with low interest rates and mark to make believe magic.

I would find a link to some good articles about the shame that is the accounting setting board in the US that has allowed this sham to be passed on to them from the government but I know no one's gonna read it so tough luck.

The only thing I can say about the difference between the Forbes article and your charts is that they must be using different metrics. I mean these two guys aren't going to go and publish an article in Forbes based on hot air. I don't know what those metrics are, if Fannie and Freddie came late to the game, according to the article, they went on one hell of a bender.

[dre]

The only thing I can say about the difference between the Forbes article and your charts is that they must be using different metrics. I mean these two guys aren't going to go and publish an article in Forbes based on hot air. I don't know what those metrics are, if Fannie and Freddie came late to the game, according to the article, they went on one hell of a bender.

Fanni and Freddy played a part. Theres no question that they contributed to the bidding up of US housing prices. But they didnt have very much exposure to toxic paper and its hard to fault them for the exposure that they did have. F&F generally bought investment grade securities rated TRIPLE AAA. They depended on the credit ratings agencies to evaluate all these securities just like everyone else did.

And we know know that more than 80% of all of these waterfall/mezanine multi-tranch securities were dutifully being stamped AAA by credit ratings agencies that were on the direct payroll of investment banks that created the securities.

Fanny and Freddy have joined the long list of other public and private instutions that are suing these investment banks for fraud... and a bunch of them will be frog marched in front of the courts by the SEC in the next year or two. This could be really quite interesting because the relationship between market makers and credit ratings agencies will be exposed for everyone to see, and everything from private emails to the complete financial records of of all these companies will be be produced during discovery. Remember what happened when we got a close look at Enron?

If the courts rule that market makers and credit raters knowingly mislead investors or tried to conceal the risk in these securities, youll see the biggest legal judgement in history. Market makers could end up having to compensate every one on the planet that purchased these securities.

A bruising legal fight pitting the country’s most powerful banks against the full force of the United States government began Friday, as federal regulators filed suits against 17 financial institutions that sold the mortgage giants Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured.

Anyhow... Iv only seen one report that actually looked at ALL the data, and thats the official Federal Reserve study on the causes of the meltdown. F&F are mentioned but are not listed as one of the big causative players. The reality is that prior to the meltdown F&F were rapidly reducing their inventory and had been supplanted by the private sector which by 2006 was securing more than 75% of subprime loans.

http://nationalmortgageprofessional.com/news23348/fcic-report-wall-street-and-regulators-get-final-blame-mortgage-meltdown

Theres an article about the FCIC report with a link to its full text at the bottom.

►Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages;

►Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk;

►An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis;

►Key policymakers ill-prepared for the crisis, lacking a full understanding of the financial system they oversaw; and

►Systemic breaches in accountability and ethics at all levels

Total and complete failure on the part of the government to regulate investment banking.

Total and complete failure on the part of the Federal Reserve to stem the tide of toxic paper.

Total and complete failure of credit ratings agencies to properly assess the risk in multi-tranch ABS's.

Total and complete failure of almost all players involved to act ethically.

Edited November 23, 2011 by dre

[maple_leafs182]

I really think some you guys are looking at the economy with a flawed perspective. The problem with the economy is it is powered by debt. Around the world we use debt to create artificial prosperity, this isn't real prosperity, real prosperity comes from production.

We need to end this debt based monetary system if we want to become prosperous, we have to let us(the market) decide what money is, money should have intrinsic value.

[jacee]

It would be like a heroin addict going through rehab and dealing with withdrawal. Painful at first, but gets the person healthy in the long term.

Do you think the moneylenders will mind?

The markets?