Bush, Mae and the Financial Crisis

[Merc14]

If you guys ever want to stop wasting time making fake partisan political hay out of this crisis and some day want to understand it correctly, turn to people who understood it so well they saw it coming years in advance.

Of course they did and if you watched the first video I posted you'd see that Bush was warning about te bubble bursting and Barney Frank, who was the government watchdog, called BS and there were accusations of the racist republicans trying to keep poor people from getting homes. It was absurd and even I saw it coming and I am far from an economist.

Edited October 9, 2012 by Merc14

[+joc]

One of us is very confused. What do you think a subprime mortgage is, exactly?

To reduce compliance burden, I'd imagine.

What confuses me is why you think that exempting financial organisations with having to comply with the CRA - a law that requires a proportional number of loans to be made to low-income neighbourhoods - would lead to those 94% of subprime loans that no-one was mandating them to make - the CRA's fault?

Not entirely. You cannot 'not' blame some of the lending institutions..but come on...that is WHY we have regulations in place to begin with, austensibly to keep everyone on the same page of sound financial principles. But the CRA opened a pandoras box by reducing the compliance burden.

If you guys ever want to stop wasting time making fake partisan political hay out of this crisis and some day want to understand it correctly, turn to people who understood it so well they saw it coming years in advance.

Peter Schiff was right. But so was I when all of this first began. I remember when it became 'legal' in Texas to borrow against the equity in your home. The way they were advertising all that was by telling people...Look, you are drowning indebt to credit card companies...borrow money against the equity in your home (second mortgage) and pay off all those credit cards and have money left in your pocket to do the things you want to do. But, people are creatures of habit...so, they payed off all those credit cards...and then ran them back up...finding themselves in a position of not being able to pay either mortgage or the credit card companies.

The blame can be spread around..but, and this is all I'm really saying, at the end of the day, the truth of the matter is that lax lending rules had a disasterous effect on the economy, whatever the original 'intentions' were.

[Tiggs]

Not entirely. You cannot 'not' blame some of the lending institutions..but come on...that is WHY we have regulations in place to begin with, austensibly to keep everyone on the same page of sound financial principles. But the CRA opened a pandoras box by reducing the compliance burden.

The CRA opened up a Pandora's box by not mandating smaller banking companies to give a percentage of their mortgages to low-income neighborhoods?

Why would that be, exactly?

The legislation that you're probably looking for which largely deregulated the banking industry and allowed them to offer these ridiculous mortgages in the first place is the Garn–St. Germain Depository Institutions Act of 1982, which has absolutely nothing to do with the CRA.

Nobody forced the lending institutions to make the vast majority of subprime loans. No regulation compelled them to do so - certainly not the CRA.

[Tiggs]

If you guys ever want to stop wasting time making fake partisan political hay out of this crisis and some day want to understand it correctly, turn to people who understood it so well they saw it coming years in advance.

Peter Schiff predicted the housing bubble correctly, as did many people. He's also correct when he talks about the issue with the economy not generating wealth, other than via house price rises and stock portfolios, both of which are subject to sudden reset.

What absolutely no-one realized back then, was that the subprime loans had been repackaged and resold to the international banks as AAA equities. You'll note that Schiff's talking about a US recession, not a world one.

Edited October 9, 2012 by Tiggs

[Tiggs]

Of course they did and if you watched the first video I posted you'd see that Bush was warning about te bubble bursting and Barney Frank, who was the government watchdog, called BS and there were accusations of the racist republicans trying to keep poor people from getting homes. It was absurd and even I saw it coming and I am far from an economist.

Y'know - if the best partisan argument you have is a clip of Barney Frank not being psychic in a committee which has a Republican majority - then you don't really have one, do you?

Also - I missed the part in your first video about Bush calling the housing Bubble. I see the White House saying that the GSE's were too big and needed to be re-regulated. That's not the same thing.

[Merc14]

Y'know - if the best partisan argument you have is a clip of Barney Frank not being psychic in a committee which has a Republican majority - then you don't really have one, do you?

Also - I missed the part in your first video about Bush calling the housing Bubble. I see the White House saying that the GSE's were too big and needed to be re-regulated. That's not the same thing.

Not the only argument I have and haven't been partisan at all but Barney was a central figure here and has walked awy unscathed. I think he managed this because a lot of people on the hill were making money. Anyways, joc has a far better handle on this so I am going to sit back and learn something.

Edited October 9, 2012 by Merc14

[ninjadude]

Those bankruptcy events then triggered the Derivatives cascade.

Which is the real cause of the economic event. There was about 4 quadrillion in money invested in these weirdo instruments called derivatives. More money than exists on the planet. They should not have allowed this economic gambling on just about anything that an investor wishes without having any real interest or stake.

[+joc]

Which is the real cause of the economic event. There was about 4 quadrillion in money invested in these weirdo instruments called derivatives. More money than exists on the planet. They should not have allowed this economic gambling on just about anything that an investor wishes without having any real interest or stake.

For once, I agree with you. They never should have allowed banks to loan to people who could never pay the loans back. I have been saying for years that the entire global economy is a house of cards. So much leveraging and no real substantial anything.

joc, on 09 October 2012 - 12:59 PM, said:

Not entirely. You cannot 'not' blame some of the lending institutions..but come on...that is WHY we have regulations in place to begin with, austensibly to keep everyone on the same page of sound financial principles. But the CRA opened a pandoras box by reducing the compliance burden.

The CRA opened up a Pandora's box by not mandating smaller banking companies to give a percentage of their mortgages to low-income neighborhoods?

Why would that be, exactly?

The legislation that you're probably looking for which largely deregulated the banking industry and allowed them to offer these ridiculous mortgages in the first place is the Garn–St. Germain Depository Institutions Act of 1982, which has absolutely nothing to do with the CRA.

Nobody forced the lending institutions to make the vast majority of subprime loans. No regulation compelled them to do so - certainly not the CRA.

No, the CRA opened a pandoras box by not 'regulating' the smaller banks. You're right no one forced the smaller banks to make subprime loans. But, that is like saying Congress didn't compell Mexicans to come across the border illegally. Of course Congress didn't force anyone into illegal immigration...but they turned a blind eye to the problem. Exactly what the CRA did by allowing banks of less than a billion dollars in assets to get away without any scrutinization of what they were doing whatsoever. I think a lot of it was monkey see, monkey do...got to get into the subprime mortgage game...and hey, guess what guys, if you want to be a mortgage broker...whallah...if you ain't got a billion dollars...loan anything to anyone and no one is going to say jack about it. And no one said jack about it...Meanwhile, the larger banks who were being compelled to make a percentage of subprime loans were inventing ways to get rid of these toxic assets...bundling these subprimes into a packaged derivative and selling them to basically suckers who wanted to get into the subprime lending game quickly.

[Tiggs]

No, the CRA opened a pandoras box by not 'regulating' the smaller banks.

Ummm. No. All banks are subject to exactly the same regulations regarding loans.

Not all banks have to make a percentage of their loans to low-income households.

See the difference?

[Yamato]

Peter Schiff predicted the housing bubble correctly, as did many people. He's also correct when he talks about the issue with the economy not generating wealth, other than via house price rises and stock portfolios, both of which are subject to sudden reset.

What absolutely no-one realized back then, was that the subprime loans had been repackaged and resold to the international banks as AAA equities. You'll note that Schiff's talking about a US recession, not a world one.

And these credit ratings are a bad joke. Does absolutely no-one realize that now?

And who is "many people"?

[Yamato]

Of course they did and if you watched the first video I posted you'd see that Bush was warning about te bubble bursting and Barney Frank, who was the government watchdog, called BS and there were accusations of the racist republicans trying to keep poor people from getting homes. It was absurd and even I saw it coming and I am far from an economist.

When did Bush warn about the bubble bursting? I only him remember him announcing it. Date whatever it is you're quoting here since you've brought it up.

[Tiggs]

And these credit ratings are a bad joke. Does absolutely no-one realize that now?

You'd think, wouldn't you?

And who is "many people"?

The people who were awake enough to sell their houses in the mid-noughties and have been renting ever since, for starters.

[Yamato]

The people who were awake enough to sell their houses in the mid-noughties and have been renting ever since, for starters.

Who? Do the people have names? And if they're just for starters, who's next?

[+joc]

Ummm. No. All banks are subject to exactly the same regulations regarding loans.

Not all banks have to make a percentage of their loans to low-income households.

See the difference?

If you think all lending institutions were subject to exactly the same regulations regarding loans, then you are mistaken.

Actually it was the Office of Thrift Supervision not the CRA. The CRA didn't actually make the rules, the OTS did, but yes, the rules were relaxed on lending institutions between 250 million and one billion dollars. The OTS relaxed the burdens on banks with less than one billion dollars. But, that was in 2005 and the damage had already been done. So, maybe a mute point. But it just goes to show what a mess the regulatory factions created when they forced lending institutions to meet the needs of people of low income status.

Click HERE for some light reading:

B. Commenters Opposing Proposal

CRA has been effective because the

Agencies have issued regulations in a

careful and uniform manner. OTS acted

alone in making the streamlined

examination for small institutions

available to institutions between $250

million and $1 billion in assets without

regard to holding company size. They

asserted that OTS was again acting

unilaterally and without the benefit of

interagency debate, this time to weaken

the examination requirements for

institutions over $1 billion in assets.

Community Reinvestment Act—

Assigned Ratings

AGENCY: Office of Thrift Supervision,

Treasury (OTS).

ACTION: Final rule.

SUMMARY: In this final rule, OTS is

making changes to its Community

Reinvestment Act (CRA) regulations to

reduce burden, provide greater

flexibility to meet community needs,

and restore the focus of CRA to lending.

Specifically, OTS is providing

additional flexibility to each savings

association evaluated under the large

retail institution test to determine the

combination of lending, investment, and

service it will use to meet the credit

needs of the local communities in

which it is chartered, consistent with

safe and sound operations.

[Merc14]

If you think all lending institutions were subject to exactly the same regulations regarding loans, then you are mistaken.

Actually it was the Office of Thrift Supervision not the CRA. The CRA didn't actually make the rules, the OTS did, but yes, the rules were relaxed on lending institutions between 250 million and one billion dollars. The OTS relaxed the burdens on banks with less than one billion dollars. But, that was in 2005 and the damage had already been done. So, maybe a mute point. But it just goes to show what a mess the regulatory factions created when they forced lending institutions to meet the needs of people of low income status.

Click HERE for some light reading:

Thanks for the info joc, I learned a lot and you obvuously are wel versed in what had happened. Are you affiliated with the financial industry?

[Tiggs]

Who? Do the people have names?

Yes, People have names.

No, I'm not privvy to all of them.

Yes, I do know many people in my personal circle of friends who did so. I'm sure most people know at least one.

No, I'm not going to list my friends names on a public forum.

No, I don't care whether you believe me, or otherwise.

And if they're just for starters, who's next?

People who moved their money out of Property Asset Funds into more recession-proof instruments.

In short - those who demonstrably put their money where their mouth is.

[Tiggs]

If you think all lending institutions were subject to exactly the same regulations regarding loans, then you are mistaken.

Again. I'm not disputing your claim that there are different regulations regarding the CRA, depending on the size of the bank involved. Again, the CRA is purely a mechanism to enforce that a bank give a ratio of loans to particular income areas.

What I'm disputing is your claim that the CRA has anything to do with the fundamental regulations regarding the type of Bank Loans that are able to be offered.

Or, in short - Perhaps you'd care to cut and paste the relevant part from the article you've provided which shows otherwise?

But, that was in 2005 and the damage had already been done. So, maybe a mute point.

And there's that, too.

But it just goes to show what a mess the regulatory factions created when they forced lending institutions to meet the needs of people of low income status.

But you're currently trying to make the argument that not forcing small lending institutions to meet the needs of people of low income status is a bad thing.

Edited October 10, 2012 by Tiggs

[Yamato]

Yes, People have names.

No, I'm not privvy to all of them.

Yes, I do know many people in my personal circle of friends who did so. I'm sure most people know at least one.

No, I'm not going to list my friends names on a public forum.

No, I don't care whether you believe me, or otherwise.

People who moved their money out of Property Asset Funds into more recession-proof instruments.

In short - those who demonstrably put their money where their mouth is.

Since you can't produce any names of any public figures or offer any evidence for your claim, then yeah, I will have to defer to not believing you. Best be able to back your claims up in a debate forum (best eat your own cooking you serve to others).

[Yamato]

The bottom line is that the government is encouraging and enabling bad lending practices to people who couldn't afford what they were buying, artificially propping up values that should have never existed on the market, all the long-winded details about precisely how to regulate and what bureaucrat from what party said what notwithstanding. Oh how simple the world would be if we could fit our problems into political party shaped boxes. And the bipartisan vote winners didn't learn their lesson and they're still at it today. The market would never allow zero percent interest rates. This is a fantasy bubble of reality denial we're living in today and we're going to repeat the same mistakes we have already because our money handlers haven't learned a dammed thing. This is a bipartisan problem and anyone who tries to make partisan hay out of it obviously doesn't get the extent of it.

We have stupid policy creating catastrophic distortions in the marketplace and to compensate for their failure, they rob our people with ginormous bailouts because we're willing debt-bearing sheeple. They'll sell our souls to the highest bidder to juice next quarter's GDP just a little bit higher (the people who matter like that).

Time for an instructional video. Bailouts for dummies:

[Tiggs]

Since you can't produce any names of any public figures or offer any evidence for your claim, then yeah, I will have to defer to not believing you. Best be able to back your claims up in a debate forum (best eat your own cooking you serve to others).

I think I've made it perfectly clear that I don't particularly care whether you personally believe me, or otherwise.

I've adequately described the class of people that I'm referring to and I've also revealed that my only knowledge of them is on a purely personal basis. If you don't believe that such people exist - then feel absolutely free not to.

What I'm not going to do, however, is name my friends and ask them to make public evidence of their house sales and rental bills for your personal entertainment.

The truth is that your personal belief or disbelief in whether Schiff was the only person on the planet capable of seeing what was coming (and let's face it - Merc's hardly on my side of this debate and he's already said that he saw it coming a mile off and that it was obvious) - has absolutely no effect on what's being discussed here.

Edited October 10, 2012 by Tiggs

[Merc14]

The truth is that your personal belief or disbelief in whether Schiff was the only person on the planet capable of seeing what was coming (and let's face it - Merc's hardly on my side of this debate and he's already said that he saw it coming a mile off and that it was obvious) - has absolutely no effect on what's being discussed here.

It's not that I am not on your side we just disagree slightly, I think, about the cause of the economic collapse. joc taught me a great deal and you have made some valid points as well.

[+joc]

Again. I'm not disputing your claim that there are different regulations regarding the CRA, depending on the size of the bank involved. Again, the CRA is purely a mechanism to enforce that a bank give a ratio of loans to particular income areas.

What I'm disputing is your claim that the CRA has anything to do with the fundamental regulations regarding the type of Bank Loans that are able to be offered.

Or, in short - Perhaps you'd care to cut and paste the relevant part from the article you've provided which shows otherwise?

And there's that, too.

But you're currently trying to make the argument that not forcing small lending institutions to meet the needs of people of low income status is a bad thing..

What I'm disputing is your claim that the CRA has anything to do with the fundamental regulations regarding the type of Bank Loans that are able to be offered.

I'm not sure why you think I have made that claim. Furthermore, I'm not sure what your definition of 'fundamental regulations' are or your definition of 'type' of Bank Loan. As far as the types of Loans offered...I don't think I have made a claim that the CRA told lending institutions they could loan money on 'mortgages' but not 'motorcycles' or such. As far as fundamental regulations, in my thinking, 'regulations' are 'rules of the road', 'this is how the game is going to be played', that sort of thing. You said, Again, the CRA is purely a mechanism to enforce that a bank give a ratio of loans to particular income areas. The problem of course was that the banks were required to give a ratio of loans to particular income areas to begin with.

But you're currently trying to make the argument that not forcing small lending institutions to meet the needs of people of low income status is a bad thing.

No, I am saying the reverse...FORCING small lending institutions to meet the needs of people of low income status is a bad thing. I'm not sure where you got the idea that I am a proponent of lending money to people who might have a hard time paying it back.

Your original question was:

Perhaps you'd like to walk us all through the mechanics of how the private asset book of a company caused the collapse of the international banking system?

What I have attempted to show, and what I believe I have been successful at showing is that, one bad loan at a time, over a long period of time, snowballed into a mammoth monster of a machine that few really understood. And that, furthermore, it was the regulating industry...ie, the government...that caused it in the first place.

[+joc]

Thanks for the info joc, I learned a lot and you obvuously are wel versed in what had happened. Are you affiliated with the financial industry?

I am only affiliated with the financial industry by virtue of my checking accounts. I'm just curious about many things...this is one of them.

[Tiggs]

What I have attempted to show, and what I believe I have been successful at showing is that, one bad loan at a time, over a long period of time, snowballed into a mammoth monster of a machine that few really understood. And that, furthermore, it was the regulating industry...ie, the government...that caused it in the first place.

The basic issue with blaming CRA lending with the crash of the subprime market is that they're not the same thing:

"...I want to make one final point. There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households." - Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco

In short - most of the loans associated with the CRA were not subprime (higher-priced) loans, and the 6% of subprime loans that were CRA-related easily outperformed the other 94%.

Your "deregulation in 2005" argument - that banks being subject to the CRA is a bad thing and that bank's not being subject to the CRA is also a bad thing - is pure "Cake and eating it" territory.

My alternative suggestion to you is that there has been a tendency from one side of the aisle to opportunistically misdirect the blame for the economic crash onto CRA lending (and by association - low-income minority Americans) as their political scapegoat of choice.

A general lack of Government regulation regarding mortgage lending, on the other hand, is one place where we can both agree that a major part of the blame belongs.

[+joc]

The basic issue with blaming CRA lending with the crash of the subprime market is that they're not the same thing:

"...I want to make one final point. There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households." - Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco

In short - most of the loans associated with the CRA were not subprime (higher-priced) loans, and the 6% of subprime loans that were CRA-related easily outperformed the other 94%.

Your "deregulation in 2005" argument - that banks being subject to the CRA is a bad thing and that bank's not being subject to the CRA is also a bad thing - is pure "Cake and eating it" territory.

My alternative suggestion to you is that there has been a tendency from one side of the aisle to opportunistically misdirect the blame for the economic crash onto CRA lending (and by association - low-income minority Americans) as their political scapegoat of choice.

A general lack of Government regulation regarding mortgage lending, on the other hand, is one place where we can both agree that a major part of the blame belongs.

Let me just state a fact that may not be obvious. Low income does not equal 'low credit score'. You can be low income and have excellent credit and get a mortgage. That six percent of CRA loans were 'good' loans doesn't really mean much to the argument. It doesn't mean much because the banks that were making loans to low income participants were under the scrutiny of the Regulators. They had to make good loans. That isn't the problem. The problem became the subprime industry. But, and this is really my only point here...had it not been for the CRA, the subprime lending fiasco would have never happened. Originally the CRA didn't really do much. But over the years, the changes made to the CRA...one example of many being the CRA Reforms of 2005...brought about a climate where subprimes could flourish. Yeah, it was the subprimes that were the actual 'problem', but, had it not been for the CRA, the subprime market simply would have never existed. And the thing is, as I previously mentioned...if you had low income, but you were credit worthy, you could get a mortgage anyway...so the CRA in that regard was not even a factor.