An open letter on the financial crisis
September 30th, 2008 at 10:32 am by David FarrarSteven Horwitz from St Lawence University does an open letter to his friends on the left re the financial crisis:
In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation. I have heard from you that the lust after profits, any profits, that is central to free markets is at the core of our problems. And I have heard from you that only significant government intervention into financial markets can cure these problems, perhaps once and for all. I ask of you for the next few minutes to, in the words of Oliver Cromwell, consider that you may be mistaken. Consider that both the diagnosis and the cure might be equally mistaken.
And then he addresses the issue of greed:
One of the biggest confusions in the current mess is the claim that it is the result of greed. The problem with that explanation is that greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn’t there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available. In a free market, firms profit by providing the goods that consumers want at prices they are willing to pay. (My friends, don’t stop reading there even if you disagree – now you know how I feel when you claim this mess is a failure of free markets – at least finish this paragraph.) However, regulations and policies and even the rhetoric of powerful political actors can change the incentives to profit. Regulations can make it harder for firms to minimize their risk by requiring that they make loans to marginal borrowers. Government institutions can encourage banks to take on extra risk by offering an implicit government guarantee if those risks fail. Policies can direct self-interest into activities that only serve corporate profits, not the public.
And then he looks at the facts:
For starters, Fannie Mae and Freddie Mac are “government sponsored enterprises”. Though technically privately owned, they have particular privileges granted by the government, they are overseen by Congress, and, most importantly, they have operated with a clear promise that if they failed, they would be bailed out. Hardly a “free market.” All the players in the mortgage market knew this from early on. In the early 1990s, Congress eased Fannie and Freddie’s lending requirements (to 1/4th the capital required by regular commercial banks) so as to increase their ability to lend to poor areas.
Now think about this as the Government here passes a law requiring affordable housing in certain areas. The best of motives often lead to the worst of results.
At the same time, home prices were rising making those who had taken on large mortgages with small down payments feel as though they could handle them and inspiring a whole variety of new mortagage instruments. What’s interesting is that the rise in prices affected most strongly cities with stricter land-use regulations, which also explains the fact that not every city was affected to the same degree by the rising home values. These regulations prevented certain kinds of land from being used for homes, pushing the rising demand for housing (fueled by the considerations above) into a slowly responding supply of land. The result was rapidly rising prices. In those areas with less stringent land-use regulations, the housing price boom’s effect was much smaller. Again, it was regulation, not free markets, that drove the search for profits and was a key contributor to the rising home prices that fueled the lending spree.
Sounds a lot like NZ again doesn’t it – strict land use policies pushign up house prices.
The final chapter of the story is that in 2004 and 2005, following the accounting scandals at Freddie, both Freddie and Fannie paid penance to Congress by agreeing to expand their lending to low-income customers. Both agreed to acquire greater amounts of subprime and Alt-A loans, sending the green light to banks to originate them. From 2004 to 2006, the percentage of loans in those riskier categories grew from 8% to 20% of all US mortgage originations. And the quality of these loans were dropping too: downpayments were getting progressively smaller and more and more loans carried low starter interest rates that would adjust upward later on. The banks were taking on riskier borrowers, but knew they had a guaranteed buyer for those loans in Fannie and Freddie, back, of course, by us taxpayers. Yes, banks were “greedy” for new customers and riskier loans, but they were responding to incentives created by well-intentioned but misguided government interventions. It is these interventions that are ultimately responsible for the risky loans gone bad that are at the center of the current crisis, not the “free market.“
I suggest people read the full thing. EVen better NBR should run it as a full page story!
Related posts:
- NZBC on the global financial crisis
- Bernard Hickey’s open letter to Allan Hubbard
- The deposit insurance scheme
- Oil subsidies
September 30th, 2008 at 11:13 am
If you want an interesting background as to why the securitisation of mortages exploded in the US, have a look at this
http://www.akerman.com/documents/Servicing%20REMICs%20in%20US%20Mortgage%20Securitizations.pdf
The principal advantage of forming REMICs for the sale of mortgage-backed securities is
that REMICs are treated as pass-through vehicles for tax purposes which are not subject
to double taxation.
While this explosion is the main result of large amounts of dodgy lending, The Byzantine US tax code is one of the interesting contributing factors to this meltdown
REMICs have made it relatively easy for sponsors of mortgage-backed securitizations and the investors
of securities issued by legal vehicles qualifying as REMICs to benefit from the tax advantages afforded by
the IRC.
I am sure that whether the US Fed was deficient in allowing these loan practices to become so endemic as to threaten the entire US ( nd global) banking system will become an interesting and popular subject for economic historians in the future
Vote:September 30th, 2008 at 10:45 am
This is a very complicated matrix.
The intentions were laudable.
The execution was poorly constructed.
The political interference was fatal.
Markets decide. Not Governments. Even in Totalitarian States, past and present.
Go on. Prove me wrong.
However we now have an evil breed of speculators in the Hedge Funds.
They are the toxic ones!
The meltdown has earned them Zillions.
Bastards
Vote:September 30th, 2008 at 10:45 am
My understanding of subprime mortgages is that they don’t meet the criteria for lending set by Frannie and Freddie; ie the basic definition of a subprime mortgage is that Fannie and Freddie don’t touch them. So I’ve been a bit bewildered by all this talk about Fannie and Freddie causing the subprime mortgage crisis.
Vote:September 30th, 2008 at 10:50 am
If my memory serves me the president for much of the time in the 90′s as lending requirements were relaxed to allow “ninja loans” was Bill Clinton. He and his administration would have to shoulder some of the blame for this fiasco.
Vote:September 30th, 2008 at 10:52 am
David, you seem to be suggesting that the Republican party who controlled
Vote:Congress, the Senate, and whose bloke was in the White house did not have
the power from 2001 onward to change the regulations.
So, this mess in the USA is sheeted to the Democrats and them alone ?
September 30th, 2008 at 11:00 am
I hate to say “I told you so” but here are the key points from the Executive Summary of my report to the Reserve Bank in 1996.
The media rubbished it then and so did all the councils and mayors. Now that Americans are saying it they might listen.
Anyhow here is what I wrote in 1996.
The Principle Findings of this Report Are:
General Principles
• General economic theory, and international experience, strongly indicate that the regulation of the supply of land should be light-handed, for reasons of both equity and efficiency.
• Policy makers must recognize, and must explain to their constituencies, that heavy-handed regulation of the supply of residential land carries a burden of significant economic and social costs. Such over-regulation affects prices, construction output and finally employment.
• In New Zealand those same price rises make a significant contribution to the CPI, which, in turn, forces a response from the Reserve Bank, which means that these distortions impact on the competitive performance of New Zealand’s trading sector.
• Many of these costs fall most heavily on those least able to deal with them. Those already comfortably settled, benefit from the increased capital value of their properties. Those struggling to become established, find themselves paying higher prices for housing, or are priced out of the market altogether. A large percentage of the population who have a mortgage on their home or who have borrowed to finance their business or other activities are paying higher interest rates that necessary.
• Some increased costs associated with protection or enhancement of the environment are to be expected. As populations become wealthier, they demand higher environmental standards.
Local Government and the Supply, Demand and Regulation of Land
Local government has a responsibility to ensure that an adequate land-bank is available to meet rapid and unforeseen increases in demand.
Unless sufficient sections are available and ready for occupancy, an increase in demand can lead to a vicious cycle, whereby, at the end of the cycle, the land-bank is no better supplied than at the beginning.
Pressure on rural fringe land will increase rather than decrease over the next decade. Contrary to much planning mythology, economic efficiency and the need to make the best use of rural land, demand that the ‘lifestylers’ should be allowed to have their way. There is no shortage of agricultural land.
The Impact of the Resource Management Act
• The major change in the economic environment surrounding the residential property market in recent years has been the passing of the Resource Management Act in 1991.
• The Act was genuinely intended to be light handed and to increase the individual choice in land use and resource allocation, provided there was no adverse impact on the natural and physical environment.
• Most local bodies have been determined to add the control of environmental effects to their long standing right to control land-use, and to allocate resources. They have shown considerable ingenuity in using the new Act to make the allocation of resources a necessary means of controlling effects.
Vote:• The “omnibus” nature of the Act has improved the project planning environment for major players. On the other hand, the costs of the Act fall more heavily on the smaller players, if only because they have fewer resources, both monetary and political, with which to deal with them, while they are not receiving the same benefits.
• Local Authority officers claim that the necessary policy statements and standards are taking a long time to appear and those that have been published (such as guidelines for water and air standards) are of little use to those operating in urban areas, and residential sectors in particular.
• A general lack of direction front central government means that local authorities have either failed to provide guidelines to applicants, or have been quite inventive in developing their own.
• The RMA, as it has been, and is being, implemented, has imposed massive extra costs on the residential housing market in the Auckland Region, in terms of both time and money. These costs could be greatly reduced without diluting the environmental objectives of the Act.
Specific Centres of Increased Costs -
• Subdivision is now subject to a more complex process, and is more frequently subject to notification, with associated increases in costs, delays and risks.
• Applicants are required to pay both for the work of their own consultants and then again for checks carried out by the Councils’ own consultants.
• Unexpected and broad definitions of terms such as “environment” and “heritage” have led to an explosion of controls and costs which impact on areas such as building design, colour, clearance of vegetation, choice of planting, and even the right to occupy land at all, without first gaining a Resource Management consent. Many owners have lost any clearly defined ‘right to use, and yet are not eligible for compensation. Such properties are increasingly difficult to value.
Performance of the Private Sector
• The land development/subdivision industry has been able to deliver the increased environmental standards demanded by the Act without increasing its own costs of construction. The industry has been aided by increased productivity, and the benefits of deregulated capital and labour markets.
The High Cost of “Providing for Growth by Containment”
The ARC policies of containing growth
The major cause of ongoing increases in housing costs is the ARC’s policy that Auckland’s growth should be managed by a policy of containment which restrains growth outside the present urban limits, (which are currently under review) while concentrating development within the present urban limits. These policies rest on the unfounded assumption that the present city form is unsustainable. These arguments are without foundation both in fact and probably in terms of the Act. Opinion surveys and Census Data, indicate that the Regional Policy Statement seeks outcomes which the majority of Aucklanders do not want, and are likely to resist, and are contrary to present practice. Such a massive re-direction of preferences must introduce high costs with downstream effects on the whole economy.
September 30th, 2008 at 11:01 am
“David, you seem to be suggesting that the Republican party who controlled
Congress, the Senate, and whose bloke was in the White house did not have
the power from 2001 onward to change the regulations.
So, this mess in the USA is sheeted to the Democrats and them alone ?”
The die was already cast. The events in Iraq and Afghanistan took their minds off the domestic issues.
Besides the housing stock was appreciating from the over funded demand.
Then the music stopped.
Vote:September 30th, 2008 at 11:04 am
If my memory serves me the president for much of the time in the 90’s as lending requirements were relaxed to allow “ninja loans” was Bill Clinton. He and his administration would have to shoulder some of the blame for this fiasco
No Alex, that wouldnt fit the lefts Bush is teh Evil!!!!!1111ONE!!!!! mantra, cant be their glory boy Bill..
David, you seem to be suggesting that the Republican party who controlled
Congress, the Senate, and whose bloke was in the White house did not have
the power from 2001 onward to change the regulations
Grumpyoldhori, you and your ilk would have been bitching to high heaven if he had, every left wing idiot would have been bitching about him giving tax cuts to the rich while stopping the poor being able to get into a house. Spare me you anti right drivel. Both sides of the house in the US need to look at what they did to get the country to where it is, just as both National and Labour need to look at why it went wrong over here, and both put aside their ideologies to make damn sure it doesnt happen here – my guess though is in the end, politics and egos will get in the way and we will be just as fucked in due course.
Vote:September 30th, 2008 at 11:09 am
DPF: “Now think about this as the Government here passes a law requiring affordable housing in certain areas. The best of motives often lead to the worst of results.”
I think what is being talked about here vis “affordable houses” is more about the houses themselves, rather than about v.dodgy mortgages for the “worthy poor” who can’t really afford them.
To this end, the DBH has even set up a design competition for anyone who thinks they can invent a better cheap house. You have to submit sketches for free, but if you make the cut they will contract you to complete working drawings and get them consented. The full rules of the game are here:
Vote:http://www.dbh.govt.nz/designcomp
September 30th, 2008 at 11:11 am
It’s odd that most governments have laws against pyramid schemes but they seem to have created a housing one with all of their “good intentions”.
Vote:September 30th, 2008 at 11:13 am
Bevan, Never been one for mantras, unless they come out of the karma sutra! mind you that’a an unacceptable thought these days.
Vote:We have our own toxic loan problem in NZ which has yet to be recognised. There have been a bunch of houses purchased by ninja type purchasers and which are funded by Australian second tier lenders as opposed to the main trading banks.
These people lack the ability to support their mortage bills, insurance bills and utility bills so their houses are now being sold up in droves.
September 30th, 2008 at 12:17 pm
Sub-prime crisis has led to the humbling of America
Published on February 5, 2008
Not surprisingly, the atmosphere at this year’s World Economic Forum was grim.
Those who think that globalisation, technology, and the market economy will solve the world’s problems seemed subdued. Most chastened of all were the bankers. Against the backdrop of the sub-prime crisis, the disasters at many financial institutions, and the weakening of the stock market, these “masters of the universe” seemed less omniscient than they did a short while ago. And it was not just the bankers who were in the Davos doghouse this year, but also their regulators – the central bankers.
Anyone who goes to international conferences is used to hearing Americans lecture everyone else about transparency. There was still some of that at Davos. I heard the usual suspects – including a former treasury secretary who had been particularly vociferous in such admonishments during the East Asia crisis – bang on about the need for transparency at sovereign wealth funds (though not at American or European hedge funds).
But this time, developing countries could not resist commenting on the hypocrisy of it all. There was even a touch of schadenfreude in the air about the problems the United States is having right now – though it was moderated, of course, by worries about the downturn’s impact on their own economies.
Had the US really told others to bring in US banks to teach them about how to run their business? Had the US really boasted about its superior risk management systems, going so far as to develop a new regulatory system (called Basle II)? Basle II is dead – at least until memories of this disaster fade.
Bankers – and the rating agencies – believed in financial alchemy. They thought that financial innovations could somehow turn bad mortgages into good securities, meriting AAA ratings. But one lesson of modern finance theory is that, in well functioning financial markets, repackaging risks should not make much difference. If we know the price of cream and the price of skim milk, we can figure out the price of milk with 1 per cent cream, 2 per cent cream, or 4 per cent cream. There might be some money in repackaging, but not the billions that banks made by slicing and dicing sub-prime mortgages into packages whose value was much greater than their contents.
It seemed too good to be true – and it was. Worse, banks failed to understand the first principle of risk management: diversification only works when risks are not correlated, and macro-shocks affect the probability of default for all mortgages.
I argued at Davos that central bankers also got it wrong by misjudging the threat of a downturn and failing to provide sufficient regulation. They waited too long to take action. Because it normally takes a year or more for the full effects of monetary policy to be felt, central banks need to act pre-emptively, not reactively.
Worse, the US Federal Reserve and its previous chairman, Alan Greenspan, may have helped create the problem, encouraging households to take on risky variable-rate mortgages by reassuring those who worried about a housing bubble that there was at most a little “froth” in the market. Normally, a Davos audience would rally to the support of the central bankers. This time, a vote at the end of the session supported my view by a margin of three to one. Even the plea of one of central banker that “no one could have predicted the problems” moved few in the audience – perhaps because several people sitting there had, like me, explicitly warned about the impending problem in previous years. The only thing we got wrong was how bad banks’ lending practices were, how non-transparent banks really were, and how inadequate their risk management systems were.
It was interesting to see the different cultural attitudes to the crisis on display. In Japan, the CEO of a major bank would have apologised to his employees and his country, and would have refused his pension and bonus so that those who suffered as a result of corporate failures could share the money. He would have resigned. In the US the only questions are whether a board will force a CEO to leave and, if so, how big his severance package will be. When I asked one CEO whether there was any discussion of returning their bonuses, the response was not just no, but an aggressive defence of the bonus system.
This is the third US crisis in the past 20 years, after the Savings & Loan crisis of 1989 and the Enron/WorldCom crisis in 2002. Deregulation has not worked. Unfettered markets may produce big bonuses for CEO’s, but they do not lead, as if by an invisible hand, to societal well-being. Until we achieve a better balance between markets and government, the world will continue to pay a high price.
Joseph E Stiglitz won the Nobel Prize in 2001 for his work on the economics of information.
Copyright: Project Syndicate.
Joseph Stiglitz
The Nation
Vote:http://www.nationmultimedia.com/2008/02/05/pda/opinion_30064446.html
September 30th, 2008 at 12:20 pm
DPF: “Sounds a lot like NZ again doesn’t it – strict land use policies pushign up house prices.”
Trouble is, SOMEONE has to worry about what will happen if a subdivision in Queenstown ruins the view and drives paying tourists away, or what will happen if cities just grow willy-nilly and the Councils have to guess where the next BIG sewage main should go!
Now, either this is the Left and their lust to control your life again, or it’s a necessary pragmatism when you are trying to maintain and grow all of the life support machinery that is required for 4 million people to live close together…
Vote:September 30th, 2008 at 12:42 pm
My late father was a banker I worked in a bank for my first job after graduating My daughter worked in a bank as her first job after graduating.
The difference was that in my fathers time and my time in banking you were paid to lend money to clients who could repay both the interest and the principal on time and in full.
You carefully questioned and examined the client to be sure they could afford the payments and only lent a portion of the value of the house.
Consider my daughters experience.
She had a target to meet and was paid a bonus to meet the target She was pressured to meet the target She was told to do anything and everything to force credit cards insurance and top up loans onto people who couldnt afford them
the bank had a name and shame board in the staff room for those who missed their targets
She left that bank after a time as she was not prepared to trap people into taking on debt they couldnt afford.
thats the reality Forget the bullshit by the so called experts.
Too much money cashing too few who could afford to pay the interest and the principal is the cause.
Greedy and dumbarses are the and will always be the problem
Vote:September 30th, 2008 at 12:58 pm
Danyl Mclauchlan, as usual with your overseas understanding, it’s utterly wrong. Why don’t you read some better sources than the DailyKos?
Vote:September 30th, 2008 at 1:01 pm
grumpyoldhori: David, you seem to be suggesting that the Republican party who controlled
Congress, the Senate, and whose bloke was in the White house did not have
the power from 2001 onward to change the regulations. So, this mess in the USA is sheeted to the Democrats and them alone ?
Another leftie, but it’s not your fault as the MSM doesn’t inform anyone here. Ever heard of the fillibuster? The Republicans tried to vote on this. It was 51-49, that’s not enough. You need 60 votes to overcome a fillibuster.
On whose fault it is: surely of the Republicans as well. They’re hardly any better, but in this case they tried twice. Bush tried it in 2003, McCain in 2005. McCain’s bill was even prevented from being voted on. And 51 votes in the Senate is not enough as I just explained.
Vote:September 30th, 2008 at 1:03 pm
labrator: It’s odd that most governments have laws against pyramid schemes
They are the ones that running them. Ever looked at the inverted pyramid that has been in Europe with their pension system?
Vote:September 30th, 2008 at 1:03 pm
Queenstown aint the problem.
Vote:Try Auckland and Christchurch for starters.
September 30th, 2008 at 1:08 pm
Danyl: Have a look at http://money.cnn.com/2007/12/03/magazines/fortune/fannie_eavis.fortune/index.htm
“The vast majority of Fannie Mae’s mortgages are loans to borrowers with good credit, but over the past five years the government sponsored enterprise became exposed to mortgages that were made to people with poor credit – subprime mortgages – and to mortgages that were made with incomplete documentation of borrowers’ income, called Alt-A mortgages in industry parlance.
“One way that Fannie increased its exposure to subprime and Alt-A mortgages was to buy bonds backed with these types of loans. While these subprime and Alt-A mortgage-backed bonds are only a small proportion of Fannie’s overall mortgage holdings, their combined value of $76 billion is almost double Fannie’s $40 billion of capital, which is the net worth of a company and the last cushion against losses.”
Vote:September 30th, 2008 at 1:40 pm
DPF, don’t worry I already posted links like that on Danyl’s blog. It’s just not getting through.
Vote:September 30th, 2008 at 1:47 pm
Just to clarify your position: No government intervention means that the market should be left to heal itself, in other words, no bail-out is a good thing?
What happens if the market allows the assets of failed banks to be acquired by (hmmm, let’s see, who’s still got the means to do so??) perhaps Vladamir Putin, the Saud and Bin Laden families, the Chinese and Iranian governments…
BTW I’m not proffering any opinion here (only thought processes). I’m still trying to work out my own viewpoint.
Vote:September 30th, 2008 at 1:52 pm
DPF, very good posting, hope this proves the value of “new media”, hope as many people as possible see this.
In the “City Journal” Winter 2000 edition, is THIS article:
“The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities”
Howard Husock
“The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being……”
The whole thing is 8 pages long and is a shocking read…….
Google it for yourselves if my link doesn’t appear.
http://www.city-journal.org/html/10_1_the_trillion_dollar.html
Vote:September 30th, 2008 at 2:05 pm
Do read the whole thing, “The Trillion-Dollar Bank Shakedown that Bodes Ill for Cities” – it is shocking. Here’s another excerpt or three:
“…….Nevertheless, until recently, the CRA didn’t matter all that much. During the seventies and eighties, CRA enforcement was perfunctory. Regulators asked banks to demonstrate that they were trying to reach their entire “assessment area” by advertising in minority-oriented newspapers or by sending their executives to serve on the boards of local community groups. The Clinton administration changed this state of affairs dramatically. Ignoring the sweeping transformation of the banking industry since the CRA was passed, the Clinton Treasury Department’s 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods?………
“…….By intervening—even just threatening to intervene—in the CRA review process, left-wing nonprofit groups have been able to gain control over eye-popping pools of bank capital, which they in turn parcel out to individual low-income mortgage seekers. A radical group called ACORN Housing has a $760 million commitment from the Bank of New York; the Boston-based Neighborhood Assistance Corporation of America has a $3-billion agreement with the Bank of America; a coalition of groups headed by New Jersey Citizen Action has a five-year, $13-billion agreement with First Union Corporation. Similar deals operate in almost every major U.S. city. Observes Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, which has $220 million in bank mortgage money to parcel out, “CRA is the backbone of everything we do.”……
“…….There is no more important player in the CRA-inspired mortgage industry than the Boston-based Neighborhood Assistance Corporation of America. Chief executive Bruce Marks has set out to become the Wal-Mart of home mortgages for lower-income households. Using churches and radio advertising to reach borrowers, he has made NACA a brand name nationwide, with offices in 21 states, and he plans to double that number within a year. With “delegated underwriting authority” from the banks, NACA itself—not the banks—determines whether a mortgage applicant is qualified, and it closes sales right in its own offices. It expects to close 5,000 mortgages next year, earning a $2,000 origination fee on each. Its annual budget exceeds $10 million.
Marks, a Scarsdale native, NYU MBA, and former Federal Reserve employee, unabashedly calls himself a “bank terrorist”—his public relations spokesman laughingly refers to him as “the shark, the predator,” and the NACA newspaper is named the Avenger. They’re not kidding: bankers so fear the tactically brilliant Marks for his ability to disrupt annual meetings and even target bank executives’ homes that they often call him to make deals before they announce any plans that will put them in CRA’s crosshairs. A $3 billion loan commitment by Nationsbank, for instance, well in advance of its announced merger with Bank of America, “was a preventive strike,” says one NACA spokesman…….
“………”Our job,” says Marks, “is to push the envelope.” Accordingly, he gladly lends to people with less than $3,000 in savings, or with checkered credit histories or significant debt. Many of his borrowers are single-parent heads of household. Such borrowers are, Marks believes, fundamentally oppressed and at permanent disadvantage, and therefore society must adjust its rules for them. Hence, NACA’s most crucial policy decision: it requires no down payments whatsoever from its borrowers. A down-payment requirement, based on concern as to whether a borrower can make payments, is—when applied to low-income minority buyers—”patronizing and almost racist,” Marks says.
This policy—”America’s best mortgage program for working people,” NACA calls it—is an experiment with extraordinarily high risks…….
“……..Even without a no-down-payment policy, the pressure on banks to make CRA-related loans may be leading to foreclosures. Though bankers generally cheerlead for CRA out of fear of being branded racists if they do not, the CEO of one midsize bank grumbles that 20 percent of his institution’s CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure. “The problem with CRA,” says an executive with a major national financial-services firm, “is that banks will simply throw money at things because they want that CRA rating.” From the banks’ point of view, CRA lending is simply a price of doing business—even if some of the mortgages must be written off…….”
THIS WAS WRITTEN in “Winter 2000″………
Vote:September 30th, 2008 at 2:06 pm
Outstanding post from Owen McShane at 11.00AM
Vote:September 30th, 2008 at 2:10 pm
Philbest,
Vote:All I can say is ouch.
In a small way our government is moving that way with the shared equity scheme.
September 30th, 2008 at 2:25 pm
Other good comments on this:
Thomas Sowell “A Political Solution”
Excerpt:
” Who was it who said, “crack-brained meddling by the authorities” can “aggravate an existing crisis”? Ronald Reagan? Milton Friedman? Adam Smith? Not even close. It was Karl Marx. Unlike most leftists today, Marx studied economics…..
“…..For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers.
Back in 2002, the Wall Street Journal said: “The time for the political system to focus on Fannie and Fred isn’t when we have a housing crisis; by then it will be too late.” The hybrid public-and-private nature of these financial giants amounts to “privatizing profit and socializing risk,” since taxpayers get stuck with the tab when high-risk finances don’t work out.
Similar concerns were expressed in 2003 by N. Gregory Mankiw, then Chairman of the Council of Economic Advisers to President Bush. But liberal Democratic Congressman Barney Frank criticized Professor Mankiw, citing “concern for housing” as his reason for supporting Fannie Mae. Barney Frank said that fears about the riskiness of Fannie Mae were “overblown.”
Maxine Waters and other members of the Congressional Black Caucus have also been among the liberal Democrats defending Fannie Mae. Just last year, Senator Charles Schumer advocated legislation to allow Fannie Mae and Freddie Mac to increase their already huge role in the mortgage market. Republican Congressman Mike Oxley has also defended these hybrid financial giants.
Both Fannie Mae and Freddie Mac have been generous in their contributions to politicians’ political campaigns, so it is perhaps not surprising that politicians have been generous to them.
This is certainly part of “the mess in Washington” that Barack Obama talks about. But don’t expect him to clean it up. Franklin Raines, who made mega-millions for himself while mismanaging Fannie Mae into a financial disaster, is one of Obama’s advisers.”
Ditto: “A Political Solution, II”
Excerpt:
“…….The Wall Street Journal, which has for years been sounding the alarm about the riskiness of Fannie Mae and Freddie Mac, recently cited Senator Christopher Dodd along with Senator Charles Schumer and Congressman Barney Frank among those on Capitol Hill who have been “shilling” for these financial institutions, downplaying the risks and opposing attempts to restrict their free-wheeling role in the mortgage market.
As recently as July of this year, Senator Dodd declared Fannie Mae and Freddie “fundamentally strong” and said there is no need for “panicking” about them. But now that the chickens have come home to roost, Senator Dodd wants to be sure to get some goodies from the rescue legislation to pass out to people likely to vote for him…….”
Vote:September 30th, 2008 at 2:32 pm
Wendell COX; “The Smart Growth Bailout”
“……..America has become two nations with respect to housing costs and housing cost increases. Princeton economist and New York Times columnist Paul Krugman put his finger on the cause of the difference more than three years ago. Others have made similar findings, such as Edward Glaeser at Harvard, Theo Eicher at the University of Washington and Kate Barker of the Bank of England. House prices have exploded in highly regulated markets…….
“……….The easy money was available everywhere in the nation increasing the demand for housing in most markets. But in most of the nation, housing price increases were modest, as planning systems allowed new housing to be provided at historically competitive prices. For example, in Atlanta, Dallas-Fort Worth and Houston, the three fastest growing metropolitan areas in the high-income world with more than 5,000,000 population, housing prices changed little in relation to household incomes. Furthermore, from 2000 to 2007, 2,550,000 million people (domestic migrants) left the more restrictive metropolitan markets for elsewhere in the country. That pretty well dismisses the idea that demand was the primary cause of the price escalation.
Demand, in and of itself, does not increase price. But, when higher demand is experienced in an environment of limited supply, price increases occur. Where there were strong land use restrictions, there were strongly escalating house prices. The restrictions drove prices up because land regulations had reduced the supply of developable land, thereby raising the price. The planners may have succeeded in their objection – slowing suburbanization (or if the pejorative term is preferred, “sprawl”) – but they also created a pricing bubble that made things much worse…….
“……….86 percent of the increase took place in areas accounting for only 30 percent of the nation’s population. The other 70 percent of the nation had an overall increase in value of less than $800 billion, or 14 percent of the total “bubble.” More than 65 percent of the higher value occurred in ten metropolitan areas – Los Angeles, San Francisco, San Jose, San Diego, Riverside-San Bernardino, New York, Boston, Washington, Miami and Baltimore. These metropolitan areas account for little more than 20 percent of the nation’s population.
And just as the highly regulated metropolitan areas led the way up, they now are leading the way down. It is estimated that the house value losses in the more regulated metropolitan markets is approaching $1.5 trillion, while the losses in the more traditionally regulated metropolitan markets are estimated at less than $150 billion……..
“…….The end of this catastrophe may be in sight (or it may not be). Housing prices, particularly in the inflated markets, have started to fall. This is true not only in the United States but in other highly regulated markets such as the United Kingdom, Australia and New Zealand……..”
NEW ZEALAND………Hmmmmmm………..
Vote:September 30th, 2008 at 2:35 pm
Even ANN COULTER is in on this:
“They Gave Your Mortgage to a Less Qualified Minority”
Excerpt:
“……..Before the Democrats’ affirmative action lending policies became an embarrassment, the Los Angeles Times reported that, starting in 1992, a majority-Democratic Congress “mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains.”
Under Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton’s secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low- to moderate-income borrowers by the year 2001.
Instead of looking at “outdated criteria,” such as the mortgage applicant’s credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named “Caylee.”
Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke — it’s a fact.
When Democrats controlled both the executive and legislative branches, political correctness was given a veto over sound business practices.
In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration’s affirmative action lending policies as one of the “hidden success stories” of the Clinton administration, saying that “black and Latino homeownership has surged to the highest level ever recorded.”
Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn’t get out of their loans by selling their houses.
A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it’s gone off.
In Bush’s first year in office, the White House chief economist, N. Gregory Mankiw, warned that the government’s “implicit subsidy” of Fannie Mae and Freddie Mac, combined with loans to unqualified borrowers, was creating a huge risk for the entire financial system.
Rep. Barney Frank denounced Mankiw, saying he had no “concern about housing.” How dare you oppose suicidal loans to people who can’t repay them! The New York Times reported that Fannie Mae and Freddie Mac were “under heavy assault by the Republicans,” but these entities still had “important political allies” in the Democrats.
Now, at a cost of hundreds of billions of dollars, middle-class taxpayers are going to be forced to bail out the Democrats’ two most important constituent groups: rich Wall Street bankers and welfare recipients.
Political correctness had already ruined education, sports, science and entertainment. But it took a Democratic president with a Democratic congress for political correctness to wreck the financial industry.”
Vote:September 30th, 2008 at 2:42 pm
Roger Kerr:
“Lessons to be Learned From American Meltdown”
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10534657&pnum=0
Roger says it very well too………
Vote:September 30th, 2008 at 2:45 pm
Yes that was a very good summary.
Vote:September 30th, 2008 at 2:49 pm
and how about that g.w. bush..eh..?
“..On Monday, the Dow finished lower than when George W. Bush assumed the presidency: 10,587.59 on January 19, 2001..
..compared to 10,365.45 at its close on September 29, 2008..”
the most disasterous president…
..ever..
..and by a country mile..
..and now we have the old clown..mccain..
..and his vapid side-kick..
..btw..
..want to stimulate the economy..?..find some money..?
http://whoar.co.nz/2008/we-have-the-bailout-money-were-spending-it-on-war/
phil(whoar.co.nz)
Vote:September 30th, 2008 at 2:57 pm
What has been happening over the past 6 months was largley put in place over a decade ago by slick willy and the changes to the lending rules to allow for the ninja lending that are covered in PB’s posts. Despite being useless GB cannot be blamed for causing this fiasco as the seeds were sown before he took office.
Vote:September 30th, 2008 at 2:59 pm
Well spotted philu! It’ll be interesting to see if it scrapes back past his starting mark before November… I imagine so but not by much.
Vote:September 30th, 2008 at 3:03 pm
DPF,
What piffle.
Fannie had 76 yards in CDOs on subprime and Alt-A mortgages. With a subprime market of over a trillion and a half and an Alt-A market of about half a trillion. Their problems are a symptom of the crisis – a sign that there was real trouble in Smallvillle. Not a cause.
The place Horwitz really starts trying to deceive you is here:
“From 2004 to 2006, the percentage of loans in those riskier categories grew from 8% to 20% of all US mortgage originations. And the quality of these loans were dropping too: downpayments were getting progressively smaller and more and more loans carried low starter interest rates that would adjust upward later on. The banks were taking on riskier borrowers, but knew they had a guaranteed buyer for those loans in Fannie and Freddie,”
Gorgeous spin! The individual sentences are true – or close to it – and yet the paragraph as a whole is as misleading as all hell. Marvellous piece of deceit, just masterful – Horwitz is good at this!
Yes, subprimes went from 8% to 20% of new mortgages. And he suggests (but doesn’t outright say) that it’s because the federal institutions were backing them. But they weren’t. As the market for subprimes almost tripled, Fannie and Freddie went from backing 0% of new subprimes per year to backing under 10%. Not the riskiest 10% either.
Banks weren’t doing dodgy mortgages because F&F were “guaranteed” to buy them. F&F weren’t buying very many of them at all. Freddie and Fannie’s share of the overall US mortgage market *declined* from 2004 to 2006. They backed a small percentage of subprimes.
What really happened is that the investment banks started to hustle in on Freddie and Fannie’s territory because they thought there were quick bucks to be made in mortgage-backed securities. Standards in securitization fell sharply. Which all looked good for the big boys, like something you couldn’t lose money on – until the property bubble burst and suddenly you had houses worth less than the mortgages on them, and the systemic failures wiped out the value of those options.
You wanna argue Fannie and Freddie were poorly and corruptly regulated? I’ll cheer. I’ll provide examples.
You wanna argue that they caused the subprime crises? I’ll laugh at you.
Vote:September 30th, 2008 at 3:03 pm
“Political correctness had already ruined education, sports, science and entertainment. But it took a Democratic president with a Democratic congress for political correctness to wreck the financial industry.”
Bush and Republicans of course are blameless and how the fuck did political correctness ruin sport and entertainment?
It hasn’t ruined the great sport of watching conservative nutjobs go through a total meltdown as their beloved conservative values and market economy collapse along with their failed ideology.
Vote:September 30th, 2008 at 3:04 pm
yeah, thats right phule, because being the president of the US also makes you the president of financial markets
you idiot
Vote:September 30th, 2008 at 3:07 pm
“F&F weren’t buying very many of them at all.”
They were buying 40% of them at one stage.
You have no credibility to claim anyone else is “spinning” the facts if you are trying that one on.
Vote:September 30th, 2008 at 3:17 pm
PhilBest,
Kerr’s article is a must-read for any financially literate person in need of a good laugh.
The revisionist history is funny. Bu you gotta love this bit:
“Other ill-conceived government regulation has played a part. This includes the requirements for banks in the United States (and internationally) to hold specified levels of capital. Critics have argued that they encouraged banks into off-balance sheet securitisation of mortgages and other assets which has been a prime source of the problems.
Further dubious regulations include market-to-market accounting requirements (which helped bring down AIG)…”
He’s arguing against the existence of capital requirements for banks – see how above the complaint about Freddie and Fannie is that they lacked sufficient capital requirements ? He’s opposed to fair-value (MTM) accounting – and how else should one account for options since it’s the only way of putting some measure of the risk onto the balance sheet?
To call his suggestions “Insane” is putting it mildly. But of course most of his readers won’t have the foggiest what he’s talking about.
Vote:September 30th, 2008 at 3:23 pm
““F&F weren’t buying very many of them at all.”
They were buying 40% of them at one stage.”
Can you provide a reference for that?
Vote:September 30th, 2008 at 3:36 pm
“..# Kimble (1180) Vote: Add rating 1 Subtract rating 0 Says:
September 30th, 2008 at 3:04 pm
yeah, thats right phule, because being the president of the US also makes you the president of financial markets
you idiot..”
as a marker of his non-achievments..it’s relevant..
..and don’t forget..clinton left bush record surpluses..
..bush has turned them into record deficits..
.(.and now..the crash..)
..and that’s always how it’s been..
..the democrats build up the social capital..
..the republicans gut/loot it..
..i can feel/hear your pain..kimble..
..as your whole world-view’belief-system is shown to be a pile of stinking crap..
..eh..?
..phil(whoar.co.nz)
Vote:September 30th, 2008 at 3:37 pm
icehawk, nice try. Let me give you some hard facts:
And the numbers:
Get a better source than DailyKos icehawk. I get pretty sick of lefties rewriting history.
Vote:September 30th, 2008 at 3:42 pm
icehawk, on that 40%, if you did some reading you would have seen that number a lot. For example this:
But don’t let the facts stand in the way. You can’t be a leftie without believing facts are irrelevant. So just quickly forget all about it, and blame the evil capitalist system and start to hail Cuba again.
Vote:September 30th, 2008 at 3:48 pm
could we do another version of godwins law..?
in that the debate is over if cuba/castro are touted..?
phil(whoar.co.nz)
Vote:September 30th, 2008 at 3:51 pm
so..berend..let me see if i’ve got this right..
..the commies at fannie & freddie..
..and clinton..
..have wrought this economic end-times..eh..?
..bushie/greedy pricks/republicans are blameless..
.is that right..?
..phil(whoar.co.nz)
Vote:September 30th, 2008 at 4:05 pm
“bushie/greedy pricks/republicans are blameless”
Republicans are just as culpable as Democrats.
Bush is just as culpable as Clinton.
And greedy pricks, in an economic sense, describes every person in the world.
Vote:September 30th, 2008 at 4:25 pm
“as a marker of his non-achievments..it’s relevant..”
So it is relevant that he took over just before a bubble burst and terrorists attack the countries main financial district and leaves after another bubble burst that was caused by cheap credit from an independent bank?
Really? Looks like unlucky timing to me. He could just as easily have arrived just after a crash and a terrorist attack, and then left before the next crash. He would be the greatest president ever then, wouldnt he?
No, of course not.
You dont know what I stand for, and I doubt you can even comprehend it, which is why you have to make shit up. You dont know what Bush stands for either. Your view of the world can most charitabley be described as adolescent.
Bush isn’t the protector of small government values. He spent money like a sailor in a whorehouse. And not just on the war. Bush derangement syndrome causes easily led sheep like you to believe the worst about the man and I will defend him against the more absurd accusations. But dont think that he is a knight in shining armour upholding my most treasured beliefs.
You are an economic illiterate, phule. That is confirmed every time you try and blame stuff like this on a single person.
Vote:September 30th, 2008 at 4:29 pm
Assuming that regulation is the culprit and given the fact that there are more than 8,000 registered banks in America – all subject to the same regulation – how come only a handful have tipped over?
A misconception widely promulgated is that Fannie Mae and Freddie Mac issue mortgages. This simply isn’t the case. As underwriters, they bought the mortgages from the issuing bank whom they assumed had done due diligence.
If it were not so serious (and I believe this meltdown will affect us all for years to come) it would be amusing to watch the regurgitation of spin from right wing think tanks such as those posted above.
Some facts to consider.
The CRA was enacted over thirty years ago in an effort to combat “redlining”, a practice that had banks simply refusing to do business in certain districts because of a low average socio-economic factor. It specifically rules against unsafe lending:
SEC. 804. (a) IN GENERAL.–In connection with its examination of a financial institution, the appropriate Federal financial supervisory agency shall–
(1) assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution
Only a third of sub-prime mortgages were issued by institutions that came under the aegis of the CRA.
If indeed regulation of the industry was so egregious, how come the banking sector was so profitable up until the crash? Where was the protest?
Having raped Fannie Mae since 1968, the right is desperately trying to unload her. The fact remains however that she had been privatised, her profits were the property of the stockholders, there was no Government oversight and there were no Government guarantees:
Neither the certificates nor payments of principal and interest on the certificates are guaranteed by the United States government. The certificates do not constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae.”
http://en.wikipedia.org/wiki/Fannie_Mae#Guarantees_and_subsidies
“Despite the fact that Fannie Mae is not explicitly backed or funded by the US Government, nor do the securities it issues benefit from any statutory government guarantee or protection, most investors believe that, because it is a “quasi” governmental agency, it has an implicit government guarantee. But Fannie Mae receives no direct government funding or backing. And Fannie Mae securities carry no government guarantee of being repaid. ”
Vote:https://www.dws-investments.com/EN/market-insight/fannie-mae-freddie-mac-are-no-laughing-matter.jsp
September 30th, 2008 at 4:40 pm
spoff, you keep going back to the same bullshit, and quite frankly I am embarassed for you.
No one is saying the CRA caused the entire problem, but that is the argument you are trying to counter.
The CRA did have an impact, as did the “penance” the GSE’s had to serve in 2003.
No one is saying the GSE’s had EXPLICIT government guarantees, but that is the argument you are trying to counter.
The facts in this case bear out; the implicit guarantee has become reality. Regardless what the legal technicalities are, the market expected the government to bail out the GSEs and that is exactly what happened.
No one is saying that Fannie Mae was 100% government owned, but that is the argument you are trying to counter.
The criticism made most often is that the GSE’s privatised the profit and socialised the risk.
You are just spreading misinformation and arguing against points that no one is making.
You have been informed of your error in other threads but you refuse to listen. Unless you come up with a good argument that isnt just a regurgitation of already disproven and discredited one you should leave the discussion to reasoning adults.
Vote:September 30th, 2008 at 4:53 pm
“..You are an economic illiterate, phule..”
yeah..the ‘economic illiterate’ who has been forecasting/warning of this current pile of crap..
..for the last two years..eh..?
..and from memory..
..you sneered then too..eh..?
..yet you are the economically ‘literate’ one..?
..(heh-heh..!..)
..phil(whoar.co.nz)
Vote:September 30th, 2008 at 5:04 pm
“the ‘economic illiterate’ who has been forecasting/warning of this current pile of crap ..for the last two years..eh..?”
And for a decade before that if you had had an opportunity, I expect. A broken clock is right twice a day. You dont think that capitalism is sustainable and will collapse in a burning heap. At every bump in the road (regardless the cause) you will claim that you foresaw the event. To that, I sneer.
You didnt do any economic reasoning, and if you did you kept it to yourself.
Vote:September 30th, 2008 at 5:21 pm
David Brooks doesn’t hold back.
“House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the G.O.P. as we know it. ”
http://www.nytimes.com/2008/09/30/opinion/30brooks.html?hp
Vote:September 30th, 2008 at 5:21 pm
Kimble.
The argument is that regulation was the problem. The only regulation that has been cited is the CRA (by Husock and others above) which is bullshit. If you can cite some other piece of legislation, please do.
The fact that Fannie Mae and Freddie Mac are underwriters, not issuers of mortgages trumps any argument that they were somehow forced into unsafe lending practices.
As for this puerile piece of misinformation:
“The facts in this case bear out; the implicit guarantee has become reality. Regardless what the legal technicalities are, the market expected the government to bail out the GSEs and that is exactly what happened.”
Did Bear Stearns and AIG also have an “implicit guarantee”? Is that why they were bailed out?
And this:
“No one is saying that Fannie Mae was 100% government owned”
- What percentage was Government owned?
Vote:September 30th, 2008 at 5:22 pm
David Brooks doesn’t hold back.
“House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the G.O.P. as we know it.”
http://www.nytimes.com/2008/09/30/opinion/30brooks.html?hp
Vote:September 30th, 2008 at 5:38 pm
“The argument is that regulation was the problem. The only regulation that has been cited is the CRA (by Husock and others above) which is bullshit. If you can cite some other piece of legislation, please do.”
Go read the open letter and see what “regulation” is refering to. It doesnt have to be only federal legislation, you know.
“The fact that Fannie Mae and Freddie Mac are underwriters, not issuers of mortgages trumps any argument that they were somehow forced into unsafe lending practices.”
And this just shows how little you think things through. They were the major buyer of mortgage debt. If they are buying people will sell. If they werent buying then much of the sub-prime lending would not have been done. They were specifically buying low quality, so that is what the market gave them.
“Did Bear Stearns and AIG also have an “implicit guarantee”? Is that why they were bailed out?”
You dont like thinking at all, do you? That can be the only reason why you would take the argument that “there was an implicit guarantee from the government for the two GSEs which was realised very recently” and assume that it means that all government bail outs are because of an implicit guarantee.
You keep trotting out those banal quotes, as if they mean something.
“What percentage was Government owned?”
Why does it matter when nobody is saying that they OWNED any of it? You are arguing against a point no one has made. It is the very definition of arguing a straw man! It just doesnt matter.
You are hoping that you can slide by and focus only silly little narrow definitions, but most people must see that you havent made a single valid point. Stop embarrassing yourself.
Vote:September 30th, 2008 at 5:51 pm
“It doesnt have to be only federal legislation, you know.
Cite the regulation.
“They were the major buyer of mortgage debt. ”
Who originated the mortgage debt and what regulation caused them to do so?
“when nobody is saying that they OWNED any of it?”
The impression gained from this statement:
“No one is saying that Fannie Mae was 100% government owned”
……is that the Government owned some of it.
Vote:September 30th, 2008 at 6:01 pm
“Cite the regulation.”
IT DOESNT HAVE TO BE FEDERAL LEGISLATION YOU KNOW!!!!!
“Who originated the mortgage debt and what regulation caused them to do so?”
Why did they originate the mortgage debt? Because there was demand for it, and a significant source of that demand were the two GSEs. Legisation and regulation were part of the problem, but the influence of regulation does not have to be primary.
Go read the open letter, because you obviously havent yet.
“The impression gained from this statement:”
Then you are getting the wrong impression.
The GSE’s were attempting to be all things to all people. They were a department when they dealt with the government, a private company when they dealth with the market, and a charity when they dealt with the public. It doesnt matter that they were publically owned. That is just a technicality.
The government were a stakeholder, not a shareholder. Come back when you know the difference.
Vote:September 30th, 2008 at 6:02 pm
Well of course not.
There is just something so nostalgic and sweet about a commentator who holds up an article and says: “Our source was the New York Times”
Rather like grandma handing out Snifters.
Given that the Dems control the Senate and the Congress but could not whip 95 of their House members into voting for the bill, it’s going to be pretty hard to spin this one as being the responsibility of the Republicans. But I’m sure that you and your trusty sidekick Tonto-does-NY will do your best.
Just remember that having a tanty like Brooks does above may not be the way to win the spin.
Vote:September 30th, 2008 at 6:17 pm
Recall Spitzer the Governer of NY? He
Vote:told of the following:
September 30th, 2008 at 6:22 pm
“..# Kimble (1192) Vote: Add rating 3 Subtract rating 1 Says:
September 30th, 2008 at 5:04 pm
“the ‘economic illiterate’ who has been forecasting/warning of this current pile of crap ..for the last two years..eh..?”
And for a decade before that if you had had an opportunity, I expect. A broken clock is right twice a day. You dont think that capitalism is sustainable and will collapse in a burning heap. At every bump in the road (regardless the cause) you will claim that you foresaw the event. To that, I sneer.
You didnt do any economic reasoning, and if you did you kept it to yourself..”
no kimble..all of my warnings were footnoted/sourced..
and no..not decades before..
i have specifically warning of a sub-prime-driven economic meltdown..(starting about now..)..since august 2006
(and guess what..?..the subprime part dosen’t peak untill late 2009…(!)..)
(oh..!..the ‘evidence’ of my evidence..?
..you will find that here..)
http://whoar.co.nz/?s=meltdown
phil(whoar.co.nz)
Vote:September 30th, 2008 at 6:51 pm
Kimble.
You wrote yesterday:
The reality is that the two GSE’s did have a government guarantee.
Care to re-align your position?
IT DOESNT HAVE TO BE FEDERAL LEGISLATION YOU KNOW!!!!!
Care to name it?
“Because there was demand for it”
Do I take it from this that Banks created a bunch of dodgy mortgages because Fannie Mae wanted to buy them?…or because it was immensely profitable?
The Government is a stakeholder in every enterprise within it’s sphere of Governance. To invoke that in this case is pure sophistry.
Get a grip Kimble. Lack of oversight allowed the finance industry to peddle junk and the result is now in plain view.
Vote:September 30th, 2008 at 6:56 pm
STOP PRESS !!!!!!
Series of articles HERE, the best commentary you will read on this subject:
http://www.ibdeditorials.com/IBDArticles.aspx?id=306978378974502
Vote:September 30th, 2008 at 7:01 pm
Terry Jones of the Investors Business Daily has an excellent series of articles on this very subject, I have posted a link and it has been swallowed up in moderation. Article Number One is entitled “Crony Capitalism is Root Cause of Fannie and Freddie Troubles”.
He says that President Bush’s administration tried no less than SEVENTEEN times to address the looming problem and were stymied by the Democrats every time.
Vote:September 30th, 2008 at 7:13 pm
“The reality is that the two GSE’s did have a government guarantee. ”
I stand by this. It was an implicit guarantee. The government implied it by their actions and the public inferred it and acted upon it. The publics reasoning was sound, because when the government had an opportunity to bail out the GSEs they did. I am starting to think you dont know what the words implicit and explicit mean.
“Care to name it?”
So you are asking me to name the legislation that doesnt necessarily constitute all “regulation” that could impact the subprime mortgage market.
“Do I take it from this that Banks created a bunch of dodgy mortgages because Fannie Mae wanted to buy them?…or because it was immensely profitable?”
Idiot. Those two things arent mutually exclusive. Fannie Mae wanted to buy it, and it was profitable to produce, so the banks did.
The GSE’s were acting as goverment agencies, and the government and public treated them as such. In that capacity they fueled a market for loans to poor people by purchasing the debt from banks allowing the banks to lend more. The government simultaneously encouraged banks to lend to poor people. Local government restricted supply of housing and a bubble formed.
And yet you refuse to concede that the government was in any way at fault. How delightfully infantile.
Vote:September 30th, 2008 at 7:18 pm
You won’t believe where the 700 billion figure came from.
Vote:September 30th, 2008 at 8:01 pm
“It was an implicit guarantee. The government implied it by their actions and the public inferred it and acted upon it.”
Deutshe Bank certainly did not infer it, neither did Wikipedia.
“So you are asking me to name the legislation that doesnt necessarily constitute all “regulation” that could impact the subprime mortgage market.”
I’m asking you to cite any regulations created by the left that caused this clusterfuck.
“The GSE’s were acting as goverment agencies”
You have already conceded that this was a figment of the public’s imagination.
“The government simultaneously encouraged banks to lend to poor people.”
The Government may well have encouraged this but only within the bounds of safe practice as specified in the CRA.
Your arguments are fatuous in the extreme. Private banks engaged in predatory loan practices because they could package them up and on-sell them. At the peak, only 40% of them were sold to Fannie Mae so this:
“in that capacity they fueled a market for loans to poor people by purchasing the debt from banks allowing the banks to lend more.”
….is a crock. Many other institutions were in for their chop and would have been if FM did not exist. FM asked for deregulation so they could participate.
The Government is indeed at fault. It should have stepped in and regulated against predatory lending and the practice of packaging junk up and selling it on.
One thing that intrigues me. If regulation is the problem here, why is it that this meltdown occurred on Wall Street and not Stockholm or Beijing?
Vote:September 30th, 2008 at 8:48 pm
“Deutshe Bank certainly did not infer it, neither did Wikipedia.”
HAHAHAHAHAA! You are a such a fucking moron! You really have not understood a single thing I have said.
“I’m asking you to cite any regulations created by the left that caused this clusterfuck.”
Look, just go read the open letter, you tool.
“Private banks engaged in predatory loan practices because they could package them up and on-sell them.”
So the banks wouldnt have created the debt packages if they had been unable to sell them? Wait, thats what we have been saying all along. Why would anyone buy such crappy debt? Well, Fannie Mae for one was told to by the government.
But as you say Fannie Mae only bought 40%. ONLY 40 percent?!? During the period in which sub-prime loans were their largest as a proportion of all us mortgage debt! Well that certainly answers the question of exactly what sort of idiot you are.
“The Government is indeed at fault. It should have stepped in and regulated against predatory lending.”
Why would they do that when they wanted more people to get home loans?
The problem is that banks lent money to people who couldnt, or wouldnt, pay it back. Predatory lending? Really?
Lets have a look at the sort of “predatory lending” that describes the typical subprime loan. A person could take out a loan, with little or no money down, with no record of income or assets, at a discounted interest rate that was lower than their risk should warrant, to buy a house that could go up in value and which, if it was to go down in value, they could walk away from without the lender having any recourse other than selling the house to recover the money.
Yup, that sounds fairly predatory right there! Heads the borrower wins, tails the lender loses.
I am not saying that predatory lending doesnt exist, but seriously, how can anyone think that lending money to people who would not have gotten it otherwise disadvantages THEM?!
“One thing that intrigues me. If regulation is the problem here, why is it that this meltdown occurred on Wall Street and not Stockholm or Beijing?”
??!??! That is nothing but dribble. It makes absolutely no sense whatsoever. How is it possible for any person with an IQ above 50 to wonder something so idiotic?
I am not going to waste any more time on this worthless troll.
Vote:September 30th, 2008 at 10:55 pm
http://umrresearch.com.au/doc/USPresidentialElection.pdf
Gotta love Aussies. Good taste and smart to boot.
Vote:October 1st, 2008 at 12:40 am
Oh Lloydois – you really are comedy gold. Relentless in your infantile, ideologically driven belief that lefties are smart and righties are dumb (or ignorant, or evil or, or, well – just rotten). Not to mention the endless appeals to the crowd: Look, look, the mob are with me!.
And now lacking in good taste too, as if you’re suddenly channeling Marie-Antoinette (not entirely out of the question in your case)! These messages must be delivered constantly if life is to mean anything for a left-winger.
Maybe you should start a blog effort in which this sort of information is delivered to the Obama campaign so that they can proudly say that people are voting for a World President.
It didn’t work well for the Guardian but perhaps you’re more savvy?
Vote:October 1st, 2008 at 1:18 am
Au contraire my foul-mouthed friend.
I understand everything you have tried to explain. That you have made such a poor fist of it gave me the opportunity to hedge and the readers to judge.
Here is the argument put rather more elegantly:
“the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac.”
“It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers”
” In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of “affordable housing.” They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.”
“By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges.”
http://www.aei.org/publications/pubID.28664,filter.all/pub_detail.asp
There are a few problems with it.
First the time line. The market for SIVs had been on the boil long before Fannie Mae entered it in “late 2004″. It had nearly doubled in 2003.
Vote:Second, Fannie and Freddie were not “viewed in the capital markets as government-backed buyers” as the above citation from Deutsche Bank attests, even such a lowly source as Wiki has that down.
Thirdly, Fannie Mae only ever absorbed 40% (if that much) of subprime at its peak in 2007 – had bugger-all when the thing took off in 2003.
Lastly, even if what you believe were to be the case, it would not excuse the behaviour of the Banks. Nobody forced them to ignore the creditworthiness of their customer and thereby break what few regulations were left at the time.
October 1st, 2008 at 3:51 am
The Democrats really screwed over America. Still, in a democracy the voters get what they deserve.
President McCain will turn the financial situation around and improve the standing of the US.
Vote:October 1st, 2008 at 7:52 am
Lighten up tom otherwise you just might prove the adage that righties are a humour free zone.
Then again, OECD rank 22 kiwi clearly has his tongue in cheek. It’s pretty obvious that what America needs right now is another big tax cut.
Worked for Bush.
Vote:October 1st, 2008 at 8:18 am
Alan Greenspan, testified before Congress in 2005 about how urgent it was for the politicians to act on the financial industry.
With regard to Fannie and Freddie he said that if they:
But then he got really blunt
I think I’ll trust the judgment of Greenspan at the time rather than the retrospective views of somebody called “Spoff”
Just a note for PhilU: I read that testimony at the time, given that it is an area of interest of mine, and made my decisions accordingly. I doubt I’m alone in this among the readership of this blog. You might want to consider that the next time you start crowing about your foresight on the issue.
Vote:October 1st, 2008 at 9:30 am
It’s universally agreed that the Democrats have stuffed up and only the Republicans can save the US. Good good.
Vote:October 1st, 2008 at 11:20 am
“I think I’ll trust the judgment of Greenspan at the time rather than the retrospective views of somebody called “Spoff””
I do not want you to trust my judgment, just to examine the facts and use your own. As it happens I agree with Greenspan’s call for proper regulation of the finance industry.
Vote:October 1st, 2008 at 1:53 pm
It’s becoming universally obvious that Republicans are like very small children. Never take responsibility for anything, it’s always somebody elses fault.
Thank god there’s an adult in the room.
O-bam-a! O-bam-a! O-bam-a!
Vote:October 1st, 2008 at 6:52 pm
Fortunately for us humour challenged righties there is always a vein of comedy relief in the form of partisan left-wingers. While OECD may have had his tongue in his cheek, Lloydois’s submission of that survey was apparently done with all the usual grim, grey, seriousness we’ve come to expect from the Left. A veritable gold mine of humour.
More laughs! And with chutzpah too as an extra topping. I’m more than willing to be pissed off with Republicans for not being willing to force the changes through that they wanted when they had the power to do so.
By contrast Lloydois’s approach is that when Republicans have control of Congress, it is Republicans’ fault for not legislating away economic problems – and when Democrats have control of Congress, it is Republicans’ fault for not legislating away economic problems.
Sweet
The guy who voted present 130 times? That adult?
ROTFLMAO
Vote: