Should the Glass Steagall Act be brought back?

[Dad2three]

Androw, you are clueless. Sub prime loans had been originated and closed since way back in the early 1980ties. Maybe before. But in the early 1980ties when I first started writing loans, there were sub prime mortgages. And they actually served a good, necessary purpose in limited quantities.

Funny how you all leave out the loan officers manning the phone banks dialing zip codes which pretty much assured the loan officer they wouldn't find any real knowledgeable borrowers at those addresses. Made it easier to make a killing when the borrower has no knowledge pf the lending process.

And the Realtors. Who do you think it was that steered the home buyers to the sub prime loan officers after they had been denied a conforming loan?

Mac seems to think this was an "organic" event. It just happened.

I can assure you that this was a very well planned event. If on the street loan officers KNEW that we were originating "bad loans", how could anyone figure that the executives of all these banks and mortgage companies didn't know they were making bad loans? They knew. That's why the were packaged and sold so fast. Let some other sucker take the hit was the idea. We already got our money.

Greed is a tremendous motivator.

The problem with the 'greed' theory is this.... Has anything changed in human nature over the last 100 years?

I never suggested that sub-prime didn't exist prior to 1997, only that they were not sold as mortgage backed securities on the open market. They were a very small niche market.

So why didn't the bankers go crazy in the 70s? Or 80s? Or early 90s? Were all the bankers benevolent altruistic people back then? And what happened? Did a greed virus get released in the water? Did martians beam down, and zap them all with greed guns?

Why 1997? Why didn't the sub-prime loans take off in the 80s? Or even 2004, like the partisan hacks here claim?

See, the housing mortgage market was stable for decades. Then suddenly in 1997, sub-prime loans shot off, and the housing bubble started.

That can't be random. People don't just wake up one morning, and decide "hey everything we thought was too risky for the last 30 years, is magically safe from now on!"

There had to be a trigger.

And isn't it interesting that the two biggest crashed, were also to of the original companies involved in making Sub-prime Freddie Mac Securitized loans? First Union, which became Wachovia, and Bear Stearns.

Coincidence? I don't think so.

The difference between me and Captain Party Hack over there (whose spam I have on ignore forever more), is that I don't deny that Bush continued bad policies. Absolutely he did. But the truth is, even if Bush had not, we would still be where we are right now. By 2004, the price bubble was already massive. That's why Barney Frank was denying there was a bubble in 2005.

But again, I go back to the cause. Something happened in 1997, that fundamentally changed the market.

The evidence shows that for the first time in US history, the Federal Government, through Freddie Mac, placed their seal of approval on Sub-prime loans, at the same time they were suing banks to make those loans.

Last note... I even agree that some people played the game to earn a quick buck. Absolutely, some banks knew those loans were bad, and made them anyway, because they knew they could make a buck before the market crashed. Absolutely.

Still doesn't change the start. What was the cause? Because they could have done that 30 years ago. Why did it start in 1997? Again, Freddie Mac, and the Federal government, pushing those bad loans.

Read the book, The Financial Crisis and the Free Market Cure, by John A. Allison.

Allison was CEO of BB&T bank, when the regulators showed up and demanded they lower their lending standards in the late 1990s. They said their lend standards were 'discriminator' but yet couldn't describe how, and only required they be lowered.

The Government pushed this. That's all there is to it.

SO YOU'LL STICK WITH MYTHS, DISTORTIONS AND LIES. GOT IT

"So why didn't the bankers go crazy in the 70s? Or 80s? Or early 90s? Were all the bankers benevolent altruistic people back then? And what happened? Did a greed virus get released in the water? Did martians beam down, and zap them all with greed guns?

Why 1997? Why didn't the sub-prime loans take off in the 80s? Or even 2004, like the partisan hacks here claim?

See, the housing mortgage market was stable for decades. Then suddenly in 1997, sub-prime loans shot off, and the housing bubble started."


When did the Bush Mortgage Bubble start?

A The general timeframe is it started late 2004.

From Bush’s President’s Working Group on Financial Markets October 2008

“The Presidents Working Group’s March policy statement acknowledged that turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007.”


"Since 1995 there has been essentially no change in the basic CRA rules or enforcement process that can be reasonably linked to the subprime lending activity. This fact weakens the link between the CRA and the current crisis since the crisis is rooted in poor performance of mortgage loans made between 2004 and 2007. "

http://www.federalreserve.gov/newsevents/speech/20081203_analysis.pdf


"Another form of easing facilitated the rapid rise of mortgages that didn't require borrowers to fully document their incomes. In 2006, these low- or no-doc loans comprised 81 percent of near-prime, 55 percent of jumbo, 50 percent of subprime and 36 percent of prime securitized mortgages."

https://www.dallasfed.org/assets/documents/research/eclett/2007/el0711.pdf



Q HOLY JESUS! DID YOU JUST PROVE THAT OVER 50 % OF ALL MORTGAGES IN 2006 DIDN’T REQUIRE BORROWERS TO DOCUMENT THEIR INCOME?!?!?!?

A Yes.

Q WHO THE HELL LOANS HUNDREDS OF THOUSANDS OF DOLLARS TO PEOPLE WITHOUT CHECKING THEIR INCOMES?!?!?

A Banks.

Q WHY??!?!!!?!

A Two reasons, greed and Bush's regulators let them.



Q Why would Bush’s regulators let banks lower their lending standards?

A. Federal regulators at the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision work for Bush and he was pushing his “Ownership Society” programs that was a major and successful part of his re election campaign in 2004. And Bush’s regulators not only let banks do this, they attacked state regulators trying to do their jobs. Bush’s documented policies and statements in timeframe leading up to the start of the Bush Mortgage Bubble include (but not limited to)



Wanting 5.5 million more minority homeowners
Tells congress there is nothing wrong with GSEs
Pledging to use federal policy to increase home ownership
Routinely taking credit for the housing market
Forcing GSEs to buy more low income home loans by raising their Housing Goals
Lowering Invesntment bank’s capital requirements, Net Capital rule (Going from 12-1 to 35+-1 in 2004, flooded the market cheap money)
Reversing the Clinton rule that restricted GSEs purchases of subprime loans (2004)
Lowering down payment requirements to 0%
Forcing GSEs to spend an additional $440 billion in the secondary markets
Giving away 40,000 free down payments

PREEMPTING ALL STATE LAWS AGAINST PREDATORY LENDING

But the biggest policy was regulators not enforcing lending standards.


"By 2004, the price bubble was already massive. That's why Barney Frank was denying there was a bubble in 2005."



The American mortgage market was about $500 billion in 1990. During the 1990s, it went up to nearly $1 trillion in 1993, peaked in 1998 at around $1.5 trillion. In 2000, it
stood at $1 trillion a year. The real surge in the mortgage market began in 2001 (the year of the stock market crash). From 2000 -2004, residential originations the U.S. climbed from about $1trillion to almost $4 trillion.

About 70% of this rise was accounted for by people refinancing their conventional mortgages at lower interest rates

http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf


Predatory origination practices were especially prevalent
within the HEL segment.



Alt-A and subprime mortgages (sometimes called “B/C” mortgages to denote their lower credit quality) were sold to people with impaired credit history, or people who lacked the ability to make a large down payment, or people who did not have verification of their income. Alt-A is not strictly defined but is generally viewed as an intermediate category that encompasses borrowers with FICO scores to qualify for prime but who lack some other qualification.

The term subprime actually has a set of formal definitions. To qualify for a prime or conventional mortgage, a person needed 20% down and a credit FICO score of 660 or above (the average score is 710 on a scale from 450-900). Mortgagees who did not have these qualifications were not eligible for prime or conventional mortgages




In 2004, for the first time, these four categories of loans exceeded the prime market or conventional market. In 2001, the largest conventional (prime, government-insured) originator did 91% of its origination business in the conventional market, and only 9% in the non-prime market.






In the peak of the mortgage craze in 2006, fully 70% of all loans that were made were unconventional mortgages.


http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf





The historical "originate and hold" mortgage model was replaced with the "originate and distribute" model. Incentives were such that you could get paid just to originate and sell the mortgages down the pipeline, passing the risk along. The big investment banks simply connected the investors to the originators, helped by the AAA ratings.


Given CEOs' proclivity for government bashing, any lenders being driven to write bad loans by the CRA would have been on CNBC screaming at the top of their lungs.

But that dog that didn't bark.



Federal Reserve Paper (San Francisco) on California

long paper: http://www.frbsf.org/publications/community/wpapers/2008/wp08-05.pdf

short paper:
http://www.frbsf.org/publications/community/cra/cra_lending_during_subprime_meltdown.pdf

"... we believe that this research should help to quell if not fully lay to rest the arguments that the CRA caused the current subprime lending boom by requiring banks to lend irresponsibly in low- and moderate-income areas. First, the data show that overall, lending to low- and moderate-income communities comprised only a small share of total lending by CRA lenders, even during the height of subprime lending in California.

Second, we find loans originated by lenders regulated
under the CRA in general were significantly less likely
to be in foreclosure than those originated by IMCs (Independent Mortgage Companies). This held true even after controlling for a wide variety of borrower and loan characteristics, including credit score, income, and whether or not the loan was higher priced."


There was no requirement in the Community Reinvestment Act that required banks to lend to marginal borrowers, just encouragement to try to lend to weaker borrowers in areas where the banks opened branches.

Further, most all sub-prime loans were not done by banks. They were done by “non-bank” lenders which were not covered by the CRA.




The common factor is an explosion in “funny” mortgage products and low interest loans, that had no connection to the actual risk of the loan. This allowed people to purchase more house than ever before, and drove a bubble. The reason you could detach the risk from availability of loans was that they found a way to hide the actual risk from the end purchasers of the loans. Furthermore, they found a way to insulate the people who could and should have known about the risks, from the consequences of the risk (yet those people still harvested the upside with little or no exposure to the downside). In most cases it was an adoption of the failed ideology of “markets can take care of themselves” that allowed these absurd situations to develop without regulators or politicians stopping them.

 

[Dad2three]

Androw, you are clueless. Sub prime loans had been originated and closed since way back in the early 1980ties. Maybe before. But in the early 1980ties when I first started writing loans, there were sub prime mortgages. And they actually served a good, necessary purpose in limited quantities.

Funny how you all leave out the loan officers manning the phone banks dialing zip codes which pretty much assured the loan officer they wouldn't find any real knowledgeable borrowers at those addresses. Made it easier to make a killing when the borrower has no knowledge pf the lending process.

And the Realtors. Who do you think it was that steered the home buyers to the sub prime loan officers after they had been denied a conforming loan?

Mac seems to think this was an "organic" event. It just happened.

I can assure you that this was a very well planned event. If on the street loan officers KNEW that we were originating "bad loans", how could anyone figure that the executives of all these banks and mortgage companies didn't know they were making bad loans? They knew. That's why the were packaged and sold so fast. Let some other sucker take the hit was the idea. We already got our money.

Greed is a tremendous motivator.

The problem with the 'greed' theory is this.... Has anything changed in human nature over the last 100 years?

I never suggested that sub-prime didn't exist prior to 1997, only that they were not sold as mortgage backed securities on the open market. They were a very small niche market.

So why didn't the bankers go crazy in the 70s? Or 80s? Or early 90s? Were all the bankers benevolent altruistic people back then? And what happened? Did a greed virus get released in the water? Did martians beam down, and zap them all with greed guns?

Why 1997? Why didn't the sub-prime loans take off in the 80s? Or even 2004, like the partisan hacks here claim?

See, the housing mortgage market was stable for decades. Then suddenly in 1997, sub-prime loans shot off, and the housing bubble started.

That can't be random. People don't just wake up one morning, and decide "hey everything we thought was too risky for the last 30 years, is magically safe from now on!"

There had to be a trigger.

And isn't it interesting that the two biggest crashed, were also to of the original companies involved in making Sub-prime Freddie Mac Securitized loans? First Union, which became Wachovia, and Bear Stearns.

Coincidence? I don't think so.

The difference between me and Captain Party Hack over there (whose spam I have on ignore forever more), is that I don't deny that Bush continued bad policies. Absolutely he did. But the truth is, even if Bush had not, we would still be where we are right now. By 2004, the price bubble was already massive. That's why Barney Frank was denying there was a bubble in 2005.

But again, I go back to the cause. Something happened in 1997, that fundamentally changed the market.

The evidence shows that for the first time in US history, the Federal Government, through Freddie Mac, placed their seal of approval on Sub-prime loans, at the same time they were suing banks to make those loans.

Last note... I even agree that some people played the game to earn a quick buck. Absolutely, some banks knew those loans were bad, and made them anyway, because they knew they could make a buck before the market crashed. Absolutely.

Still doesn't change the start. What was the cause? Because they could have done that 30 years ago. Why did it start in 1997? Again, Freddie Mac, and the Federal government, pushing those bad loans.

Read the book, The Financial Crisis and the Free Market Cure, by John A. Allison.

Allison was CEO of BB&T bank, when the regulators showed up and demanded they lower their lending standards in the late 1990s. They said their lend standards were 'discriminator' but yet couldn't describe how, and only required they be lowered.

The Government pushed this. That's all there is to it.

Out of Control Financial Innovation


By now the litany is familiar: the old model of banking, in which banks held on to the loans they made, was replaced by the new practice of originate-and-distribute. Mortgage originators—which in many cases had no traditional banking business—made loans to buy houses, then quickly sold those loans off to other firms. These firms then repackaged those loans by pooling them, then selling shares of these pools of securities; and rating agencies were willing to label the resulting product chicken—that is, to bestow their seal of approval, the AAA rating, on the more senior of these securities, those that had first claim on interest and principal repayment.

Everyone ignored both the risks posed by a general housing bust and the degradation of underwriting standards as the bubble inflated (that ignorance was no doubt assisted by the huge amounts of money being made). When the bust came, much of that AAA paper turned out to be worth just pennies on the dollar.



The Slump Goes On: Why? by Paul Krugman and Robin Wells | The New York Review of Books



Examining the big lie: How the facts of the economic crisis stack up

The boom and bust was global. Proponents of the Big Lie ignore the worldwide nature of the housing boom and bust.


Nonbank mortgage underwriting exploded from 2001 to 2007, along with the private label securitization market, which eclipsed Fannie and Freddie during the boom.



Private lenders not subject to congressional regulations collapsed lending standards.

These firms had business models that could be called “Lend-in-order-to-sell-to-Wall-Street-securitizers.” They offered all manner of nontraditional mortgages — the 2/28 adjustable rate mortgages, piggy-back loans, negative amortization loans. These defaulted in huge numbers, far more than the regulated mortgage writers did.

Consider a study by McClatchy: It found that more than 84 percent of the subprime mortgages in 2006 were issued by private lending. These private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. And McClatchy found that out of the top 25 subprime lenders in 2006, only one was subject to the usual mortgage laws and regulations.

A 2008 analysis found that the nonbank underwriters made more than 12 million subprime mortgages with a value of nearly $2 trillion. The lenders who made these were exempt from federal regulations.

>

Examining the big lie: How the facts of the economic crisis stack up | The Big Picture

 

[Dad2three]

Read the book, The Financial Crisis and the Free Market Cure, by John A. Allison.

Allison was CEO of BB&T bank, when the regulators showed up and demanded they lower their lending standards in the late 1990s. They said their lend standards were 'discriminator' but yet couldn't describe how, and only required they be lowered.

The Government pushed this. That's all there is to it.

"The Financial Crisis and the Free Market Cure, by John A. Allison.

Allison was CEO of BB&T bank, when the regulators showed up and demanded they lower their lending standards in the late 1990s. "


"Allison became president of BB&T in 1987, and chief executive in 1989. He spread the word about Rand and got every- one on the bank’s management team to read Atlas Shrugged. But the Randification of BB&T kicked into high gear in 1994. That’s when Allison discovered Objectivism: The Philosophy of Ayn Rand, written three years earlier by Rand’s longtime associate and designated intellectual heir, Leonard Peikoff."


LOL

"BB&T developed a niche, says Dick Bove, a bank analyst with Stamford, Conn.-based Rochdale Securities. It focused on lending to small and medium-sized Southeastern companies."


“There were days where money was not moving. You knew that it was critical enough that it could create a downward spiral that would be really bad for everybody. Once you create a massive panic, everybody is going to be at every bank’s door. Then I don’t care how strong you are. If all of our clients show up tomorrow morning and want all of their money, we don’t have it.”

No bank seemed immune, and their stocks were plummeting. BB&T’s slid from about $40 to about $25 a share in the last quarter of 2008.


It received $3.1 billion, handing over preferred stock in exchange. Why didn’t King just refuse? “I think if we had said we weren’t going to do it, they would’ve said, ‘Then we’ll judge you to be undercapitalized.’ Once they do that, then they can proceed to close you down.”



LMAOROG


A Treasury spokeswoman wouldn’t comment on his contention. But at the time, officials said banks needed an infusion of federal funds to bring calm. Later events proved them right. Markets did settle, and no other company failed in the chaotic fashion of Lehman. But the price of intervention was that sound banks such as BB&T had to swallow the same bitter medicine as shaky outfits like Citigroup.



To leave TARP, banks had to raise capital by selling common shares. King also elected to cut the dividend.

IF THEY WERE PROPERLY CAPITALIZED WHY THIS CRAP?


He had to pitch his plan both to institutional investors and to existing large shareholders. “Daryl Bible, my CFO, and I locked ourselves in a room from 7 o’clock in the morning until 7 o’clock at night. We were on the phone with large institutions that could potentially buy a lot of our stock. We’d talk to them for 30 or 45 minutes and answer their questions.

Simultaneously, I had my other executives divide up the top several hundred of our shareholders and call them and tell them what was going on. Mostly they understood. They didn’t like it, but with the exception of one or two, took it in stride.” In May 2009, BB&T raised $1.7 billion. It exited TARP the following month.



Business North Carolina - Once and future King


It is clear to anyone who has studied the financial crisis of 2008 that the private sector’s drive for short-term profit was behind it.


More than 84 percent of the sub-prime mortgages in 2006 were issued by private lending. These private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. Out of the top 25 subprime lenders in 2006, only one was subject to the usual mortgage laws and regulations.

The nonbank underwriters made more than 12 million subprime mortgages with a value of nearly $2 trillion. The lenders who made these were exempt from federal regulations.


Low interest rates fueled an apparent boom

Asset managers sought new ways to make money: Low rates meant asset managers could no longer get decent yields from municipal bonds or Treasurys. Instead, they turned to high-yield mortgage-backed securities.

The credit rating agencies gave their blessing

Fund managers didn’t do their homework


Derivatives were unregulated: Derivatives had become a uniquely unregulated financial instrument. They are exempt from all oversight, counter-party disclosure, exchange listing requirements, state insurance supervision and, most important, reserve requirements. This allowed AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims.


The SEC loosened capital requirements: In 2004, the Securities and Exchange Commission changed the leverage rules for just five Wall Street banks. This exemption replaced the 1977 net capitalization rule’s 12-to-1 leverage limit. This allowed unlimited leverage for Goldman Sachs [GS], Morgan Stanley, Merrill Lynch (now part of Bank of America [BAC]), Lehman Brothers (now defunct) and Bear Stearns (now part of JPMorganChase–[JPM]). These banks ramped leverage to 20-, 30-, even 40-to-1. Extreme leverage left little room for error. By 2008, only two of the five banks had survived, and those two did so with the help of the bailout.




The federal government overrode anti-predatory state laws. In 2004



Compensation schemes encouraged gambling: Wall Street’s compensation system was—and still is—based on short-term performance, all upside and no downside. This creates incentives to take excessive risks. The bonuses are extraordinarily large and they continue–$135 billion in 2010 for the 25 largest institutions and that is after the meltdown.



Wall Street became “creative”: The demand for higher-yielding paper led Wall Street to begin bundling mortgages. The highest yielding were subprime mortgages. This market was dominated by non-bank originators exempt from most regulations.


Private sector lenders fed the demand:



Financial gadgets milked the market: “Innovative” mortgage products were developed to reach more subprime borrowers. These include 2/28 adjustable-rate mortgages, interest-only loans, piggy-bank mortgages (simultaneous underlying mortgage and home-equity lines) and the notorious negative amortization loans (borrower’s indebtedness goes up each month). These mortgages defaulted in vastly disproportionate numbers to traditional 30-year fixed mortgages.




Commercial banks jumped in: To keep up with these newfangled originators, traditional banks jumped into the game. Employees were compensated on the basis loan volume, not quality.



Derivatives exploded uncontrollably: CDOs provided the first “infinite market”; at height of crash, derivatives accounted for 3 times global economy



The boom and bust went global. Proponents of the Big Lie ignore the worldwide nature of the housing boom and bust. A McKinsey Global Institute report noted “from 2000 through 2007, a remarkable run-up in global home prices occurred.”

Fannie and Freddie jumped in the game late to protect their profits



Fannie Mae and Freddie Mac market share declined. The relative market share of Fannie Mae and Freddie Mac dropped from a high of 57 percent of all new mortgage originations in 2003, down to 37 percent as the bubble was developing in 2005-06. More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.


The government-sponsored enterprises were concerned with the loss of market share to these private lenders — Fannie and Freddie were chasing profits, not trying to meet low-income lending goals.




It was primarily private lenders who relaxed standards: Private lenders not subject to congressional regulations collapsed lending standards. the GSEs. Conforming mortgages had rules that were less profitable than the newfangled loans. Private securitizers — competitors of Fannie and Freddie — grew from 10 percent of the market in 2002 to nearly 40 percent in 2006. As a percentage of all mortgage-backed securities, private securitization grew from 23 percent in 2003 to 56 percent in 2006.




The driving force behind the crisis was the private sector


In 2005, the chief economist of the International Monetary Fund, Raghuram Rajan, made a speech at Jackson Hole Wyoming in front of the world’s most important bankers and financiers, including Alan Greenspan and Larry Summers. He argued that technical change, institutional moves and deregulation had made the financial system unstable. Incentives to make short-term profits were encouraging the taking of risks, which if they materialized would have catastrophic consequences. The speech did not go down well. Among the first to speak was Larry Summers who said the speech was “largely misguided”.

In 2006, Nouriel Roubini issued a similar warning at an IMF gathering of financiers in New York. The audience reaction? Dismissive. Roubini was “non-rigorous” in his arguments. The central bankers “knew what they were doing.”



The drive for short-term profit crushed all opposition in its path, until the inevitable meltdown in 2008.


Lest We Forget: Why We Had A Financial Crisis - Forbes

 

[Dad2three]

Androw, you are clueless. Sub prime loans had been originated and closed since way back in the early 1980ties. Maybe before. But in the early 1980ties when I first started writing loans, there were sub prime mortgages. And they actually served a good, necessary purpose in limited quantities.

.....
Greed is a tremendous motivator.

The problem with the 'greed' theory is this.... Has anything changed in human nature over the last 100 years?

I never suggested that sub-prime didn't exist prior to 1997, only that they were not sold as mortgage backed securities on the open market. They were a very small niche market...


Why 1997? Why didn't the sub-prime loans take off in the 80s? Or even 2004, like the partisan hacks here claim?

See, the housing mortgage market was stable for decades. Then suddenly in 1997, sub-prime loans shot off, and the housing bubble started.

That can't be random. People don't just wake up one morning, and decide "hey everything we thought was too risky for the last 30 years, is magically safe from now on!"

There had to be a trigger.

And isn't it interesting that the two biggest crashed, were also to of the original companies involved in making Sub-prime Freddie Mac Securitized loans? First Union, which became Wachovia, and Bear Stearns.

Coincidence? I don't think so.

The difference between me and Captain Party Hack over there (whose spam I have on ignore forever more), is that I don't deny that Bush continued bad policies. Absolutely he did. But the truth is, even if Bush had not, we would still be where we are right now. By 2004, the price bubble was already massive. That's why Barney Frank was denying there was a bubble in 2005.

But again, I go back to the cause. Something happened in 1997, that fundamentally changed the market.

The evidence shows that for the first time in US history, the Federal Government, through Freddie Mac, placed their seal of approval on Sub-prime loans, at the same time they were suing banks to make those loans....



Still doesn't change the start. What was the cause? Because they could have done that 30 years ago. Why did it start in 1997? Again, Freddie Mac, and the Federal government, pushing those bad loans...



The Government pushed this. That's all there is to it.

But beginning in 2003, we begin to see rapid compositional shift toward non-conventional loans. In contrast to conventional loans, securitization of these types of mortgages was centered on private - sector banks rather than GSEs.



In 2004, for the first time, these four categories (Alt-A and subprime mortgages , sometimes called “B/C” mortgages to denote their lower credit quality) were sold to people with impaired credit history, or people who lacked the ability to make a large down payment, or people who did not have verification of their income. Alt-A is not strictly defined but is generally viewed as an intermediate category that encompasses borrowers with FICO scores to qualify for prime but who lack some other qualification. ) of loans exceeded the prime market or conventional market. In 2001, the largest conventional (prime, government-insured) originator did 91% of its origination business in the conventional market, and only 9% in the non-prime market.


By 2005 the largest conventional originator was doing less than half of its origination business within the conventional sector (Inside Mortgage Finance 2009). In the peak of the mortgage craze in 2006, fully 70% of all loans that were made were unconventional mortgages.

This meant in a very short period of time, banks reoriented housing finance–one of the largest industries in the economy–around securitizations of highly risky loans.



http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf

 

[eagle1462010]

27 to 5 to 1. It appears that most see that we screwed up when we allowed the Too Big to Fail Crowd go unregulated.

The purpose of the poll was to see where people stand on this issue. I'm very happy with the results.

Thanks to everyone who voted on the poll.

 

[eagle1462010]

On a side note.............

Dad is addicted to spamming threads.........Almost to the point I'm ready to ignore his butt.

 

[Mac1958]

On a side note.............

Dad is addicted to spamming threads.........Almost to the point I'm ready to ignore his butt.

I tried the "brevity of the soul of wit, I'm not gonna read that mess" thing with him.

Didn't work.



.

 

[Toddsterpatriot]

27 to 5 to 1. It appears that most see that we screwed up when we allowed the Too Big to Fail Crowd go unregulated.

The purpose of the poll was to see where people stand on this issue. I'm very happy with the results.

Thanks to everyone who voted on the poll.

Glass Steagall would have done nothing to stop the crisis.

Probably would have made it worse.

 

[Andylusion]

27 to 5 to 1. It appears that most see that we screwed up when we allowed the Too Big to Fail Crowd go unregulated.

The purpose of the poll was to see where people stand on this issue. I'm very happy with the results.

Thanks to everyone who voted on the poll.

But they were not unregulated. And 'too big to fail', is just a catch phrase to allow government to bail out banks.

There is no too big to fail in the real world. Lehman Brothers was allowed to fail, without any bailout, and there was no end of the world crash.

Iceland allowed their banks to fail as well, and nothing happened. In fact, their economy recovered far quick than our own, specifically because it wasn't being ruined by a government bogged down in debt.

Estonia also allowed their banks to fail back in the 80s I believe, and they have been one of the biggest high growth economies of the former soviet bloc for decades.

Again, there was no unregulated banks. You can't point to any large group of banks where Glass Steagall would have prevented their crash. None.

Actually I'm convinced that what the poll really shows is just how uneducated, and ignorant the public is. When government can sway so many people to believe something completely illogical and unsupportable, it shows just how much like lemmings the general public really is. Clearly this is why the founding fathers wanted a Republic, can not a Democracy, run by the lowest common denominator of society.

 

[Andylusion]

On a side note.............

Dad is addicted to spamming threads.........Almost to the point I'm ready to ignore his butt.

Absolutely. I ignored him myself. Even people who agree with his position of "Bush did everything", ignore him for being the spamming partisan hack he is.

 

[Dad2three]

On a side note.............

Dad is addicted to spamming threads.........Almost to the point I'm ready to ignore his butt.

So as a conservative, you don't like facts and data to back it up. Got it

 

[Dad2three]

On a side note.............

Dad is addicted to spamming threads.........Almost to the point I'm ready to ignore his butt.

Absolutely. I ignored him myself. Even people who agree with his position of "Bush did everything", ignore him for being the spamming partisan hack he is.

1997 HUH? lol

Competition and Crisis in Mortgage Securitization

U.S. policy makers often treat market competition as a panacea. However, in the case of mortgage securitization, policy makers’ faith in competition is misplaced.


Competitive mortgage securitization has been tried three times in U.S. history—during the 1880s, the 1920s, and the 2000s—and every time it has collapsed.

Most recently, competition between mortgage securitizers led to a race to the bottom on mortgage underwriting standards that ended in the late 2000s financial crisis.


This Article provides original evidence that when competition was less intense and securitizers had more buyer power, securitizers acted to monitor mortgage originators and to maintain prudent underwriting. However, securitizers’ ability to monitor originators and maintain high standards was undermined as competition shifted power away from securitizers and toward originators. Although standards declined across the market, the largest and most powerful of the mortgage securitizers, the Government Sponsored Enterprises (GSEs), remained more successful than other mortgage securitizers at maintaining pr udent underwriting

http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=11040&context=ilj

 

[georgephillip]

"I. A HISTORY OF MARKET FAILURES AND GOVERNMENT RESCUES
Private investors have not been very successful at evaluating the complex risks
associated with pools of mortgages. Unlike equities, which announce their riskiness
to investors by virtue of their first-loss position in corporate capital structures,
mortgage securitization promises investors the safety of secured lending against
sound collateral. However, each of the three times competitive mortgage
securitization by competing private financial institutions has been tried, it delivered
much higher risk levels than investors expected, and each time the market
ultimately collapsed. An early form of private mortgage securitization was tried in..."

http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=11040&context=ilj

[BWhat do the]1890s, 1920s, and early 2000s have in common?
Voters thought "choosing" between Republican OR Democrat made a difference.[/B]

 

[Dad2three]

"I. A HISTORY OF MARKET FAILURES AND GOVERNMENT RESCUES
Private investors have not been very successful at evaluating the complex risks
associated with pools of mortgages. Unlike equities, which announce their riskiness
to investors by virtue of their first-loss position in corporate capital structures,
mortgage securitization promises investors the safety of secured lending against
sound collateral. However, each of the three times competitive mortgage
securitization by competing private financial institutions has been tried, it delivered
much higher risk levels than investors expected, and each time the market
ultimately collapsed. An early form of private mortgage securitization was tried in..."

http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=11040&context=ilj

[BWhat do the]1890s, 1920s, and early 2000s have in common?
Voters thought "choosing" between Republican OR Democrat made a difference.[/B]

What do the]1890s, 1920s, and early 2000s have in common?
Voters thought "choosing" between Republican OR Democrat made a difference.

CONSERVATIVE ECONOMIC 'THEORY' WAS AT WORK

 

[georgephillip]

"I. A HISTORY OF MARKET FAILURES AND GOVERNMENT RESCUES
Private investors have not been very successful at evaluating the complex risks
associated with pools of mortgages. Unlike equities, which announce their riskiness
to investors by virtue of their first-loss position in corporate capital structures,
mortgage securitization promises investors the safety of secured lending against
sound collateral. However, each of the three times competitive mortgage
securitization by competing private financial institutions has been tried, it delivered
much higher risk levels than investors expected, and each time the market
ultimately collapsed. An early form of private mortgage securitization was tried in..."

http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=11040&context=ilj

[BWhat do the]1890s, 1920s, and early 2000s have in common?
Voters thought "choosing" between Republican OR Democrat made a difference.[/B]

What do the]1890s, 1920s, and early 2000s have in common?
Voters thought "choosing" between Republican OR Democrat made a difference.

CONSERVATIVE ECONOMIC 'THEORY' WAS AT WORK

Central bankers don't care who writes the laws as long as they control the money supply.

Is that the problem?

 

[Dad2three]

"i. A history of market failures and government rescues
private investors have not been very successful at evaluating the complex risks
associated with pools of mortgages. Unlike equities, which announce their riskiness
to investors by virtue of their first-loss position in corporate capital structures,
mortgage securitization promises investors the safety of secured lending against
sound collateral. However, each of the three times competitive mortgage
securitization by competing private financial institutions has been tried, it delivered
much higher risk levels than investors expected, and each time the market
ultimately collapsed. An early form of private mortgage securitization was tried in..."

http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=11040&context=ilj

[bwhat do the]1890s, 1920s, and early 2000s have in common?
Voters thought "choosing" between republican or democrat made a difference.[/b]

what do the]1890s, 1920s, and early 2000s have in common?
Voters thought "choosing" between republican or democrat made a difference.

conservative economic 'theory' was at work

central bankers don't care who writes the laws as long as they control the money supply.

Is that the problem?

no