Here you go. This is a link to one of the most popular financial sites on the net, it's run by a guy called Barry Ritholtz. Barry is a quantative analyst and owns an investment firm that looks after a couple of billion dollars. He's a regular face on CNBC and Bloomberg. Barry was one of the first guys warning that the deregulation of the housing industry was leading to the kind of meltdown we got in 2008. This is just one link but if you read through his archives you'll find endless more links in real time that go into endless detail about the whole thing. You could also go through the archives of quite a few business pundits, people like Kudlow for instance, who were huge cheerleaders of the whole mortgage deregulation thing at the time it happened and predicted fantastic profits, urging investors that Countrywide and Ameriquest stock was a great investment. Anyway, here's Barry :
I am working on something for The Economist -- its an Oxford style debate on the current crisis. The proposition being discussed is: "This house believes that it would be a mistake to regulate the financial system heavily after the crisis."
Any comments you may have on this would be appreciated -- my final version is due later today.
My biggest problem is trying to cover a lot of ground in just 500 words . . .
DRAFT:
Over the past 30 years, the United States has moved from an environment of excessive regulation to excessive deregulation. This philosophical shift was taken to irrational extremes, and it is the heart of the current financial crisis.
A brief history: Post War World II, the global economy expanded dramatically. By the late 1960s, the U.S. had an expansive bureaucracy. Regulatory oversight had become time-consuming, complex, and expensive. Eliminating this excess regulation started with President Jimmy Carter, and dramatically accelerated under Ronald Reagan. Originally, only the most expensive and onerous provisions were targeted. But eventually, deregulation became a religion, and effective and necessary safeguards were removed along with the costly ones.
Free-market deregulation became a misguided rallying cry of conservative ideologues. The U.S. moved from a state of excess regulation to radical de-regulation.
In 1999, the Glass-Steagall Act was repealed, allowing insurers, banks and brokerage firms to merge. In 2000, Derivatives were exempted from all regulatory, supervisory or reserve requirements by the Commodity Futures Modernization Act.
During the early 2000s, the Federal Reserve, under Alan Greenspan Fed elected against supervising new mortgage lending firms. This act of nonfeasance, based upon Mr. Greenspans free market philosophy, had enormous repercussions.
final act of deregulatory zeal were the net capitalizations exemptions granted by the SEC to five firms. This exemption allowed firms to exceed rules limiting debt-to-net capital ratio to a modest 12-to-1 ratio. After the 2004 exemption, firms levered up as much as 40 to 1. Not surprising, the five brokers that received this exemption Goldman Sachs, Merrill, Lehman Brothers, Bear Stearns, and Morgan Stanley are no longer in existence; they either failed, merged, or changed into depository banks.
~~~
To show the impact of deregulation, consider the underlying premise of all credit transactions loans, mortgages, and all debt instruments. Over the entire history of human finance, the borrower's ability to repay the loan has been the paramount factor in all lending. With mortgage, this included elements such as employment history, income, down payment, credit rating, other assets, loan-to-value ratio of the property, debt servicing ability, etc.
Greenspans decision to not supervise mortgage lenders led to a brand new lending standard. During a five year period (2002-07), the basis for making mortgages was NOT the borrowers ability to pay rather, it was the lender's ability to sell a mortgage to firms that securitized them.
This represented an enormous change from the past.
These new unregulated mortgage brokers no longer cared about a standard 30 year mortgage being repaid over time. In the new world of repackaged loans, all that mattered was that the loan did not come back to the originator. By contract, this was typically 90 or 180 days. As long as the borrower did not default in that period of time, it could not be put back to the originator.
It turned out that the best way to do that to put people in houses that would not default in 90 days were 2/28 ARM mortgages. Cheap teaser rates for 24 months, with an eventual large reset.
This monumental, unprecedented change in lending standards led directly to the key to the current crisis. It also shows what happens when we remove supervision from the financial sector. Most of these mortgage originators nearly 300 have since filed for bankruptcy.
~~~
Why do we have referees in professional sports? All intense competition leads to rules of the game getting tested. Refs are on the field to prevent the game from spiraling into something unrecognizable to fans.
In business, the profit incentive leads to similar behavior. We push the envelope, tap dance close to that line, and then blow past it.
Deregulation took the referees off of the field, allowed speculative excesses to flourish, and reckless short-term incentives to distort behavior.
That is Human Nature we are competitive creatures, and we require reasonable boundaries to protect ourselves from our own worst instincts. When left to our own devices, we push the envelope, cut corners, even work against our own best interests in the pursuit of profits. Every financial scandal over the past decade corrupt analysts, fraudulent accounting, over-stating profits, predatory lending, conflicts of interests, option backdating are the result of a legitimate business operation pushed up to the legal boundaries, and then going far beyond them.
That is the risk deregulation brings: It encourages behavior that leads to systemic risk. In the present case, the global credit markets have frozen, threatening a worldwide recession. The total cleanup costs are scaling up towards $10 trillion dollars.
All due to an excess of deregulatory zeal . . .
The Big Picture
And just to add a little more of Bush deregulating the mortgage industry, here he is making a speech in 2004 :
Im going to tell you another statistic, which is an amazing statistic given what weve been through. Housing starts in 2003 were the highest in a quarter of a century. Homeownership sales were the highest ever. Sixty-eight percent of homeownership the homeownership rate is the highest ever. And thats fantastic news for America. We want more people owning their own home. Theres nothing like saying, this home is my home. (Applause.)
Theres nothing better than somebody over there saying, welcome to my home. And were about to talk to some first-time homeowners. And I want to share their stories with you theyre going to share their stories with me, and youre going to get to hear it.
I do want to talk about a challenge for our country, and there is a minority homeownership gap in America. Not enough minorities own their own homes. And it seems like to me it makes sense to encourage all to own homes. And so weve done some interesting things. Again, I want to thank the Congress. But we passed down payment assistance programs that will help low-income folks buy their own home. A lot of times, if youre trying to buy your own home, you never bought one, the down payment seems like a little much. Some of you know what Im talking about. It seems to make sense if one of the things were trying to do is to get to close the minority home ownership gap and to get 5.5 new million new minority homeowners into homes over the next five years, that we ought to help with down payments and we have.
The state of Arizona is going to have $2.6 million to help people with down payments. (Applause.) I proposed that mortgages that have F.H.A.-backed insurance pay no down payment. That will help 150,000 new homeowners. (Applause.)
. . .
One other thing Ive done, is Ive called on private sector mortgage banks and banks to be more aggressive about lending money to first-time home buyers. And the response has been really good. Theres a lot of people in this our communities around the country that deeply care about the issue of homeownership, and theyve been responsive.
And more again :
Posted 1/20/2004 1:31 AM
Bush seeks to increase minority homeownership
By Thomas A. Fogarty, USA TODAY
In a bid to boost minority homeownership, President Bush will ask Congress for authority to eliminate the down-payment requirement for Federal Housing Administration loans.
In announcing the plan Monday at a home builders show in Las Vegas, Federal Housing Commissioner John Weicher called the proposal the "most significant FHA initiative in more than a decade." It would lead to 150,000 first-time owners annually, he said.
Nothing-down options are available on the private mortgage market, but, in general, they require the borrower to have pristine credit. Bush's proposed change would extend the nothing-down option to borrowers with blemished credit.
The FHA isn't a direct lender, but guarantees loan payments for mortgages on moderately priced owner-occupied property. The FHA guarantee now permits private lenders to finance as much as 97% of the purchase price of a home for millions of low- and middle-income borrowers.
In the proposal soon to be delivered to Congress, Bush would allow the FHA to guarantee loans for the full purchase price of the home, plus down-payment costs. As a practical matter, the FHA would guarantee mortgages as high as 103% of the value of the underlying property.
USATODAY.com - Bush seeks to increase minority homeownership
And the mortgage deregulation led to stuff like this. Some nice quotes for you here :
"Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending."
Alan Greenspan
Chairman of the Federal Reserve Bank,
April 2005
"It was unbelievable. We almost couldn't produce enough to keep the appetite of the investors happy. More people wanted bonds than we could actually produce." Mike Francis, executive director, residential mortgage trading desk, Morgan Stanley, quoted in "The Giant Pool of Money," This American Life, May 9, 2008
What is that movie? Boiler Room? That's what it's like. I mean, it's the [coolest] thing ever. Cubicle, cubicle, cubicle for 150,000 square feet. The ceilings were probably 25 or 30 feet high. The elevator had a big graffiti painting. Big open space. And it was awesome. We lived mortgage. That's all we did. This deal, that deal. How we gonna get it funded? What's the problem with this one? That's all everyone's talking about . . . 
We looked at loans. These people didn't have a pot to piss in. They can barely make car payments and we're giving them a 300, 400 thousand dollar house.
Then the next one came along, and it was no income, verified assets. So you don't have to tell the people what you do for a living. You don't have to tell the people what you do for work. All you have to do is state you have a certain amount of money in your bank account. And then, the next one, is just no income, no asset. You don't have to state anything. Just have to have a credit score and a pulse.
[reporter] Alex Blumberg: Actually, that pulse thing. Also optional. Like the case in Ohio where twenty-three dead people were approved for mortgages.
--------------------------------------------------------------------------------
"Mr. Howard made it clear to the mortgage broker that he could not read or write, but his loan application erroneously claimed he had had 16 years of education."
Center for Responsible Lending report
"IndyMac: What Went Wrong?"
June 30, 2008
"I would reject a loan and the insanity would begin," one former underwriter
told CRL. "It would go to upper management and the next thing you know it's
going to closing... I'm like, 'What the Sam Hill? There's nothing in there to
support this loan.'"
Center for Responsible Lending report
"IndyMac:
What Went Wrong?"
June 30, 2008
Mortgage-backed securities, credit default swaps and similar new financial
securities and products were made possible by the wave of deregulation led
by the Republican party and primarily by Republican Senator Phil Gramm,
who managed to repeal the Depression-era bills and statutes that prevented
the kind of unsafe leverage and risk-taking that has been a hallmark of the
financial industry since the turn of the century.
Mr.Gramm, now a lobbyist for UBS, has a long history of deregulating markets for
and
lobbying for corporations like Enron. UBS and its executives are currently
facing charges of having helped clients evade taxes in multiple countries, including
the U.S. and Germany. UBS has directed its private bankers to stay away
from the U.S., fearing that they would be detained for questioning in
relation with the ongoing probe by U.S. prosecutors.
Picture the whole chain. You have Clarence. He gets a mortgage from a broker. The broker sells the mortgage to a small bank. The small bank sells the mortgage to a guy like Mike at a big investment firm on Wall Street. Then Mike takes a few thousand mortgages he's bought this way, he puts them in one big pile. Now he's got thousands of mortgage checks coming to him every month. It's a huge monthly stream of money, which is expected to come in for the next thirty years, the life of a mortgage. And he then sells shares of this monthly income to investors. Those shares are called mortgage-backed securities. And the $70 trillion global pool of money loved them.
And so on. Now then, now that you've read all this, seen the guys with the chainsaw and the tree shear chopping up a stack of mortgaeg regulations, what's your opinion on the whole thing?
Thanks for the data dump.
Why don't you try again and this time highlight the part about the regulation requiring banks to hold a mortgage until maturity?
I already provided it. Read the post again then go and read the archives of the site i linked to. You'll find endless stuff there. now then, how about answering my question. here it is again ; now that you've read all this and seen the guys with the chainsaw and the tree shears chopping up a bunch of mortgage regulations, what's your opinion on the whole thing?
No, nothing in there said that before Bush took office, banks had to hold mortgages until maturity.
No, nothing in there about Bush suddenly allowing banks, for the first time, to sell mortgages after they create them.
Try again?
