What caused the Economic recession/depression?

[Kevin_Kennedy]

What caused this Economic recession/depression?

Answer: It's a mixture of things. First off, deregulation across the board in the Financial Industry from 1980 to 2008 allowed many of these crooks to have the ability to steal this money. The only real piece of legislative that was seen to combat deregulation was after Enron and all of them were revealed for what they truly are.

Otherwise referred to as the Sarbanes-Oxley Act. The problem with that though is partly the costs that are inflicted upon the businesses under the act. Which causes several companies that would go public originally to stay private in order to save costs.

There are of course several other reasons, I recommend reading The Two Trillion Dollar Meltdown by Charles R. Morris that goes into great detail about how we got into this mess.

I'd recommend Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods.

[ame=http://www.amazon.com/Meltdown-Free-Market-Collapsed-Government-Bailouts/dp/1596985879/ref=sr_1_1?ie=UTF8&s=books&qid=1247102480&sr=8-1]Amazon.com: Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse: Thomas E. Woods Jr., Ron Paul: Books[/ame]

 

[Sweet Willy]

Well the problem is that they do have the physical money on hand. To artificially lower interest rates the Fed pumps in the money to the banks, the problem is that you can't create wealth by simply creating money. So for a while the system seems great and everyone's happy, but it's essentially a giant ponzi scheme just waiting to bust.

They don't have the money. We are essentially saying the same thing in different words. To correct, loaning wealth they do not have.

We are basically saying the same thing, and you're absolutely right that they don't have the wealth to loan. I should have made that distinction earlier, rather than saying money. However, you do need to realize that the interest rate is an important function in the process and how tampering with it causes the whole thing to go out of balance.

I don't think the rate should be nearly as important as it is. The cost to borrow money is not a refection of productivity and I beleive that a healthy economy and market should revolve around earnings through productivity, not earnings through interest.

We made the distinction between money and wealth.

A blacksmith earns money by making horse shoes. Horse shoes are a product. Tangible wealth. He exchanges his horse shoes for "money" and uses the money to buy his fiance a golden band. More wealth.

A lender earns money by passing time. He produces nothing. He makes no product, no actual wealth. Whne his interest money is pasi to him, he exchanges it for a golden band for his fiance. Wealth.

The lender is a parasite. He took wealth and created none.

 

[tyronemcclurkin]

people we all know that it was Bill Clinton thatput us in this mess we are in now>

 

[Againsheila]

I am curious how many people can explain what the understand our current economic problems to be without a partisan stance.

Here is what you need to do:

1) Using your own words, tell us why we are in Economic decline.
2) You cannot simply blame Bush, Obama, Democrats, Republicans or any other person. However, you can cite policies without specific reference to who authored them.

Good luck.

Shipping our jobs overseas while bringing in record numbers of immigrants both legal and illegal to do the jobs we have left. Eventually labor is paid so little that we can't purchase the products, the companies can't sell their wares, and there is an economic collapse. It's been coming for a long time and both the dems and reps are responsible. Add to that an inflated housing market with unsubstantiated loans, and the situation gets even worse.

 

[Kevin_Kennedy]

They don't have the money. We are essentially saying the same thing in different words. To correct, loaning wealth they do not have.

We are basically saying the same thing, and you're absolutely right that they don't have the wealth to loan. I should have made that distinction earlier, rather than saying money. However, you do need to realize that the interest rate is an important function in the process and how tampering with it causes the whole thing to go out of balance.

I don't think the rate should be nearly as important as it is. The cost to borrow money is not a refection of productivity and I beleive that a healthy economy and market should revolve around earnings through productivity, not earnings through interest.

We made the distinction between money and wealth.

A blacksmith earns money by making horse shoes. Horse shoes are a product. Tangible wealth. He exchanges his horse shoes for "money" and uses the money to buy his fiance a golden band. More wealth.

A lender earns money by passing time. He produces nothing. He makes no product, no actual wealth. Whne his interest money is pasi to him, he exchanges it for a golden band for his fiance. Wealth.

The lender is a parasite. He took wealth and created none.

Paying interest is not as bad as you think. Should the lenders take a risk for nothing? Should they give up present resources for nothing while somebody else profits from their loss? The lender is not a parasite they play an important role in the market.

 

[Sweet Willy]

We are basically saying the same thing, and you're absolutely right that they don't have the wealth to loan. I should have made that distinction earlier, rather than saying money. However, you do need to realize that the interest rate is an important function in the process and how tampering with it causes the whole thing to go out of balance.

I don't think the rate should be nearly as important as it is. The cost to borrow money is not a refection of productivity and I beleive that a healthy economy and market should revolve around earnings through productivity, not earnings through interest.

We made the distinction between money and wealth.

A blacksmith earns money by making horse shoes. Horse shoes are a product. Tangible wealth. He exchanges his horse shoes for "money" and uses the money to buy his fiance a golden band. More wealth.

A lender earns money by passing time. He produces nothing. He makes no product, no actual wealth. Whne his interest money is pasi to him, he exchanges it for a golden band for his fiance. Wealth.

The lender is a parasite. He took wealth and created none.

Paying interest is not as bad as you think. Should the lenders take a risk for nothing? Should they give up present resources for nothing while somebody else profits from their loss? The lender is not a parasite they play an important role in the market.

Hey, I'm not wholly knocking parasites. They play an important role down at the swimming hole too. Until there are too many of them. Then the swimming hole isn't much fun anymore.

Only a few people can be the parasite. I concede the need for them but we seem to have allowed them to overpopulate. If your body is the US economy, how many parasites do you think you can live with if you have to eat to feed them all? And they have VERY expensive taste.

 

[Kevin_Kennedy]

I don't think the rate should be nearly as important as it is. The cost to borrow money is not a refection of productivity and I beleive that a healthy economy and market should revolve around earnings through productivity, not earnings through interest.

We made the distinction between money and wealth.

A blacksmith earns money by making horse shoes. Horse shoes are a product. Tangible wealth. He exchanges his horse shoes for "money" and uses the money to buy his fiance a golden band. More wealth.

A lender earns money by passing time. He produces nothing. He makes no product, no actual wealth. Whne his interest money is pasi to him, he exchanges it for a golden band for his fiance. Wealth.

The lender is a parasite. He took wealth and created none.

Paying interest is not as bad as you think. Should the lenders take a risk for nothing? Should they give up present resources for nothing while somebody else profits from their loss? The lender is not a parasite they play an important role in the market.

Hey, I'm not wholly knocking parasites. They play an important role down at the swimming hole too. Until there are too many of them. Then the swimming hole isn't much fun anymore.

Only a few people can be the parasite. I concede the need for them but we seem to have allowed them to overpopulate. If your body is the US economy, how many parasites do you think you can live with if you have to eat to feed them all? And they have VERY expensive taste.

The market should dictate how many there are, and apparently there were too many. However, the government propped them up so that the market couldn't liquidate the dead weight.

 

[Sweet Willy]

Paying interest is not as bad as you think. Should the lenders take a risk for nothing? Should they give up present resources for nothing while somebody else profits from their loss? The lender is not a parasite they play an important role in the market.

Hey, I'm not wholly knocking parasites. They play an important role down at the swimming hole too. Until there are too many of them. Then the swimming hole isn't much fun anymore.

Only a few people can be the parasite. I concede the need for them but we seem to have allowed them to overpopulate. If your body is the US economy, how many parasites do you think you can live with if you have to eat to feed them all? And they have VERY expensive taste.

The market should dictate how many there are, and apparently there were too many. However, the government propped them up so that the market couldn't liquidate the dead weight.

That thar market you worship is gonna be the end of you son!

(How about the hell fire and brimstone approach?)

 

[Oddball]

What caused the Economic recession/depression?

The confluence of a lot of factors....But the horse is already out of the barn.

A better question would be: If we still end up with recessions and depressions, despite all the modern economic central planning and monetary fudging and finagling, what are the central planners and monetary finaglers worth??

 

[Kevin_Kennedy]

What caused the Economic recession/depression?

The confluence of a lot of factors....But the horse is already out of the barn.

A better question would be: If we still end up with recessions and depressions, despite all the modern economic central planning and monetary fudging and finagling, what are the central planners and monetary finaglers worth??

A couple trillion worth of debt and the debasement of the dollar?

 

[Sweet Willy]

What caused the Economic recession/depression?

The confluence of a lot of factors....But the horse is already out of the barn.

A better question would be: If we still end up with recessions and depressions, despite all the modern economic central planning and monetary fudging and finagling, what are the central planners and monetary finaglers worth??

A couple trillion worth of debt and the debasement of the dollar?

How many license plates do you figure that is?

 

[eagleseven]

What caused the Economic recession/depression?

The confluence of a lot of factors....But the horse is already out of the barn.

A better question would be: If we still end up with recessions and depressions, despite all the modern economic central planning and monetary fudging and finagling, what are the central planners and monetary finaglers worth??

Bigger booms, of course. There's two sides to each coin.

Also, ironic, no? The central banks were established to prevent economic catastrophe...and yet, their activities have done more to inflate booms and tank recessions than any other singular factor across the past 80 years. Or, so I'd argue. The ability to artificially spur temporary growth and be hailed a hero is too tempting for any group of bankers.

Behind every major collapsing economy, you'll find a failed central bank.

 

[midcan5]

Im going to answer my own question. The cause of this economic recession/depression can be summed up in one word:

Dishonesty.

Lenders were dishonest. Borrowers were dishonest. Politicians were dishonest.

That is the problem.

But the follow up question is when did that change and why?

 

[eagleseven]

Im going to answer my own question. The cause of this economic recession/depression can be summed up in one word:

Dishonesty.

Lenders were dishonest. Borrowers were dishonest. Politicians were dishonest.

That is the problem.

But the follow up question is when did that change and why?

Dishonesty has been a significant value of American culture for as long as I've lived (20+ years). If anything, I think we can trace this social trend all the way back to Prohibition America, with organized crime "owning" politicians.

Also, as Obama hails from the most corrupt city in the US: Chicago. Like any effective Chicago politician, Obama is intelligent enough to not get caught. No doubt that Obama's political friends were rewarded handsomely in the 1,000 page Stimulus package.

 

[Toro]

The list is too long to make, however, I would put the Fed at the top of my list, followed by Wall Street and then everyone who thought that housing prices would never fall, speculated in the housing market and/or used their home as an ATM.

 

[PoliticalChic]

I am curious how many people can explain what the understand our current economic problems to be without a partisan stance.

Here is what you need to do:

1) Using your own words, tell us why we are in Economic decline.
2) You cannot simply blame Bush, Obama, Democrats, Republicans or any other person. However, you can cite policies without specific reference to who authored them.

Good luck.

Short version: Good intentions, that is to help folks own homes.

Bit longer? Pols saw a bandwagon going their way.

Detailed:
a. Congress passed a bill in 1975 requiring banks to provide the government with information on their lending activities in poor urban areas. Two years later, it passed the Community Reinvestment Act (CRA), which gave regulators the power to deny banks the right to expand if they didn’t lend sufficiently in those neighborhoods. In 1979 the FDIC used the CRA to block a move by the Greater NY Savings Bank for not enough lending.
b. In 1986, when the Association of Community Organizations for Reform Now (Acorn) threatened to oppose an acquisition by a southern bank, Louisiana Bancshares, until it agreed to new “flexible credit and underwriting standards” for minority borrowers—for example, counting public assistance and food stamps as income.
c. In 1987, Acorn led a coalition of advocacy groups calling for industry-wide changes in lending standards. Among the demanded reforms were the easing of minimum down-payment requirements and of the requirement that borrowers have enough cash at a closing to cover two to three months of mortgage payments (research had shown that lack of money in hand was a big reason some mortgages failed quickly).

d. ACORN then attacked Fannie Mae, the giant quasi-government agency that bought loans from banks in order to allow them to make new loans. Its underwriters were “strictly by-the-book interpreters” of lending standards and turned down purchases of unconventional loans, charged Acorn. The pressure eventually paid off. In 1992, Congress passed legislation requiring Fannie Mae and the similar Freddie Mac to devote 30 percent of their loan purchases to mortgages for low- and moderate-income borrowers.

e. Clinton Administration housing secretary, Henry Cisneros, declared that he would expand homeownership among lower- and lower-middle-income renters. His strategy: pushing for no-down-payment loans; expanding the size of mortgages that the government would insure against losses; and using the CRA and other lending laws to direct more private money into low-income programs.

f. Shortly after Cisneros announced his plan, Fannie Mae and Freddie Mac agreed to begin buying loans under new, looser guidelines. Freddie Mac, for instance, started approving low-income buyers with bad credit histories or none at all, so long as they were current on rent and utilities payments. Freddie Mac also said that it would begin counting income from seasonal jobs and public assistance toward its income minimum, despite the FHA disaster of the sixties.

g. Freddie Mac began an “alternative qualifying” program with the Sears Mortgage Corporation that let a borrower qualify for a loan with a monthly payment as high as 50 percent of his income, at a time when most private mortgage companies wouldn’t exceed 33 percent. The program also allowed borrowers with bad credit to get mortgages if they took credit-counseling classes administered by Acorn and other nonprofits. Subsequent research would show that such classes have little impact on default rates.

h. Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations to all mortgage makers. In Congress, Representative Maxine Waters called financial firms not covered by the CRA “among the most egregious redliners.”

i. Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown.

j. A 1998 sales pitch by a Bear Stearns managing director advised banks to begin packaging their loans to low-income borrowers into securities that the firm could sell. Forget traditional underwriting standards when considering these loans, the director advised. For a low-income borrower, he continued in all-too-familiar terms, owning a home was “a near-sacred obligation. A family will do almost anything to meet that monthly mortgage payment.” Bunk, says Stan Liebowitz, a professor of economics at the University of Texas: “The claim that lower-income homeowners are somehow different in their devotion to their home is a purely emotional claim with no evidence to support it.”

k. Any concern was quickly dismissed. When in early 2000 the FDIC proposed increasing capital requirements for lenders making “subprime” loans—loans to people with questionable credit, that is—Democratic representative Carolyn Maloney of New York told a congressional hearing that she feared that the step would dry up CRA loans. Her fellow New York Democrat John J. LaFalce urged regulators “not to be premature” in imposing new regulations.

l. In July 1999, HUD proposed new levels for Fannie Mae’s and Freddie Mac’s low-income lending; in September, Fannie Mae agreed to begin purchasing loans made to “borrowers with slightly impaired credit”—that is, with credit standards even lower than the government had been pushing for a generation.

m. In 2004 Congress pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit.

n. In October 1994, Fannie Mae head James Johnson had reminded a banking convention that mortgages with small down payments had a much higher risk of defaulting. (A Duff & Phelps study found that they were nearly three times more likely to default than conventional mortgages.) Yet the very next month, Fannie Mae said that it expected to back loans to low-income home buyers with a 97 percent loan-to-value ratio—that is, loans in which the buyer puts down just 3 percent—as part of a commitment, made earlier that year to Congress, to purchase $1 trillion in affordable-housing mortgages by the end of the nineties. According to Edward Pinto, who served as the company’s chief credit officer, the program was the result of political pressure on Fannie Mae trumping lending standards.

o. In 1992, the Boston Fed produced an extraordinary 29-page document that codified the new lending wisdom. Conventional mortgage criteria, the report argued, might be “unintentionally biased” because they didn’t take into account “the economic culture of urban, lower-income and nontraditional customers.” Lenders should thus consider junking the industry’s traditional income-to-payments ratio and stop viewing an applicant’s “lack of credit history” as a “negative factor.” Further, if applicants had bad credit, banks should “consider extenuating circumstances”—even though a study by mortgage insurance companies would soon show, not surprisingly, that borrowers with no credit rating or a bad one were far more likely to default. If applicants didn’t have enough savings for a down payment, the Boston Fed urged, banks should allow loans from nonprofits or government assistance agencies to count toward one. A later study of Freddie Mac mortgages would find that a borrower who made a down payment with third-party funds was four times more likely to default, a reminder that traditional underwriting standards weren’t arbitrary but based on historical lending patterns.

p. The Congressional Hispanic Caucus launched Hogar in 2003, an initiative that pushed for easing lending standards for immigrants, including touting so-called seller-financed mortgages in which a builder provided down-payment aid to buyers via contributions to nonprofit groups. As a result, mortgage lending to Hispanics soared. And today, in districts where Hispanics make up at least 25 percent of the population, foreclosure rates are now nearly 50 percent higher than the national average, according to a Wall Street Journal analysis.

q. Republicans and Democrats, meanwhile, have scrambled to reignite the housing market through ill-conceived tax credits and renewed federal subsidies for mortgages, including the Obama administration’s mortgage bailout plan, which recalls the New Deal’s HOLC. Behind these efforts is a fundamental misconception among politicians that housing drives the American economy and therefore demands subsidy at virtually any cost.
Our praiseworthy initial efforts—to eliminate housing discrimination and provide all Americans an equal opportunity to buy a home—were eventually turned on their heads by advocates and politicians, who instead tried to ensure equality of outcomes.

Obsessive Housing Disorder by Steven Malanga, City Journal Spring 2009

And, if you need it in partisan terms, 90% Democrat caused.

 

[Oddball]

The list is too long to make, however, I would put the Fed at the top of my list, followed by Wall Street and then everyone who thought that housing prices would never fall, speculated in the housing market and/or used their home as an ATM.

Let's not forget the politicians who loosened reserve requirements as a vote buying scheme, and SEC regulators and inspectors who were derelict in their duties.

 

[mascale]

The overall policy of "The rich getting richer, and the poor getting poorer," is the root cause of all human history--of the recorded, computable type. There is computing in the law. The computing is to raise incomes a fixed percentage. People with more savings, get bigger raises. People with more stock, get bigger raises. In the United States, people with Social Security benefts get a fixed percentage COLA at each Primary Benefit Amount. In the United States, especially in California, people in public employment--including education--get fixed percentage COLA's, and fixed percentage pay raises. In the United States, people in the various transfer economies--when they do get raises--get a fixed percentage raise at each benefit amount. What unions are left, anywhere in the world, tend to raise incomes a fixed percentage. In the United States, even private sector year-end bonuses--as well as other pay raises, (now if any)--tend to be fixed percentage computed.

So let's take the educated people at University of California, for example. A senior faculty member may be at an income level of $200,000.00 per year. An instructor may be at $30,000.00 per year. If both get a 10% pay raise--which they have in the past--then the senior faculty gets $20,000.00, and the instructor gets $3,000. The difference between the incomes increases $17,000.00: Even in the name of cost-of-living. Peanut Butter is different, according to economists--especially with Nobel prizes--at the upper income levels, (where apparently the Demerol is just a part of the Cost-of Living)!

In the Middle East, the Persians, the Jews, the Arabs, and Egyptians--all raise incomes, every so often, across-the-board, a fixed percentage. They do this if they are monarchies, or also if they are socialist, worker's paradise: Organized. The former Soviet Bloc: Understood about fixed percentage raises for all incomes. They went out of business.

Nixon put the COLA into Social Security, eventually having to try to explain to the peoples assembled: That really he was just a nice guy, and not a crook. In fact: He was no different from anybody, anywhere in the world. When Rev. Billy Graham told the Jew Jokes--Nixon listened.

When the Nazis passed the Jew Laws, all the peoples everywhere obeyed.

Ignorance of the Law is no excuse--except anywhere in the world on planet earth.

The outcome of the Univeristy of California-like pay-raise method is now a current event. The increase of the difference of the incomes did not benefit the nappy headed ho'meowners, though the banks were able to make a bundle--doing bundling(?). The "Big Houses" for the rich: All came tumbling down.

That is the law, and that is the record!

"Crow, James Crow: Shaken, Not Stirred!"
(OJ Simpson, knows about ignorance of the law! Billions should be able to understand this!)

 

[Sweet Willy]

I am curious how many people can explain what the understand our current economic problems to be without a partisan stance.

Here is what you need to do:

1) Using your own words, tell us why we are in Economic decline.
2) You cannot simply blame Bush, Obama, Democrats, Republicans or any other person. However, you can cite policies without specific reference to who authored them.

Good luck.

Short version: Good intentions, that is to help folks own homes.

Bit longer? Pols saw a bandwagon going their way.

Detailed:
a. Congress passed a bill in 1975 requiring banks to provide the government with information on their lending activities in poor urban areas. Two years later, it passed the Community Reinvestment Act (CRA), which gave regulators the power to deny banks the right to expand if they didn’t lend sufficiently in those neighborhoods. In 1979 the FDIC used the CRA to block a move by the Greater NY Savings Bank for not enough lending.
b. In 1986, when the Association of Community Organizations for Reform Now (Acorn) threatened to oppose an acquisition by a southern bank, Louisiana Bancshares, until it agreed to new “flexible credit and underwriting standards” for minority borrowers—for example, counting public assistance and food stamps as income.
c. In 1987, Acorn led a coalition of advocacy groups calling for industry-wide changes in lending standards. Among the demanded reforms were the easing of minimum down-payment requirements and of the requirement that borrowers have enough cash at a closing to cover two to three months of mortgage payments (research had shown that lack of money in hand was a big reason some mortgages failed quickly).

d. ACORN then attacked Fannie Mae, the giant quasi-government agency that bought loans from banks in order to allow them to make new loans. Its underwriters were “strictly by-the-book interpreters” of lending standards and turned down purchases of unconventional loans, charged Acorn. The pressure eventually paid off. In 1992, Congress passed legislation requiring Fannie Mae and the similar Freddie Mac to devote 30 percent of their loan purchases to mortgages for low- and moderate-income borrowers.

e. Clinton Administration housing secretary, Henry Cisneros, declared that he would expand homeownership among lower- and lower-middle-income renters. His strategy: pushing for no-down-payment loans; expanding the size of mortgages that the government would insure against losses; and using the CRA and other lending laws to direct more private money into low-income programs.

f. Shortly after Cisneros announced his plan, Fannie Mae and Freddie Mac agreed to begin buying loans under new, looser guidelines. Freddie Mac, for instance, started approving low-income buyers with bad credit histories or none at all, so long as they were current on rent and utilities payments. Freddie Mac also said that it would begin counting income from seasonal jobs and public assistance toward its income minimum, despite the FHA disaster of the sixties.

g. Freddie Mac began an “alternative qualifying” program with the Sears Mortgage Corporation that let a borrower qualify for a loan with a monthly payment as high as 50 percent of his income, at a time when most private mortgage companies wouldn’t exceed 33 percent. The program also allowed borrowers with bad credit to get mortgages if they took credit-counseling classes administered by Acorn and other nonprofits. Subsequent research would show that such classes have little impact on default rates.

h. Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations to all mortgage makers. In Congress, Representative Maxine Waters called financial firms not covered by the CRA “among the most egregious redliners.”

i. Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown.

j. A 1998 sales pitch by a Bear Stearns managing director advised banks to begin packaging their loans to low-income borrowers into securities that the firm could sell. Forget traditional underwriting standards when considering these loans, the director advised. For a low-income borrower, he continued in all-too-familiar terms, owning a home was “a near-sacred obligation. A family will do almost anything to meet that monthly mortgage payment.” Bunk, says Stan Liebowitz, a professor of economics at the University of Texas: “The claim that lower-income homeowners are somehow different in their devotion to their home is a purely emotional claim with no evidence to support it.”

k. Any concern was quickly dismissed. When in early 2000 the FDIC proposed increasing capital requirements for lenders making “subprime” loans—loans to people with questionable credit, that is—Democratic representative Carolyn Maloney of New York told a congressional hearing that she feared that the step would dry up CRA loans. Her fellow New York Democrat John J. LaFalce urged regulators “not to be premature” in imposing new regulations.

l. In July 1999, HUD proposed new levels for Fannie Mae’s and Freddie Mac’s low-income lending; in September, Fannie Mae agreed to begin purchasing loans made to “borrowers with slightly impaired credit”—that is, with credit standards even lower than the government had been pushing for a generation.

m. In 2004 Congress pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit.

n. In October 1994, Fannie Mae head James Johnson had reminded a banking convention that mortgages with small down payments had a much higher risk of defaulting. (A Duff & Phelps study found that they were nearly three times more likely to default than conventional mortgages.) Yet the very next month, Fannie Mae said that it expected to back loans to low-income home buyers with a 97 percent loan-to-value ratio—that is, loans in which the buyer puts down just 3 percent—as part of a commitment, made earlier that year to Congress, to purchase $1 trillion in affordable-housing mortgages by the end of the nineties. According to Edward Pinto, who served as the company’s chief credit officer, the program was the result of political pressure on Fannie Mae trumping lending standards.

o. In 1992, the Boston Fed produced an extraordinary 29-page document that codified the new lending wisdom. Conventional mortgage criteria, the report argued, might be “unintentionally biased” because they didn’t take into account “the economic culture of urban, lower-income and nontraditional customers.” Lenders should thus consider junking the industry’s traditional income-to-payments ratio and stop viewing an applicant’s “lack of credit history” as a “negative factor.” Further, if applicants had bad credit, banks should “consider extenuating circumstances”—even though a study by mortgage insurance companies would soon show, not surprisingly, that borrowers with no credit rating or a bad one were far more likely to default. If applicants didn’t have enough savings for a down payment, the Boston Fed urged, banks should allow loans from nonprofits or government assistance agencies to count toward one. A later study of Freddie Mac mortgages would find that a borrower who made a down payment with third-party funds was four times more likely to default, a reminder that traditional underwriting standards weren’t arbitrary but based on historical lending patterns.

p. The Congressional Hispanic Caucus launched Hogar in 2003, an initiative that pushed for easing lending standards for immigrants, including touting so-called seller-financed mortgages in which a builder provided down-payment aid to buyers via contributions to nonprofit groups. As a result, mortgage lending to Hispanics soared. And today, in districts where Hispanics make up at least 25 percent of the population, foreclosure rates are now nearly 50 percent higher than the national average, according to a Wall Street Journal analysis.

q. Republicans and Democrats, meanwhile, have scrambled to reignite the housing market through ill-conceived tax credits and renewed federal subsidies for mortgages, including the Obama administration’s mortgage bailout plan, which recalls the New Deal’s HOLC. Behind these efforts is a fundamental misconception among politicians that housing drives the American economy and therefore demands subsidy at virtually any cost.
Our praiseworthy initial efforts—to eliminate housing discrimination and provide all Americans an equal opportunity to buy a home—were eventually turned on their heads by advocates and politicians, who instead tried to ensure equality of outcomes.

Obsessive Housing Disorder by Steven Malanga, City Journal Spring 2009

And, if you need it in partisan terms, 90% Democrat caused.

Poppy cock.


The government has not, can not, force anyone to loan money. They can regulate you if you do, but you don't have to be in the business of loaning money, do you? If the regulations are unacceptable and pose too much risk, you are free to pursue another line of business, no?

Banks are private and they are responsible for their own decisions to loan money. If unreasonable or risky regulations come to bear, they are responsible for the decision to meet these regulations or not. They may remove themselves.

Can anyone provide us with a cite for a single bank that made the choice NOT to follow these regulations? Is there one bank out there that weighed this out and said "too risky, we just can't do it" and closed the doors, safely returned their investors money?

Or is it that banks had no choice, not because of the regulations, but because they had no option to leave? They couldn't act independently because they couldn't just close up shop in protest of unjust regulations. They were in a pyramid scheme with no option to behave in a responsible manner. They had not the money on hand at that point to close up and pay out the investors and depositors.

The banking system was a ponzi scheme before these regulations. These regulations just demanded that you either let everyone play in the scheme or you have to stop expanding. And everyone knows that a ponzi scheme must expand or it implodes.

No regulation can ever relieve a private organization for responsibility for it's actions. No regulation exist that says "YOU MUST LOAN MONEY". If the regs do not jibe with your responsibility to yourself and your investors, you are absolutely free to refuse. Even if it means coming clean and letting your investors find out you've been a ponzi scheme all along.

 

[Oddball]

Can anyone provide us with a cite for a single bank that made the choice NOT to follow these regulations? Is there one bank out there that weighed this out and said "too risky, we just can't do it" and closed the doors, safely returned their investors money?

Wells Fargo and USBancorp didn't lower their standards and consequently are not having solvency problems.

That's two.