Capitalism Guarantees Rising Inequality

[kaz]

As for Wall Street bonuses, if you don't pay your employees they won't work for you..

it wasn't the bankers you see every day getting these bonuses. it was bonuses to the board of directors and the CEO. that is it! the the employees working on derivatives may have been tossed a bone but the overwhelming majority of bonuses did not go to employees.

It goes to all of them. Again, I worked on Wall Street. For most financial services employees, their bonus is most of their compensation. They might have a salary of $30K a year and get a $300K bonus. That's the way it works. If they don't deliver, they get out obviously very quickly because bonuses are based on performance. The attacks on Wall Street bonuses are just ridiculous sanctimony. It's how it works. The more bonuses, the better the firms are doing. They don't pay people bonuses who aren't making money, that's how they drive them out quickly. More bonuses are good, not bad.

 

[georgephillip]

The banks lowered standards.
You know, the standards that previously, unfairly, stopped poor risks from getting loans.

Which banks "lowered standards?"
How large were their MBS fees?
Who got unfairly rich?

Which banks "lowered standards?"

The ones that were lending to more poor risks than before.

Who got unfairly rich?

The Dem crooks running Fannie and Freddie.

"Before he became President George W. Bush’s Treasury secretary in 2006, Henry M. Paulson Jr. agreed to hold himself to a higher ethical standard than his predecessors.

"He not only sold all his holdings in Goldman Sachs, the investment bank he had run, but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.

"Henry Paulson at a House hearing last month questioning his relationship with the firm he led, Goldman Sachs. He spoke to its chief 24 times in six days.

"But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm.

"Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman."

http://www.nytimes.com/2009/08/09/business/09paulson.html?_r=1&em

 

[georgephillip]

Government policies and the subprime mortgage crisis - Wikipedia, the free encyclopedia

"CPA Joseph Fried wrote that there is a paucity of CRA loan performance data, based on a response by only 34 of 500 banks surveyed.[105] Nevertheless, estimates have been attempted.

"Edward Pinto, former Chief Credit Officer of Fannie Mae (1987–89) and Fellow at the American Enterprise Institute, estimated that, at June 30, 2008, there were $1.56 trillion of outstanding CRA loans (or the equivalent). Of this amount, about $940 billion (about 6.7 million loans) was, according to Pinto, subprime.[106]

"Economist Paul Krugman notes the subprime boom 'was overwhelmingly driven' by loan originators who were not subject to the Community Reinvestment Act.[107]

"One study, by a legal firm which counsels financial services entities on Community Reinvestment Act compliance, found that CRA-covered institutions were less likely to make subprime loans (only 20-25% of all subprime loans), and when they did the interest rates were lower.

"The banks were half as likely to resell the loans to other parties."

That is in fact true. All of that is true.

The prior poster which claimed that "all CRA loans are sub-prime" is not actually true.

Not all CRA were sub-prime. Some were loans given to specific communities. A community that normally had some reason that banks were not giving loans too.

So say for example you have a house in South Linden, Columbus, OH. South Linden, is one of the worst areas of Columbus Ohio. High crime, poor schools, very few jobs, very poor condition homes.

So some guy decides he wants to buy a house there, and needs a mortgage. The bank may refuse to make a mortgage for this area, because with the community in such bad condition, even if the borrower, builds up his own house, the condition of the neighborhood will keep the value of the home low.

The crime may drive the borrower out, and without many people wanting a house in that neighborhood, he will likely not be able to sell it, resulting in default, and the bank loses money.

Now if the Bank decided to make the loan anyway, to meet CRA requirements, that loan would not be sub-prime, but would not have been made without the CRA.

But that doesn't mean those loans were good loans. Many still went bad. Forcing banks to make loans in known high-risk areas, is just as dangerous as making them give loans to high risk borrowers.

That's why CRA portfolios were all money losing, regardless of the ratio of sub-prime.

Also, the fact that CRA loans were half as likely to sell, really doesn't mean much. The whole purpose of making the CRA loans was to show regulators, and community activist groups that they were following the CRA, by having CRA loans on their books. Many banks made loans, knowing they would likely lose money, because it kept them from getting sued by the government.

Regardless, CRA loans were nearly all bad. The bottom line is, banks know more than government, what loans are safe, and which are not safe. Any attempt to force banks to change their standards, is inherently going to be more risky.

Prove "CRA loans were nearly all bad."

 

[gnarlylove]

I'm a libertarian, but one area I differ from many librarians is that I consider it a legitimate government role to require accurate disclosure by companies to consumers. One of the most successful regulations ever (OK, short list) was the government approach to privacy policies. The government said companies can have virtually any privacy policy they want, including virtually no privacy. But they must have one and they must disclose it. Then they only went after the companies that violated their own states policy. I believe an informed consumer is a more empowered consumer, I don't get libertarians who oppose that.

However, Wall Street regulations are nothing like that. They are simply geared towards crony capitalism where politicians and big bankers crush competition and dominate the market for their mutual benefit. More regulation means more power for them, it has zero to do for the benefit of investors. Recognizing that and believing the solution is MORE government is logically just whacked, and it'll result in more of same.

I had my fingers crossed when I called you a libertarian, wasn't sure. We agree on Wall St. regulation being all fucked up. Having worked for them you have a good idea how it operates on the inside. That's an invaluable source--knowing the mundane stuff that goes on as well as the big crash.

But what this comes down to is are we concerned with addressing policy today or are we trying to visualize how an ideal society would operate. That is, are we saying lets de-regulate them so it works smoother in today's world or are we talking about de-regulation in an idyllic libertarian world where the gov't does not exist (or is small and derives power only from the people).

Often these two are in conflict but they need not contradict. That's because we need to question if loosening regulation in the system as it currently stands, would be a good thing (instead of our ideal form of gov't since it doesn't exist--yet). Personally I am not well-versed in Wall St. regulation and don't know the technical answer.

But one thing we can be sure: certain bankers (not all) are seeking ever increasing dominion AND profit. The more autonomy we give them in our current culture of wealth, we give them a key to commit another financial arbitrage and more fraud.

If we lived in a different culture were the public good was on a level playing field with their own private interests, we could deregulate and trust our decision to allow them to greater autonomy. But as it stands in our society, wealth breeds desire for more wealth and many bankers are uber wealthy. We may need to re-write the regulations from the ground up making them tighter, with less loopholes and risks. But less regulations appears to lead to similar scenarios we've seen. Indeed, not one CEO has been accused of breaking the law and we have Wall St lobbyists eroding the Dodd-Frank regulation to bare bones anyway.

We are living in a circus. The Glass Stiegel was put in place for a reason and as long as we have our current dynamics in society, it would be a healthy to re-institute--though not easy--many "healthy" things are not the most appealing at first. However, this would likely never happen but its this strong, clear regulation that would prevent some problems we've had/have today/will have. Of course it's not ideal in the way we know it should be--more autonomy.

But humans act irrationally so often that we need limits on ourselves (or certain sectors). Until information can triumph over misinformation and propaganda, irrationality will abound. I don't see that happening anytime soon since advertisement, mass media, and Public Relations Campaigns (aka propaganda) are stronger than ever and in more places than ever (tattooed on ppl's forehead even!)

My view as a libertarian is expressed below in my signature.

 

[Andylusion]

Name these reasons. Saying 'there could be', doesn't mean anything. If there was some other reason, name the reason. I'm open to this theory, but you have to provide something more than an ambiguous "something somewhere might have done it".

As for other countries, yes, and if you wish to look at individual policies of those countries, and analysis the cause of those bubbles, fine. A few countries did have bubbles that started in the late 90s, early 2000s. Whether they started exactly in 1997, as our did, I don't know, but that wouldn't make any difference to the cause of our bubble, anymore than it would make a different to the cause of their bubble.

Doesn't matter how the market is setup, or not. Those institutions, by virtue of the fact they are the largest players in the market, and by virtue of the fact they have the backing of the Federal Government, do influence the market, whether "the market is setup" to be influenced or not.

Let me give you a clear cut example. Name the rating agencies. Can you name them? Standards & Poor (S&P), Moody's, and Fitch. Right? You ask most people what the rating agencies are, you'll get these three. S&P, Moody's and Fitch.

But those are not the only rating agencies. There are actually dozens of rating agencies. And there were dozens of rating agencies before. It was the "Nationally Recognized Statistical Rating Organization", issued by the Government, which forced out competition. Even though many rating agencies were perfectly fine in giving out their ratings, since they didn't have the government seal of approval, they lost out to the big three.

But the NRSRO seal, was only required for government purchases of government bonds and securities. Had nothing to do with private markets. Yet the private markets followed suit.

In fact, consider this. Before the NRSRO was passed in the 1970s, all rating agencies were running on the buyer pays model, where the buyer of the security, paid to have it rated. But after the government seal of approval, and the demand moved towards getting securities rated by the government approved rating agencies, and because of that the big three moved towards an issuer pays model.

Before, the issuer of the securities never paid to have their securities rated, because it was the customer who determined whose rating they wanted to use, and thus they paid to have it rated by who they wanted.

But since the government gave their seal of approval, the agencies knew they were in demand. They started charging the issuer of the securities, knowing they had no choice but to pay, or their securities wouldn't be bought, without a government approved rating agency giving the rating, even private buyers wouldn't buy their securities.

None of that was intended. Nor is there any law, requiring the private market to follow the public. Yet the market follows government... and always has, and always will. It's simply the nature of the beast.

Same with Fannie and Freddie. Doesn't matter that there's no requirement to follow Freddie and Fannie. They have the influence, and backing of the government, and the private market does follow them. Period.

As far as banks that met CRA guidelines, and didn't crash.... who?

Because can I name several that met those guidelines perfectly, and crashed really hard. CountryWide, was following CRA guides perfectly, as far as I can tell. Bear Stearns was an avid follower of the CRA. Wachovia, was completely in line with the government, from everything I read on the matter.

Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …

When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs.​

This report was issued in 2000 by the Fannie Mae Foundation. It is widely cited and vetted. There are numerous books that detail how Fannie Mae, and Freddie Mac, supported exactly this. Countrywide, is a clear cut example of a bank following the government influence, and following the CRA to the letter.

Glass Steagall has absolutely nothing to do with capital flows, or the size of the bubble. Not one single provision of Glass Steagall relates to that, nor was there any repeal of a provision that relates to that. Completely wrong.

I can't even figure out what provision you would even think applies to capital flows, or the bubble. I'd love to hear your claim.

The point about 1997 is that you are just throwing out a reason and deciding something with no analysis other than "name something else" which really isn't all that meaningful. Actually other countries do matter because it suggests it was economic.

I am sorry but there is no comparison between the private industry following suit with ratings standards and the private industry and the ratings agencies not doing their job because of F&F.

There were plenty of local banks and credit unions that did fine even with the large economic crash. In fact the banks that did the worst were ones who were mixed institutions, something now possible since Glass Steagall.

Yes the combination of commercial banking and investment banking meant more capital flowing into the MBS market. It took a lot of capital flowing into the market for the bubble to grow so big. It also played a major part in the reason we bailed them out.

Round and round we go...

No, other countries don't matter, unless you can specifically point to empirical data that suggest they do. It's ironic that you claim I'm just throwing out stuff, and yet you are throwing out "other countries" with absolutely nothing to support that their problems were in any way, related to ours.

Pointing out that Freddie Mac Securitized Sub-prime loans in 1997, is not just a random irrelevant factoid. It represents the reversal of 50 years worth of standards on what qualified to be a secure loan to the investor market. Pointing out that this act happen at the very exact moment that the sub-prime market shoots off, represents a reversal of at least 20 years of sub-prime being a niche market. Pointing out that the price bubble started, at the very moment these two events happened, is not irrelevant, or inconsequential. It is the logical steps of action verse reaction.

My opinion is based on the empirical data, that is widely known, and accepted. Saying "other countries has something similar happen in a similar time span" is both vague and correlative, not causative.

Further it seems like you have an extreme double standard. When talking about borrowers, you give them a complete and total free-pass for taking loans they had absolutely no ability to repay, and buying homes they had no ability to afford. You do not require them to have any responsibility in the loans they got, and signed their names too.

Yet with the loan originators, you claim they should have complete responsibility to knowing the ability of the borrower to pay back.

Now that right there, is in itself illogical. You expect that the person taking the loan, should have less self-knowledge of their own ability to repay, than some accountant in a cubicle somewhere? What logic is that?

Yet the government told both the borrower, and the lender, that these loans were safe, by virtue of the fact gov had their arms, Freddie and Fannie, securitize those loans.

Why is it that when the banker is told to make these loans, and that they are safe because Fannie Freddie securitized them, or they'll get sued by the government, they are supposed to know better somehow.... yet when a borrower who has bad credit, low income, no down payment walks into a bank and asks for a loan, they are absolved from knowing better, and taking responsibility for taking a loan they can't afford?

In fact the banks that did the worst were ones who were mixed institutions, something now possible since Glass Steagall.

Completely wrong.... I'm sorry, we're not going past this point either, until you admit the truth.
(GSA- Glass Steagall Act)

Washington Mutual. Savings and Loans. Did not fall under GSA.
IndyMac. Savings and Loans. Did not fall under the GSA.
Bear Stearns. Investment bank. Did not fall under the GSA.
CountryWide. Investment bank. Did not fall under the GSA.
Merrill Lynch. Investment bank. Did not fall under the GSA.
AIG. Insurance company. Did not fall under the GSA.

In fact, if you just walk down the list of all the failures, very very few were Financial Holding Companies. If you don't know... the Gramm–Leach–Bliley Act, did not just "allow banks to do whatever they want" or something.

Gramm–Leach–Bliley Act, allowed banks to apply to change their charter to a "Financial Holding Company". By doing this, they could then operate Retail Banking (your local bank, open a savings account and such), Commercial Banking (loans and accounts of corporations and business), Investment Banking (buying securities like MBS and such), and Insurance Services.

But the key is, they had to change over their charter. Most didn't.

Thus the vast majority of all the banks that failed during the crash, were not Financial Holding Companies, and if GLB Act had never existed, nothing would have changed with the vast majority of those failures.

The only big exception that I know of, would be Wachovia.

But other companies that WERE Financial Holding Companies, many of them weathered the storm better. Wells Fargo was a FHC. They did fine. JPMorgan Chase, was a FHC, and they had no problems.

In fact, over all, Financial Holding Companies did better than their more limited competitors, naturally because of diversification. If you have your entire business wrapped up exclusively in Mortgages, and the Mortgage market tanks, you are likely to go down. If on the other hand, you have some insurance business, and some retail business, and investment business, and a fraction of your business is in Mortgages, and they tank, you or more likely to survive.

Further!!

The government actually used Financial Holding Companies, as their method for FIXING the crisis.

Hello?!?

Bank of America was not a FHC. But the government asked them to buy out CountryWide..... which required them to become an FHC.
JP Morgan Chase, was asked to purchase Bear Stearns and Washington Mutual.... which they would not have been able to do without being an FHC.
Wells Fargo was asked to buy Wachovia, and Century Bank.... which they would not have been able to do without being an FHC.

What part of this is not making sense?

Bottom line..... Glass Steagall, and the Gramm Leach Bliley, neither one had ANYTHING.... to do with the crash. Nothing. Period. Sorry, you are wrong. Flat out, wrong.

 

[kaz]

Thanks for the thoughtful post, I appreciate the effort. Couple of comments.

That is, are we saying lets de-regulate them so it works smoother in today's world or are we talking about de-regulation in an idyllic libertarian world where the gov't does not exist (or is small and derives power only from the people)

Often these two are in conflict but they need not contradict. That's because we need to question if loosening regulation in the system as it currently stands, would be a good thing (instead of our ideal form of gov't since it doesn't exist--yet). Personally I am not well-versed in Wall St. regulation and don't know the technical answer.

Libertarianism isn't just based on the idea that we want limited government because we oppose rules, it's also based on the recognition that government regulates for government's interest. It doesn't accomplish what it sets out to do. Ever. Why would you ever OK a plan you know won't accomplish it's mission?

Look at how every time there's a spending bill, everyone attaches their pork projects to it. Look at how with Obamacare, we end up with people who have policies in force and have had them in force had them cancelled. That happened to me until I got the one year reprieve on my policy. Government regulates to control. There is no exception. Though granted we've only got a few thousand years to demonstrate that, maybe it was just a losing streak that will end any time now...

Fact: Government is in bed with big financial services firms.
Fact: "De" regulation has benefited those big financial services firms and harmed their competitors.

So: We need government to create more rules? You seriously believe that all of a sudden they will get it right? Based on what?

But one thing we can be sure: certain bankers (not all) are seeking ever increasing dominion AND profit. The more autonomy we give them in our current culture of wealth, we give them a key to commit another financial arbitrage and more fraud

Fraud is illegal. If they commit it, we should prosecute them. I don't see the difference between that and any other business. And no greater fraud is perpetrated on Americans than the ones you want to give more power to. Government. But this time, it'll fix it...

I don't think so.

 

[Andylusion]

Yes the MBS created a market for sub-prime mortgages. A new formula was developed that allowed institutions to mix sub-prime mortgages with other mortgages to create a MBS. The way these MBS were created changed based on this formula. Everyone adopted this formula, not just F&F.

Comparing the MBS of 1960's to the crash is like comparing apples to oranges.

The CRA was set up to ensure a wide range of people were getting loans. That was the basis of the minimum standards. The extension of using sub-prime mortgages for loans that had nothing to do with the CRA minimum standards is a clear demonstration of the market acting on it's own.

You can blame F&F all you want. The claim that you are making which is demonstrably false is that everything else was just the market following along mindlessly so they are free of fault.

As for the institutions that failed, I am not denying that they had sub-prime loans and that they met MINIMUM standards. What I have been saying since post one is that meeting those minimum standards wouldn't crash any of them.

You keep pushing blame off of the market which is IMO hilarious. You do that and you basically say they are not making the very decisions they are being compensated to make. You put into question their entire existence and reduce their involvement to a bunch of lemmings. I assure you they don't consider themselves to be lemmings.

No. MBS have existed since the 1960s. If MBS in and of themselves created sub-prime loans, then why didn't they not start bundling sub-prime loans into MBS until 1997?

You are wrong. Sorry.

Yes, the formula was changed, so that Sub-prime loans could be bundled into MBSs. F&F did that. Yes, the rest of the market followed. That's why F&F exists, is to influence the market, and they did.

Comparing the MBS of 1960's to the crash is like comparing apples to oranges.

No, it's not. A Mortgage Backed Security, is simply a Collateralize Security. It's a security with collateral. The only difference between a CDO (Collateralized Debt Obligation), and an MBS, is that the collateral for the MBS is always a Mortgage.

And the difference between a 1960s MBS, and a 2010 MBS, is about 50 years and that Sub-prime mortgages were not qualified by Freddie and Fannie, to be securitized, whereas in 1997, they were.

Exactly the same. Apples and Apples.

The CRA was set up to ensure a wide range of people were getting loans. That was the basis of the minimum standards. The extension of using sub-prime mortgages for loans that had nothing to do with the CRA minimum standards is a clear demonstration of the market acting on it's own.

What are you talking about? What minimum standard are you referring to? There is no "minimum standard" in sub-prime. The prime rate standard, *IS* the standard. Sub-prime is inherently below the standard.

There is no level below sub-prime. There is no sub-sub-prime rate loans or something.

All of the sub-prime loans made for the CRA, were just.... sub-prime loans. They were *ALL* bad. There's no such thing as 'good sub-prime CRA loan'.

You keep pushing blame off of the market which is IMO hilarious. You do that and you basically say they are not making the very decisions they are being compensated to make. You put into question their entire existence and reduce their involvement to a bunch of lemmings. I assure you they don't consider themselves to be lemmings

No, sorry, that is incorrect.

The difference between us, is not that you think banks made bad loans, and I think banks didn't.

The difference between us, is that you want to focus on the results.

I want to focus on the cause.

Focusing on what the banks did in response to bad policy, is a waste of time.

If you continue to push bad policy, and yet try and hammer the banks over and over, you will never solve anything.

As long as you provide banks with incentives to make bad loans, they are going to continue to do so. As long as you offer to securitize sub-prime loans, and at the same time sue banks for not making sub-prime loans, banks are going to continue to make bad loans no matter how much you scream and wail, and b!tch and moan, and shake your fist, and spew hatred until you are blue in the face and nearly passed out.

Focusing on the results, instead of the cause, will never fix anything, but it will make you a bitter old man at some point.

I want to focus on the cause. The cause of this problem, regardless of all the results you point out, and bankers did this, and investors did that, and so on and so fourth.... the cause... was a fundamental government belief that "home ownership is inherently good", and thus pushing policies to increase home ownership even to people who did not qualify for it.

 

[Andylusion]

Regardless, CRA loans were nearly all bad. The bottom line is, banks know more than government, what loans are safe, and which are not safe. Any attempt to force banks to change their standards, is inherently going to be more risky.

Prove "CRA loans were nearly all bad."

This is one of those "Really?!?" points in the discussion.

First off.... the whole point of the CRA is to provide loans to people that would not qualify.

Why would people not qualify? Because it's a bad loan.

Banks love to make loans, if they know they'll make a good return on it..... that's why they make loans.

If this is sounding like I'm saying the obvious, that's because I am. Because the obvious is the answer to your question.

So the CRA pushes banks to make loans that they would otherwise deny, because it's not a safe loan. Therefore......... CRA loans are nearly all bad. IF they were "good", they would be prime rate loans, and the borrower would never be denied, and the CRA would never need to exist.

 

[Bombur]

Name these reasons. Saying 'there could be', doesn't mean anything. If there was some other reason, name the reason. I'm open to this theory, but you have to provide something more than an ambiguous "something somewhere might have done it".

As for other countries, yes, and if you wish to look at individual policies of those countries, and analysis the cause of those bubbles, fine. A few countries did have bubbles that started in the late 90s, early 2000s. Whether they started exactly in 1997, as our did, I don't know, but that wouldn't make any difference to the cause of our bubble, anymore than it would make a different to the cause of their bubble.

Doesn't matter how the market is setup, or not. Those institutions, by virtue of the fact they are the largest players in the market, and by virtue of the fact they have the backing of the Federal Government, do influence the market, whether "the market is setup" to be influenced or not.

Let me give you a clear cut example. Name the rating agencies. Can you name them? Standards & Poor (S&P), Moody's, and Fitch. Right? You ask most people what the rating agencies are, you'll get these three. S&P, Moody's and Fitch.

But those are not the only rating agencies. There are actually dozens of rating agencies. And there were dozens of rating agencies before. It was the "Nationally Recognized Statistical Rating Organization", issued by the Government, which forced out competition. Even though many rating agencies were perfectly fine in giving out their ratings, since they didn't have the government seal of approval, they lost out to the big three.

But the NRSRO seal, was only required for government purchases of government bonds and securities. Had nothing to do with private markets. Yet the private markets followed suit.

In fact, consider this. Before the NRSRO was passed in the 1970s, all rating agencies were running on the buyer pays model, where the buyer of the security, paid to have it rated. But after the government seal of approval, and the demand moved towards getting securities rated by the government approved rating agencies, and because of that the big three moved towards an issuer pays model.

Before, the issuer of the securities never paid to have their securities rated, because it was the customer who determined whose rating they wanted to use, and thus they paid to have it rated by who they wanted.

But since the government gave their seal of approval, the agencies knew they were in demand. They started charging the issuer of the securities, knowing they had no choice but to pay, or their securities wouldn't be bought, without a government approved rating agency giving the rating, even private buyers wouldn't buy their securities.

None of that was intended. Nor is there any law, requiring the private market to follow the public. Yet the market follows government... and always has, and always will. It's simply the nature of the beast.

Same with Fannie and Freddie. Doesn't matter that there's no requirement to follow Freddie and Fannie. They have the influence, and backing of the government, and the private market does follow them. Period.

As far as banks that met CRA guidelines, and didn't crash.... who?

Because can I name several that met those guidelines perfectly, and crashed really hard. CountryWide, was following CRA guides perfectly, as far as I can tell. Bear Stearns was an avid follower of the CRA. Wachovia, was completely in line with the government, from everything I read on the matter.

Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …

When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs.​

This report was issued in 2000 by the Fannie Mae Foundation. It is widely cited and vetted. There are numerous books that detail how Fannie Mae, and Freddie Mac, supported exactly this. Countrywide, is a clear cut example of a bank following the government influence, and following the CRA to the letter.

Glass Steagall has absolutely nothing to do with capital flows, or the size of the bubble. Not one single provision of Glass Steagall relates to that, nor was there any repeal of a provision that relates to that. Completely wrong.

I can't even figure out what provision you would even think applies to capital flows, or the bubble. I'd love to hear your claim.

The point about 1997 is that you are just throwing out a reason and deciding something with no analysis other than "name something else" which really isn't all that meaningful. Actually other countries do matter because it suggests it was economic.

I am sorry but there is no comparison between the private industry following suit with ratings standards and the private industry and the ratings agencies not doing their job because of F&F.

There were plenty of local banks and credit unions that did fine even with the large economic crash. In fact the banks that did the worst were ones who were mixed institutions, something now possible since Glass Steagall.

Yes the combination of commercial banking and investment banking meant more capital flowing into the MBS market. It took a lot of capital flowing into the market for the bubble to grow so big. It also played a major part in the reason we bailed them out.

Round and round we go...

No, other countries don't matter, unless you can specifically point to empirical data that suggest they do. It's ironic that you claim I'm just throwing out stuff, and yet you are throwing out "other countries" with absolutely nothing to support that their problems were in any way, related to ours.

Pointing out that Freddie Mac Securitized Sub-prime loans in 1997, is not just a random irrelevant factoid. It represents the reversal of 50 years worth of standards on what qualified to be a secure loan to the investor market. Pointing out that this act happen at the very exact moment that the sub-prime market shoots off, represents a reversal of at least 20 years of sub-prime being a niche market. Pointing out that the price bubble started, at the very moment these two events happened, is not irrelevant, or inconsequential. It is the logical steps of action verse reaction.

My opinion is based on the empirical data, that is widely known, and accepted. Saying "other countries has something similar happen in a similar time span" is both vague and correlative, not causative.

Further it seems like you have an extreme double standard. When talking about borrowers, you give them a complete and total free-pass for taking loans they had absolutely no ability to repay, and buying homes they had no ability to afford. You do not require them to have any responsibility in the loans they got, and signed their names too.

Yet with the loan originators, you claim they should have complete responsibility to knowing the ability of the borrower to pay back.

Now that right there, is in itself illogical. You expect that the person taking the loan, should have less self-knowledge of their own ability to repay, than some accountant in a cubicle somewhere? What logic is that?

Yet the government told both the borrower, and the lender, that these loans were safe, by virtue of the fact gov had their arms, Freddie and Fannie, securitize those loans.

Why is it that when the banker is told to make these loans, and that they are safe because Fannie Freddie securitized them, or they'll get sued by the government, they are supposed to know better somehow.... yet when a borrower who has bad credit, low income, no down payment walks into a bank and asks for a loan, they are absolved from knowing better, and taking responsibility for taking a loan they can't afford?

In fact the banks that did the worst were ones who were mixed institutions, something now possible since Glass Steagall.

Completely wrong.... I'm sorry, we're not going past this point either, until you admit the truth.
(GSA- Glass Steagall Act)

Washington Mutual. Savings and Loans. Did not fall under GSA.
IndyMac. Savings and Loans. Did not fall under the GSA.
Bear Stearns. Investment bank. Did not fall under the GSA.
CountryWide. Investment bank. Did not fall under the GSA.
Merrill Lynch. Investment bank. Did not fall under the GSA.
AIG. Insurance company. Did not fall under the GSA.

In fact, if you just walk down the list of all the failures, very very few were Financial Holding Companies. If you don't know... the Gramm–Leach–Bliley Act, did not just "allow banks to do whatever they want" or something.

Gramm–Leach–Bliley Act, allowed banks to apply to change their charter to a "Financial Holding Company". By doing this, they could then operate Retail Banking (your local bank, open a savings account and such), Commercial Banking (loans and accounts of corporations and business), Investment Banking (buying securities like MBS and such), and Insurance Services.

But the key is, they had to change over their charter. Most didn't.

Thus the vast majority of all the banks that failed during the crash, were not Financial Holding Companies, and if GLB Act had never existed, nothing would have changed with the vast majority of those failures.

The only big exception that I know of, would be Wachovia.

But other companies that WERE Financial Holding Companies, many of them weathered the storm better. Wells Fargo was a FHC. They did fine. JPMorgan Chase, was a FHC, and they had no problems.

In fact, over all, Financial Holding Companies did better than their more limited competitors, naturally because of diversification. If you have your entire business wrapped up exclusively in Mortgages, and the Mortgage market tanks, you are likely to go down. If on the other hand, you have some insurance business, and some retail business, and investment business, and a fraction of your business is in Mortgages, and they tank, you or more likely to survive.

Further!!

The government actually used Financial Holding Companies, as their method for FIXING the crisis.

Hello?!?

Bank of America was not a FHC. But the government asked them to buy out CountryWide..... which required them to become an FHC.
JP Morgan Chase, was asked to purchase Bear Stearns and Washington Mutual.... which they would not have been able to do without being an FHC.
Wells Fargo was asked to buy Wachovia, and Century Bank.... which they would not have been able to do without being an FHC.

What part of this is not making sense?

Bottom line..... Glass Steagall, and the Gramm Leach Bliley, neither one had ANYTHING.... to do with the crash. Nothing. Period. Sorry, you are wrong. Flat out, wrong.

You seem convinced that CRA caused a bubble but your analysis amounts to looking at a graph and a date on legislation. I am sorry but I don't think that is exactly proof. I admit that I have no proven that the bubble in 97 was just about global economic trends but I didn't mean to act like I was.

I am not saying that the borrowers are free of guilt. They just haven't been talked about until now. Seems pretty pointless to blame them as they are the ones that are getting foreclosed on and their "guilt" is rather established already.

You keep acting like F&F was mandating all of these loans which they were not. That is simply a falsehood.

You also seem set to ignore the fact that ratings agencies have a responsibility to rate both mortgages and MBS.

You also seem set to ignore the lowering of lending standards well beyond the lowered standards allowed under the CRA.

You also seem set to ignore the fact that all of these companies are responsible for their own choices for better or worse. How do you think this all went down? From what you said it is like these institutions made financial decisions by blindly trusting F&F. Do you think that passes as an excuse for the CEO's of these companies? Sorry I lost all your money, I know you pay me millions upon millions of dollars to make these decisions but I figured why think for myself when I can let F&F think for me. Yeah they used this new formula for packaging MBS but I didn't bother to check it out. I figure we should just take it on faith that F&F knows what it is doing. Sure we employee all these people who are supposed to know this stuff but lets ignore that too.

As for GSA, look at the companies that were bailed out. Look at how their willingness to take on risk changed. Investment firms were historically far more willing to take risks than commercial banks. But hey lets just assume that had nothing to do with it.

 

[georgephillip]

Regardless, CRA loans were nearly all bad. The bottom line is, banks know more than government, what loans are safe, and which are not safe. Any attempt to force banks to change their standards, is inherently going to be more risky.

Prove "CRA loans were nearly all bad."

This is one of those "Really?!?" points in the discussion.

First off.... the whole point of the CRA is to provide loans to people that would not qualify.

Why would people not qualify? Because it's a bad loan.

Banks love to make loans, if they know they'll make a good return on it..... that's why they make loans.

If this is sounding like I'm saying the obvious, that's because I am. Because the obvious is the answer to your question.

So the CRA pushes banks to make loans that they would otherwise deny, because it's not a safe loan. Therefore......... CRA loans are nearly all bad. IF they were "good", they would be prime rate loans, and the borrower would never be denied, and the CRA would never need to exist.

Really.
The whole point to CRA was to help people, who may have been good or bad credit risks, but lived in a geographic area where their local banks gladly took their deposits but refused to make loans for homes or businesses.
Put up some numbers proving most CRA loans were nearly all bad.
How do CRA foreclosures compare to other loans?
No more anecdotes.
No body cares.

 

[Toddsterpatriot]

Fraudulent? Please explain further.

Mortgage fraud is a crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth.

From Mortgage Fraud

Suspicious Activity Reports pertaining to Mortgage fraud increased by 1,411 percent between 1997 and 2005. Both borrowers seeking to obtain homes they could not otherwise afford, and industry insiders seeking monetary gain, were implicated.[94]

From Causes of the United States housing bubble

There are many layers of fraud happening here. The underwritters were people contracted by the banks to approve the recent inundation of new loans. Many of these underwritters went to their supervisors and pointed out fraud on these application saying these people simply cannot afford this home. Their supervisor said "Fraud" is the "F" word, don't use it. You underwritters are suppose to approve these loans whether they can afford it or not. If you don't believe me just listen to some underwritters:

Here is a brief interview of an underwritter contractor.

"Close to 1.2 million borrowers, or about 30 percent of the more than 3.9 million households whose properties were foreclosed on by 11 leading financial institutions in 2009 and 2010, had to battle potentially wrongful efforts to seize their homes despite not having defaulted on their loans, being protected under a host of federal laws, or having been in good standing under bank-approved plans to either restructure their mortgages or temporarily delay required payments."
From Foreclosure Review Finds Potentially Widespread Errors

It isn't very hard to discover errors and fraudulent activity. But it is for you when you refuse to do any homework on your own. The mass media covers up stories that harms our understanding of capitalism, wealth, and the banking system. It relies on political attacks to incite anger in folks like you to take action. however, when you take action its against your fellow man, not against these banks and institutions that have crippled our economy.

Mortgage fraud is a crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth.

Yes, borrowers lied on their paperwork and couldn't pay back their loans.
Why aren't you attacking these Main Street liars?

 

[Toddsterpatriot]

If you think people who were put on the street due to mortgage fraud are better off than the multi-billion dollar banks than PLEASE DO NOT REPLY TO MY MESSAGES.

Let me be clear, the banks losts millions but were bailed out and given millions. They should have never entered these deals in the first place if it were for the fact the brought the global economy to its knees and in order to save the value of the dollar and the system, US need to supply 7.7 trillion to various institutions around the world. TARP was merely a warm-up.

You are ignoring the fact the banks have fully recovered and have given themselves 91 billion in bonuses this past Christmas. All the banks are doing quite fine. But we can't say the same for the American families who are struggling to bounce back from the biggest recession since The Great Depression.

Let me be clear, the banks losts millions but were bailed out and given millions.

Banks were given loans, loans they had to pay back.

TARP was merely a warm-up.

The Treasury made billions in profits from TARP loans to banks.
You know where TARP lost billions? In mortgage modifications to Main Street borrowers.

 

[gnarlylove]

Libertarianism isn't just based on the idea that we want limited government because we oppose rules, it's also based on the recognition that government regulates for government's interest. It doesn't accomplish what it sets out to do. Ever. Why would you ever OK a plan you know won't accomplish it's mission?

Then I think we agree that Government makes mistakes. Where we disagree is that those "mistakes" are worse than the alternatives. Take EPAs regulation Clean Water Act. This is vital to maintaining standards of drinking water. We know there are instances when the gov't recants this Law so polluters can pollute (like pesticide run off and a current bill in WV to exempt polluters like Freedom's Industries from the Clean Water Act). Although it's not enforced like it should be, we certainly get some positive results. Indeed, most of us do.

Regulations tend to be put in place after a crisis of some kind has made it evident we need to protect against that or obviate that risk. Rarely do we have this type of foresight. In general, by de-regulating/unregulated sectors you offer more freedom for risks to be taken and mistakes to be made (as well as private gains). The problem with the derivatives market was it came from complete darkness, no transparency. Brooksly Born testified to this back almost a decade before the crisis erupted saying we need disclosure and transparency. Upon learning about these markets it might lead to potential call for regulation. Everyone resisted including Greenspan (who is a huge fan of de-regulation and regulated as little as he could for decades) and it blew up in his face. We are left in its wake. By listening to Brooksly we might have avoided that part of the crisis; its hard to say but it makes sense.

I admit the Gov't is very slow and poor at making clean swipes at ensuring the public interest. Although they usually flub up, what are the alternatives we are working with?Some are clearly worse than others and some certainly do have benefits. It's a matter of does it benefit the public and what are it's faults?--which change over time as lobbyists erode them or amend them. Do those faults outweigh the benefits we get? That would be a case by case basis which I don't think neither of us wish to enter. I think its naive to say the gov't does bad each time all the time but I don't think that's what your saying.

I also don't think we ought to regulate the hell out of everything to shore it up. But as it stands we benefit from many of the regulations in place. However, another set are in place due to lobbying in private interest, not the public good. So its all very wishy-washy and gray with often conflicts. Some sectors are better than others.

I think our main goal in moving forward should not be simply de-regulation. Rather it is to rid the influence of wealth in politics. This would shrink the government and especially deflate some egos. Some smart folks call for a "no incumbency rule" and I wonder if this might help solve the issues that come along with revolving door politics.

We are both acknowledging the gov't is poor at its job and corrupt but we see different ways out of the mess. We need gov't officials to serve the public interest first and foremost and consider themselves secondary if at all. This is what good Democracy looks like but is rarely achieved. We both know this.

 

[gnarlylove]

Why aren't you attacking these Main Street liars?

The fraudulent part was not typically from the borrower. They would list their honest income $30,000/year and list they work as a jaintor. How were they able to buy a half a million dollar home? Fraud. The applications weren't lied on, they were fraudulently approved.

Predatory mortgage servicing is abusive, unfair, deceptive, or fraudulent mortgage servicing practices of some mortgage servicers during the mortgage servicing process....

In mortgage securitization transactions, the mortgage servicer forwards the borrower's payment of principal and interest to the certificate holders (investors) of the special securitized trust that owns and holds the promissory notes secured by the mortgages and deeds of trust. The mortgage servicer, however, is allowed to retain late fees, BPO fees, inspection fees, and other fees charged or assessed to a borrower's account. In addition to the fee income, the servicer is allowed to retain the net liquidation proceeds of any foreclosure sale (net after foreclosure expenses and principal balance to investors). This provides an incentive to unscrupulous servicers who aggressively interpret mortgage documents to add additional fees[7] to a borrower's mortgage account. Many times, the additional fees added on create an event of default allowing the mortgage servicer to foreclose on the property. This practice is commonly referred to as manufacturing a default or manufactured default.

Where ever you get your information, you need to stop going there. They have made you completely stupid and target your fellow man as the enemy. I can assure you the enemy is not main street who is trying to earn a living and buy a house, its those ***** who make millions a year and millions more in undisclosed earnings.

 

[Toddsterpatriot]

Why aren't you attacking these Main Street liars?

The fraudulent part was not typically from the borrower. They would list their honest income $30,000/year and list they work as a jaintor. How were they able to buy a half a million dollar home? Fraud. The applications weren't lied on, they were fraudulently approved.

Predatory mortgage servicing is abusive, unfair, deceptive, or fraudulent mortgage servicing practices of some mortgage servicers during the mortgage servicing process....

In mortgage securitization transactions, the mortgage servicer forwards the borrower's payment of principal and interest to the certificate holders (investors) of the special securitized trust that owns and holds the promissory notes secured by the mortgages and deeds of trust. The mortgage servicer, however, is allowed to retain late fees, BPO fees, inspection fees, and other fees charged or assessed to a borrower's account. In addition to the fee income, the servicer is allowed to retain the net liquidation proceeds of any foreclosure sale (net after foreclosure expenses and principal balance to investors). This provides an incentive to unscrupulous servicers who aggressively interpret mortgage documents to add additional fees[7] to a borrower's mortgage account. Many times, the additional fees added on create an event of default allowing the mortgage servicer to foreclose on the property. This practice is commonly referred to as manufacturing a default or manufactured default.

Where ever you get your information, you need to stop going there. They have made you completely stupid and target your fellow man as the enemy. I can assure you the enemy is not main street who is trying to earn a living and buy a house, its those ***** who make millions a year and millions more in undisclosed earnings.

The applications weren't lied on, they were fraudulently approved.

Fraudulently approved? What does that even mean?
Are you saying poor people should have been denied a mortgage?
Community organizers disagree.

target your fellow man as the enemy.

I'm targeting your ignorance.

Why are rich guys the enemy?

 

[KGB]

No one has benefitted more from capitalism more than poor people. Their quality of life is a million times better than it used to be.

Do you have any proof of that statement?

"In a world of plenty why are hundreds of millions, perhaps billions of people vulnerable at all? The vulnerable and exploited exist because of an inherently unjust social-economic system, which has caused extreme global inequality and built a divided and fractured world society."

Spotlight on Worldwide Inequality

I would have thought the abstract failure of socialism & collectivism around the globe would be sufficient proof enough for the superior nature of the capitalist system...

 

[Indeependent]

Why aren't you attacking these Main Street liars?

The fraudulent part was not typically from the borrower. They would list their honest income $30,000/year and list they work as a jaintor. How were they able to buy a half a million dollar home? Fraud. The applications weren't lied on, they were fraudulently approved.

Predatory mortgage servicing is abusive, unfair, deceptive, or fraudulent mortgage servicing practices of some mortgage servicers during the mortgage servicing process....

In mortgage securitization transactions, the mortgage servicer forwards the borrower's payment of principal and interest to the certificate holders (investors) of the special securitized trust that owns and holds the promissory notes secured by the mortgages and deeds of trust. The mortgage servicer, however, is allowed to retain late fees, BPO fees, inspection fees, and other fees charged or assessed to a borrower's account. In addition to the fee income, the servicer is allowed to retain the net liquidation proceeds of any foreclosure sale (net after foreclosure expenses and principal balance to investors). This provides an incentive to unscrupulous servicers who aggressively interpret mortgage documents to add additional fees[7] to a borrower's mortgage account. Many times, the additional fees added on create an event of default allowing the mortgage servicer to foreclose on the property. This practice is commonly referred to as manufacturing a default or manufactured default.

Where ever you get your information, you need to stop going there. They have made you completely stupid and target your fellow man as the enemy. I can assure you the enemy is not main street who is trying to earn a living and buy a house, its those ***** who make millions a year and millions more in undisclosed earnings.

The applications weren't lied on, they were fraudulently approved.

Fraudulently approved? What does that even mean?
Are you saying poor people should have been denied a mortgage?
Community organizers disagree.

target your fellow man as the enemy.

I'm targeting your ignorance.

Why are rich guys the enemy?

Most of those Loan Officers weren't making a lot of money until they and their local Bank Managers started bypassing the software and stamping APPROVED on pieces of PAPER.
The Underwriters were instructed NOT TO DO THEIR JOB.

Don't believe me?
Take ANYONE with a 400 Credit Score to your local Auto Leasing shop and their credit will be bumped up immediately to allow the lease to be approved.
Happens all the time.

I had my Credit Score, back in 2006, bumped up almost 200 points, right in front of my face, in order to be approved for a Honda Pilot.

 

[Indeependent]

No one has benefitted more from capitalism more than poor people. Their quality of life is a million times better than it used to be.

Do you have any proof of that statement?

"In a world of plenty why are hundreds of millions, perhaps billions of people vulnerable at all? The vulnerable and exploited exist because of an inherently unjust social-economic system, which has caused extreme global inequality and built a divided and fractured world society."

Spotlight on Worldwide Inequality

I would have thought the abstract failure of socialism & collectivism around the globe would be sufficient proof enough for the superior nature of the capitalist system...

Unaccountable Capitalism? That DOESN'T work.

 

[Toddsterpatriot]

The fraudulent part was not typically from the borrower. They would list their honest income $30,000/year and list they work as a jaintor. How were they able to buy a half a million dollar home? Fraud. The applications weren't lied on, they were fraudulently approved.



Where ever you get your information, you need to stop going there. They have made you completely stupid and target your fellow man as the enemy. I can assure you the enemy is not main street who is trying to earn a living and buy a house, its those ***** who make millions a year and millions more in undisclosed earnings.

The applications weren't lied on, they were fraudulently approved.

Fraudulently approved? What does that even mean?
Are you saying poor people should have been denied a mortgage?
Community organizers disagree.

target your fellow man as the enemy.

I'm targeting your ignorance.

Why are rich guys the enemy?

Most of those Loan Officers weren't making a lot of money until they and their local Bank Managers started bypassing the software and stamping APPROVED on pieces of PAPER.
The Underwriters were instructed NOT TO DO THEIR JOB.

Don't believe me?
Take ANYONE with a 400 Credit Score to your local Auto Leasing shop and their credit will be bumped up immediately to allow the lease to be approved.
Happens all the time.

I had my Credit Score, back in 2006, bumped up almost 200 points, right in front of my face, in order to be approved for a Honda Pilot.

That's awful! Letting poor people take out loans. Despicable!

 

[gnarlylove]

I would have thought the abstract failure of socialism & collectivism around the globe would be sufficient proof enough for the superior nature of the capitalist system...

Unaccountable Capitalism? That DOESN'T work.

What I want to know is what socialism and collectivism is he talking about? The best communism we saw was far from real communism--where alienation is completely removed (was this done? of course not!).

And current socialism is doled out by the State. Few industries are worker owned. Capitalism has penetrated since day one in those countries. The raw difference is "socialism" we see in Europe means the citizens are willing to take on higher tax burdens---that's the main and only difference...well that and they are much happier than Americans. Americans call any tax "socialism." They call Obama socialist! Clearly socialism means anything you want it to except what it really means! A complete miscategorization.