Best Rats and RINOs money could buy...
My brother told me that the republicans were responsible for the subprime crisis. I’ve been reading online and found this. http://iarnuocon.newsvine.com/_news/2008/10/01/1940028-the-republican-roots-of-the-subprime-crisis
Can someone that knows something about economics explain this? Is it just a lie? Seems to be true.
Both parties are just covering up for the problem of demographics. Not enough babies were conceived or or if
conceived not allowed to live to the age of home ownership.
With this problem the politicians kicked the can down the road with policies to allow anyone to purchase a home.
Now we have more tricks to ‘stimulate’ home sales.
Truth is too many people know other people that are underwater on mortgages and thus it would cost them money to sell. Until the market is allowed to bottom out ~30% down and the job situation for young persons in the first time house age, we won;t see a solution.
The other complicating factor is that the energy policy of the current administration is going to result in sharply higher energy prices. This translates to less demand for houses that require a commute. Not many are going to want to add $400 per month for gas.
The problem with the GOP is we tend to trust businessmen too much. We think out of self interest no businessmen would participate in destructive schemes. After all they will go out of business and be ruined. Most main street businessmen understand that. They have to live in the community with the customers. Do something shady and get caught, no one will buy from them or socialize with them. Wall Street is another matter. They tend to live isolated from their customers and are involved in very complex financial transactions that the customers barely understand. There lies the danger. You have a small isolated group of merchants who have sole expertise on the machination of finances that involve huge sums of money, it doesn’t take long for a group of them to cook up a scheme that can camoflauge fraud with its complexity, and all is needed is short period of time to commit and reap in the ill gotten profits, retire from the scheme and by the time it collapses, it is too late for the regulators and customers to stop it. Google William Black the fed regulator that closed the fraudulent Savings and Loans during the 1980’s. What happen back then repeated itself in 2008. Nowhere in the CRA did it instruct mortgage applicants to make up their incomes on the applications or instructed lenders to make up the applicants credit score in order to qualify them for a larger loan. No where in the CRA instruct rating agencies give mortgage backed securities AAA ratings (no risk) when the securities were riddled with liar loans and subprime loans. Any lawyer for a mortgage officer, mortgage applicant, bank mortgage underwriter, bond rating agency official ever tried to claim that the CRA encouraged them to do this, a CRA official will simply say,” that is not the CRA policy and the defendent must have misunderstood it.” Guess who is going to jail, not the CRA official, but the defendant because CRA official is correct. There is an old adage, “Give me a screwed up system runned by good men, and it will work well; give me a good system runned by bad men and you will have fraud”. Most of the problems we have today are less systemmic and more affected by people who lack concience. CRA notions are flawed but hand it over to greedy people and you will end up with a financial meltdown. If we want to avoid fraud we can simplify our financial systems (Wall Street will oppose because it limits their financial flexibilities to make money) or we have severe Chinese sytle penalties for failure (ie firing squad for CEO for creating a financial crisis that is large enough to undermind national security). The Financial Reform pushed thru by Obama and Congress has neither thus 30 years from now a new generation will be the finance execs and since no one faced severe penalties they will repeat the fraud all over again. Hope our country will survive but either way the taxpayers will be screwed again.
I’m not saying Bush didn’t have anything in it, but do some research and check out what started under Carter, and continued under Clinton.
The claim that the Republicans caused the sub-prime mortgage meltdown is a lie. It’s fair to say that the Democrats caused the sub-prime meltdown, and did it deliberately, in exactly the same sense that a drunkard gives himself a hangover deliberately.
The meltdown occurred because a lot of people had mortgages they couldn’t handle. They were borrowing more and more against the equity in their houses, and taking on increasing debt to pay current expenses. There are always a few people in this position. No matter how careful borrowers are, no matter how careful lenders are, the world throws things at you that you don’t expect, and some people wind up over their heads in debt. This is a personal tragedy, but as long as there aren’t too many, it doesn’t shift the market as a whole.
The reason there was a national crisis, was that there were a large number of people in this position. As long as the housing market was going up, they were borrowing more and more, and sinking, but they did not actually go under. But no market moves in one direction forever. When the housing market, inevitably, faltered, all the people who were borrowing more and more to pay current expenses, essentially defaulted at the same time. This slammed the housing market down hard, at just the moment it was faltering already. That caused the crash.
When people take on debts they can’t handle, the borrower and the lender are the two halves of the problem. Both are at fault, but only one determined that we would have a crash. There have always been people who wanted to borrow money they couldn’t repay. The reason we had a crash, was because banks and mortgage companies made massive loans to people who weren’t creditworthy.
The hoaxters will try to tell you that it was government deregulation that caused the banks and mortgage companies to do this. That’s the exact opposite of the truth. Actually, it was Federal intervention in the mortgage market that caused the bad loans to be available. The Federal Government did this by two actions; the carrot and the stick, as it were.
The carrot was that the Government, through the corporations it sponsored, walked into the mortgage market, dropped a trillion dollars on the table, and said “I want to buy shaky mortgages.” Fannie Mae and Freddie Mac reclassified mortgages; all sub-prime mortgages became prime, and a new sub-prime category was created, for borrowers who previously fell off the end of the table. They then preferentially bought up mortgages from the new sub-prime category; specifically seeking to shift their portfolios toward the new sub-primes. These government-sponsored companies wind up underwriting most of the mortgages in the United States; when they shift their financial weight to push money into mortgages which previously, wouldn’t even qualify for sub-prime, they caused the mountains to shake.
Some people note that the mortgage companies rushed into the shaky mortgage market because it was profitable. This is true. The US Government made it profitable. Previously, mortgage companies didn’t make mortgages to un-creditworthy borrowers, because the mortgages weren’t valuable. You couldn’t sell them to anyone, because no one wanted to buy them. Holding them wasn’t so great, because many of the borrowers wouldn’t pay them back. So, no one wanted to make the loans. But when the US Government decided to classify them up to sub-prime, and buy them with the sort of funding that only the people who can print money, are able to bring to bear, the mortgages suddenly became valuable—now there was a customer for them.
That, alone, would probably have created a tidal wave of bad mortgages, and an inevitable crash. When someone who’s willing to spend trillions, decides to finance shaky mortgages, the customer will generally be served. But it wasn’t alone. The other end of the stick was the Community Reinvestment Act. This had been around since Carter, but it was under President Clinton that the Government really started pushing it. This law said that banks and mortgage companies were required to make mortgages to members of favored groups, whether they were creditworthy or not. Banks that refused to do so were fined, denied permission to open new branches, and were subject to private lawsuits.
The combination said to the banks: If you don’t make shaky mortgages, we’ll fine you. But it you do, we’ll buy them, and you will take no risk.
Banks and mortgage companies weren’t to blame for creating a tidal wave a bad mortgages—although they did. General rule: When a law that is being enforced requires businesses to do something harmful, and they do, they are not at fault. The legislature is at fault.
The Government’s policies of requiring and financing mortgages to people who couldn’t handle the debt, made the crash inevitable. It was not a surprise (although I don’t know of anyone who predicted the timing). The earliest I’ve seen reported, of Congress being warned that it was creating a deluge, was the President Clinton’s Treasury Secretary went to Congress, and warned that if the Government didn’t tighten up its lending standards, it would cause a catastrophe (I haven’t seen any report of when it was, that he did this). President Bush went to Congress again and again, and every year he was in office, and warned that the Government’s loose lending standards were building a house of cards, which would inevitably crash, and cause a disaster. But every time he did, the Democrats rallied behind Chris Dodd and Barney Frank, cried “You’re trying to keep poor people from getting mortgages!” and kept the plane in a dive. (President Bush actually was trying to keep people who couldn’t handle the debt from getting mortgages, so the Democrats weren’t entirely wrong.) (Note that the Democrats had enough power to block action, the entire time George Bush was President. They could not have put the plane in a dive, but they were able to keep him from pulling out of it.) The Democrats insisted on pushing mortgages onto people who could not handle them, right up until the plane hit the ground. The Democrats insisted on the crash, by specifically preventing action to avert or soften it.
(By the time Bush the Younger took office, it was probably already too late to prevent a crash—but it didn’t need to be nearly as severe as it was. But the Democrats, who put the collapse in motion, specifically refused to halt the Government’s build-up of mortgages to people who couldn’t handle them, building the house of cards higher and higher, until the very moment it fell.)