Posted on 03/17/2008 9:46:35 PM PDT by Ernest_at_the_Beach
We all know about the sub-prime mortgage crisis which is pretty easy to grasp. Greedy lenders gave a lot of money to risky borrowers evidently believing that housing prices would continue to go up 7% a year forever. The debate over bailing out the industry has been interesting. Do we reward companies who took a flyer on bad risk loans? Or do we reward the borrowers who didn’t read the fine print and got themselves in over their heads?
Rewarding stupidity or ignorance is not the way of capitalism. In a perfect capitalistic society, those who make their own bed should lie in it – even if it means a company goes belly up or people have their houses foreclosed on.
But what kind of capitalistic society would allow a multi-gazillion dollar corporation who may have overextended itself because its risk assessors got it wrong, collapse and take the entire financial system with it?
Mr. DeLong explains the dilemma:
(Excerpt) Read more at rightwingnuthouse.com ...
fyi
Gee...we ignored reality, built a glass house, and started the lithologic heaving.
The cure for such a vile statistic, according to the Clinton Administration, was to let lenders know that the full weight of Federal antidiscrimination laws would be brought to bear on these racist institutions, unless they opened their coffers, somehow, to these folk. The lenders, so as not to run afoul of reverse discrimination, then devised methods to fund all poor credit applicants, regardless of race, creed, sex, national origin or means to repay the debt. When Bush assumed the mantle of chief executor, he left the status of this practice intact (like many other laws, procedures and personnel that should have been shelved the moment he took office.)
Is building up communist countries to make a very few American rich called capitalism?
...a very few Americans rich, even.
some might call it profiteering..
The problem in talking about what the government’s role should be in stepping in to save failing institutions is that the government is a guilty party in causing the failure, so there is no question the government have to share in the responsibility for fixing the problem.
Most people forget that “government” = “taxpayer”. Ultimately we get the govt we vote for and we all wind up paying for those mistakes.
I am probably wrong on this, but I seem to recall the Clinton administration, Donna Shalala at Billy Jeff's direction, ORDERING banks and lenders to start lending to poor and otherwise credit lousy clients. It seemed, at the time, that black families were being left out in the cold, credit-worthy-wise, in proportion to other applicants, when seeking home loans.
This was done because of charges of "red-lining", i.e., racism in the lending industry. Around the the same time the smart guys figured out how to bundle mortgages into salable securities, and it was off to the races. As usual, government interference was the instigator. Those same Congressmen will have hearings, they will castigate Wall Street types and they will NEVER mention their prominent role in this disaster. Par for the course.
Loaning to “risky borrowers” isn’t very bright. But then most borrowers are risky, as most jobs are simply “projects”—temporary jobs. Very few people get high pay for 30 years.
We need to stop spreading exaggerations to young people about careers. They should be taught to live below their means and to save.
I think the CRA....Community Redevelopment Act....started the low end loans...
Saunders from Vermont was on Kudlow today...everyone was shaking their head when he was done....
We will need to take away their TV’s also.
Interesting information. Most Americans probably don’t realize this. Sounds to me it would be the root cause of the problem.
It’s the only system that works for everyone.
Taking out home equity loans like it was free money and using teaser loans that had outrageous interest rates 3 years later is just plain foolish.
Had these people met their obligations the banks, investors and the economy in general wouldn't be going through all this pain right now.
While it is perfectly true that the lenders made money far to easy - at least in the short term - and one could see that it would be abused.
But the bottom line remains with those who accepted the terms and went forward as if somehow everything would work itself out painlessly.
So if there's any hope of not repeating this lesson in the not so near future the people who took these loans and the lenders who made it beyond easy to qualify need to feel the pain of their actions. Without that pain there's no corrective learning or action.
And if I may add this: The biggest BS art form is when the Government creates a problem and then blames the ‘market failure’ when market participants, led down the primrose path by a credit bubble created by Fed pumping money in, encouraged by govt rules in the Community Reinvestment Act,
and further encouraged by the repeated ‘moral hazard’ of a govt that steps in and uses taxpayer money to make good on losses.
In other words, by socializing losses in the past, we encourage the creation of more speculative losses in the future. The moral hazard factor adds to the systematic risk of the financial system. so why do we do it? It juices up the credit flows, and can no more resist that than we can resist deficit spending.
“Low regulation, open and free markets, individual and corporate responsibility – this is the conservative mantra when defending and promoting capitalism. I subscribe to this view of economics because it works as any resident of a capitalist country could tell you.
But now we are faced with the largest bailout in history and must question those comfortable assumptions. ”
No we don’t. You see, our actions to do what is needed to save us short-term does not in any way change the justifiable view that free markets can sort these things out over time better. We have to understand that the cold-turkey path of getting away from Govt safety nets and bailouts is better for us long-term, because it would erase the moral hazard and Govt buble-creation factor (without which, the players would have been more responsible), but long-term we are dead and our children will forgive us for another short-term fix that will keep the economy a bit more stable now but set us up for another credit bubble/bust 10 years down the road.
Yes. A bank in our area was accused of red-lining because the turned down “too many” minorities for loans. They were just a VERY conservative bank and called bad risks as such when they saw them. I knew a loan officer there and he said they were very fair but tough.
A couple of minority borrowers took them to court. The media bought into the sob story. I remember the local msm made a big deal about how bad the bank was. It was forced to give out loans to everyone who came through their doors. The feds and a local mayor made a big deal out of it and the bank started approving every minorty loan that came across the lenders desks... car loans, personal loans, mortgages.
The loans started going bad in a few years. All types ov loans were going bad. A couple of frieds who worked there were “transfered” to collections. The bank ended up selling out to one of the “big boys” shortly after (within 5 years).
And then they will make a mistake and get Spitzered.
Yep, the housing crises can be laid at the feet of Bill Clinton. Yet, Bush can also be blamed also for a lack of political courage.
Unfortunately, not enough of them will. I do like the verb tense of Spitzer. Monica’s lasting contribution to our culture.
—”Had these people met their obligations the banks, investors and the economy in general wouldn’t be going through all this pain right now.
While it is perfectly true that the lenders made money far to easy - at least in the short term - and one could see that it would be abused.
But the bottom line remains with those who accepted the terms and went forward as if somehow everything would work itself out painlessly. “—
Blaming these debtors is like blaming a child for crashing the car after dad tosses him the keys.
You only got half of the equation right. Saving without a proper investment strategy is incredibly stupid, since inflation, taxes, and other people will eat away at the money.
So you are saying that these children (voters) need parents (government) to take care of them? That government knows best and that individuals can’t be trusted with running their own affairs?
Because that’s what it comes down to.
After 50 years of treating citizens like infants, I'd say your analogy is correct. However, this never would have happened in 1950, even with the CRA, because the borrowers would have never defaulted on so many loans. They would not have borrowed beyond their means, and had too much pride to be foreclosed on. This was a 50/50 F-up.
Democrats and Rhinos at it again. If this is going to be a huge disaster, it should stick to liberals in Congress.
Substitute debtors for voters, and responsible lenders for government. These same institutions a few years ago would NEVER have signed off on those notes. What happened to make these borrowers all of a sudden worthy? So worthy, many qualified for no-dock loans!!
Now if in fact they were forced to make risky loans, as some are suggesting, that’s another matter.
Certainly the nanny state plays a significant roll.
But these financial institutions have been playing parent too. Protecting would-be borrowers from themselves.
I don’t see anything here in the comments about the people who flipped houses to make money from nothing (think Laurel Langmeyer). Does anyone have an idea what percent of the bad loans are from those people?
I am wondering how much of the bad debt is from this practice as opposed to poor credit risks.
Greenspan made it part of his mission (he said as much) to expand home ownership. Fannie Mae and Freddie Mac are indirect arms of the government that congress defined their mission as expanding home ownership to people that were otherwise locked out. That “expanding” was aimed at minorities and people with less than stellar credit - hence sub prime.
That being said, it still doesn’t explain all those who took out home equity loans on the their homes thinking it was free money. A good number of these foreclosures are rooted in equity borrowing and not just sub prime borrowers.
Unfair! After I got my degree in Women's Studies from Antioch all I was allowed by the capitalist imperialist pigs on Wall Street was a job at Starbucks. That's why I support Obama. He'll raise taxes on the corporate bloodsuckers who are keeping me down.
—’A good number of these foreclosures are rooted in equity borrowing and not just sub prime borrowers.”—
It would be interesting to know where that split lies. Seems like there would be some trouble with those equity folks as well. But given the fact most of them bought houses under a more ‘conservative’ lending climate, they’re better qualified to make the payments.
Amazing to think that these sub-prime folks ‘qualified’ for a home mortgage, yet would likely not qualify for a new car loan.
Greedy lenders gave a lot of money to risky borrowers evidently believing that housing prices would continue to go up 7% a year forever.Isn't that special? The lenders weren't merely lending money -- something that defines their profession -- they were "greedy". And the borrowers weren't getting a great deal, they were "risky". After the meltdown, the bank started calling poor little old me and gave me more headroom on my home equity loan. Where the hell were they before the meltdown? I would have loved a subprime loan. Basically, the borrowers were paying too much for the real estate, because the real estate market (bubble) was being driven by lower-cost loans. The expectation was that interest rates would be coming down, not that the lenders would be sitting pretty with a lot of nicely appreciated foreclosure properties. Thanks Ernest.
So Sandy Weill is the bad guy?
But no politician will ever dare tell a voter that. Evil capitalists must be to blame.
The situation actually lends credence to Democrat arguments against private Social Security and health care savings accounts - that the public is too stupid to manage its own money.
Commentary: Retooling a 1930s concept to halt housing's slide
Wasssssup? Dude! (grin)
What we are seeing is that many will support free markets until it is there time to hurt.
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