Posted on 04/14/2010 4:49:04 PM PDT by Sub-Driver
Dead on!! And we all saw how that threat worked out for the clown. Day by day people are turning against him, his party and everything he stands for.
The derivatives were based on sub-prime mortgages. Remove the sub-prime securities created by bad dem policy, you remove wall st. bubble.
The catalyst to the Wall St. bubble was the Commodity Futures Modernization Act of 2000. This allowed unregulated leveraging (45 to 1). Rubin/Clinton saw to it that the derivatives were unregulated. Regulated or not, we should have allowed Wall St. to file bankruptcy and not loan them money.
“The derivatives were based on sub-prime mortgages. “
Derivatives are based on whatever the creator of the security wants to put in them, from mortgages to credit cards to car loans. The idea that they “were based on subprime mortgages” is a figment of somebody’s imagination.
” Remove the sub-prime securities created by bad dem policy, you remove wall st. bubble.”
The vast bulk of subprime paper written during the bubble was generated by private investment banks and non-depository mortgage lenders. Unlike commercial banks and depository institutions, neither the IBs nor the pure mortgage lenders were covered by the CRA or any other government mandate that required them to make subprime loans. A shame, because the idea that this was all the result of the CRA and bad Dem policy makes such a convenient explanation. But alas, the sad fact is that investment banks were cranking out a trillion dollars of subprime paper and its related derivatives for the simple reason that they made an incredible amount of money doing so. It was a great run for them until it blew up the credit markets.
“The catalyst to the Wall St. bubble was the Commodity Futures Modernization Act of 2000. This allowed unregulated leveraging (45 to 1). Rubin/Clinton saw to it that the derivatives were unregulated. Regulated or not, we should have allowed Wall St. to file bankruptcy and not loan them money.”
You’re right that the Commodity Futures Modernization Act was a disaster, and it was written to keep regulators from having any control over OTC derivatives. But it wasn’t just a Democrat idea. The ideology that markets would police themselves was shared by many, including Alan Greenspan. It had plenty of GOP support as well or it could have been reversed during Dubya’s eight years.
All financial institutions were writing sub-prime loans....because they knew they could immediately offload it to Fannie Mae. Fannie Mae owns half the mortgages in the US. The Clinton imposed CRA laws started the ball rolling, and the new Fannie Mae sub-prime requirements were the backstop.
I've yet to hear any Wall St. derivatives bubble analysis that did not begin with sub-prime mortgages...and didn't see anything in your post regarding that. Are you implying the Wall St. derivative bubble was not sub-prime mtg based, but rather credit car/car loan based? News to me.
The exotic securitizations that have gotten so much of the blame were a symptom, not the cause, of the crisis.
The architects of the crisis want to divert attention from their own culpability by blaming the markets rather than their own regulations mandating that banks make high-risk loans based on race."
“..because they knew they could immediately offload it to Fannie Mae. Fannie Mae owns half the mortgages in the US. The Clinton imposed CRA laws started the ball rolling, and the new Fannie Mae sub-prime requirements were the backstop”
Except that doesn’t happen to be either accurate or relevant to what occurred. Fannie and Freddie lost a large portion of their market share to the IBs and pure mortgage lenders during the bubble. The IBs neither needed nor wanted F&F in order to offload their paper; they had created their own rival market for the CDOs and CMOs that they were cranking out in the trillions of dollars and they had no interest in sharing any of it with Fannie and Freddie.
The subprime lending of the IBs and mortgage houses had virtually nothing to do with Clinton and the CRA; that law didn’t apply to them, they were non depository institutions. They were playing in the subprime field because it provided the chance for them to make a huge amount of money.
“I’ve yet to hear any Wall St. derivatives bubble analysis that did not begin with sub-prime mortgages...and didn’t see anything in your post regarding that. Are you implying the Wall St. derivative bubble was not sub-prime mtg based, but rather credit car/car loan based? News to me.”
I was pointing out that CDOs aren’t just composed of mortgages, subprime or otherwise. They are full of whatever the creator of the CDO wants to put in them. Derivatives aren’t something that was invented to deal with subprime mortgages. They are a way of securitizing and marketing debt to investors.
The mortgage bubble was far larger than just subprime. Subprime happens to be where the worst of the paper was written, and that bad paper was private market paper like Option ARMS, Stated Income Stated Asset Loans, and other exotic high-yield paper. This isn’t what Fannie and Freddie dealt in. Their subprime paper was low yielding conforming paper that required a downpayment and a credit check. The fact that F&F still had requirements when the private market was offering 125% loans without any proof of income is why market share left the GSEs for the Wall Street lenders.
There is an attempt by some commentators to make the bubble and its collapse the result of the CRA and/or Fannie and Freddie. This is largely being done by people who didn’t see the bubble as it grew, who denied that there was a problem as it began to collapse, and who now offer themselves as experts. It’s a convenient explanation if someone is just looking to score ideological points at the expense of understanding what occurred. Wall Street was heavily involved in generating the bubble. Many of the Wall Street players involved are big time Democrats. Why Republicans would choose to defend them is a mystery, until you realize that the GOP is rightfully called the Stupid Party.
“Clinton’s regulatory policies led to the creation of this new risk on Wall Street. His CRA amendments created the subprime market, and only after he pressured Fannie and Freddie to socialize the risk and guarantee the profit from the subprime loans did Wall Street get involved in a big way.”
Where are you getting that quote? It’s rubbish. Wall Street had been looking for a way to enter the subprime market long before Bill Clinton showed up. You might want to pick up Muolo and Padilla’s “Chain of Blame” and learn about the evolution of the subprime market from a couple of writers who had a front row seat.
In the year 2000, every week I was getting unsecured, no income verification $50,000 personal loan offers and absurd mortgage offers from banks. By 2004, Builders were PAYING thousands in cash incentives upfront to people to buy homes upfront, and the banks would write anything...because they could immediately sell the note to Fannie Mae.
"Subprime loans were the vehicle banks used to satisfy CRA compliance, and Clinton and his regulators encouraged their use. Before Clinton took office, subprimes were virtually unheard of. By the time he left, they made up more than 9% of the market for mortgage originations. Today they're 20%.
"It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of the CRA," ex-Fed chief Alan Greenspan said in recent testimony on the roots of the crisis."
Correction. I typed Fannie Mae grew from $1 bill to $60 to $600 bil. I meant to type Countrywide. That’s just one mortgage lender. Multiple that nationwide and you realize how quickly and large the sub-prime market grew out of control into a bubble.
It'll be HUGH!
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