Posted on 08/28/2016 3:48:08 PM PDT by Lorianne
Edited on 08/28/2016 3:55:19 PM PDT by Admin Moderator. [history]
THE most dramatic moment of the global financial crisis of the late 2000s was the collapse of Lehman Brothers on September 15th 2008. The point at which the drama became inevitable, though
(Excerpt) Read more at economist.com ...
I still miss Hydroshock
If you get a few minutes into the vid it is obvious that the so called “Housing Bubble” was a big Giant threat from major Banks .... thinly distanced from the Fed that if you “Don’t do what we tell you to do” ...
And, coincidentally, all the Federal credit unions started selling their good mortgages to SallyMae and FreddieMac to offset the ninja mortgages they took over.
The housing bubble and resulting financial collapse was the culmination of the ‘rat’s thirty year crusade to essentially give free houses away to the poor at taxpayer expense - ironically the most recent report on homeownership in the US says that a smaller percentage of the population owns homes now than ever before on record - not only did the ‘rat’s scheme weaken the economy to the extent that we haven’t yet recovered, but the push to give mortgages to people who couldn’t afford them drove so many into eventual precarious financial circumstances that many still haven’t regained the status which would allow them purchase a home legitimately......
The complexity of our financial system is well beyond most peoples ability or desire to understand.
Is this TRUE, Bahney Frank ?
Stipulate that you’re correct.
Can anything be done? Complexity favors elites. Look at federal laws generally and the progressive income tax in particular.
Is there a way to resist or to dial back complexity of this kind?
“The housing bubble and resulting financial collapse was the culmination of the ‘rat’s thirty year crusade to essentially give free houses away to the poor at taxpayer expense “
It was hardly only Democrats. One of worst offenders was none other than GW Bush, the patron saint of the “free downpayments for minorities” scheme, which he signed in 2003.
Here’s the genius pitching that monstrosity:
THE PRESIDENT: “Good morning. Owning a home lies at the heart of the American dream. A home is a foundation for families and a source of stability for communities. It serves as the foundation of many Americans’ financial security. Yet today, while nearly three-quarters of all white Americans own their homes, less than half of all African Americans and Hispanic Americans are homeowners. We must begin to close this homeownership gap by dismantling the barriers that prevent minorities from owning a piece of the American dream.”
“The single greatest hurdle to first time homeownership is a high down payment requirement that can put a home out of reach. So my administration is proposing the American Dream Down Payment Fund. When a low-income family is qualified to buy a home, but comes up short on the down payment, the American Dream Down Payment Fund will help provide the needed funds. We estimate that this fund will open the door to homeownership for 40,000 low-income families annually.”
“A second obstacle to minority homeownership is a lack of affordable housing. To encourage the production of single-family homes for sale in neighborhoods where affordable housing is scarce, my administration is proposing a single-family affordable housing credit. Over the next five years, this will provide developers nearly $2.4 billion in tax credits for building affordable single-family housing in distressed areas. These credits will make 200,000 new homes available over its first five years to low-income purchasers.”
“A third major obstacle to minority homeownership is the complexity and difficulty of the purchasing process. So we’re stepping up our efforts to better educate first-time home buyers. Consumers need to know their rights and responsibilities as home buyers. Education is the best protection for families against abusive and unscrupulous lenders. Financial education and housing counseling can help protect home buyers against abuses, greatly improve the loan terms they are offered, and help families get through tough times with their homes intact.”
“Through these important initiatives, we can help thousands of American families live the kinds of lives they had once only dreamed about. But government action isn’t enough. We need to energize and engage the private sector, as well. That is why I have challenged the real estate industry leaders to join with the government, with non-profit organizations, and with private sector financial institutions in a major nationwide effort to increase minority homeownership.”
“My approach to broadening homeownership focuses on empowering people to help themselves, and to help one another. These important initiatives will accomplish their purpose because Americans, working together and taking responsibility for one another, will make this great country even greater.”
“The strength of America lies in the honor and the character and goodwill of its people. When we tap into that strength, we discover there is no problem that cannot be solved in this wonderful land of liberty.”
http://realtyvan.com/page3g.html
Dubya had eight years to address all of the policies that he inherited from Carter and Clinton. Somehow we are expected to believe that Dubya as well as Reagan and GHW Bush were powerless to reverse Carter’s policies if they were still a problem when Dubya was president.
You state that the American Dream Downpayment Initiative money came from private sources when in fact the Heritage Foundation pointed out that the bill authorized $200 million per year in taxpayer money to fund the giveaway.
And this wasn’t the only enthusiasm Dubya had for the housing bubble. He routinely boasted of the size and strength of the housing market while the bubble grew, and never once objected to the exotic subprime loans that permitted the increased home ownership that was a goal of his administration. The sole problem he ever voiced was the insufficient capitalization ratio of Fannie Mae and that had nothing to do with the danger of exotic subprime loans being given to marginal borrowers.
Trying to excuse Bush for his role in the housing bubble simply won’t wash. You only need to read his speech to HUD to see where he stood and it was an enthusiastic endorsement of their policies:
https://georgewbush-whitehouse.archives.gov/news/releases/2003/12/20031216-9.html
Yup - Bush shares a lot of blame. Not to mention fannie and freddie were losing market share in that time. Everyone was doing it including agencies that weren’t required to at all.
“Not to mention fannie and freddie were losing market share in that time. “
That’s something that most people don’t know. They think that the subprime mortgages cranked out during the bubble were done by F&F when in fact the majority were done by their private sector rivals.
F&F lost market share because they were dealing in low-yield conforming paper even when it was subprime. And that isn’t what investors wanted. They were looking for high yield paper, and the private lenders gave it to them in spades. The NINJA, Option Arm, Alt-A exotic non-conforming paper gave them the high yield paper that they wanted. Of course it also gave them time bombs in the form of CDOs but that’s not what they expected.
“goal is hardly the same as coercing banks into giving out mortgages to people who likely can’t pay them back, “
The CRA only applied to deposit-takers, which were not the main lenders in the bubble. Investment banks, pure mortgage lenders, hedge funds, the entire Shadow Banking sector were free to do exactly as they pleased. Which they did, as they ate F&F’s lunch.
Moreover Dubya had eight years to reverse the CRA if he chose to. He didn’t.
” pushing the Fannies to cover those bad loans at government expense,”
Fannie and Freddie both had ceased to be government agencies back in the 1960s and 1970s. They were listed stocks on the New York Exchange during the bubble, owned by investors. There was absolutely no legal requirement for the American taxpayer to backstop Fannie and Freddie. The decision to make them the responsibility of the government and therefore the taxpayer was a decision made entirely by Bush and his administration.
“encouraging the resale of repackaged loans into the public market, especially when it was known at the time that those practices were possibly going to damage the wider economy “
Nonsense. CDOs, CMOs, CDOs Squared, Synthetic CDOs, all of this stuff was being cranked out by the unregulated private sector without the slightest pressure to do so by the government. Moreover CDOs had been around for decades, they were nothing new, and the CDOs of Fannie and Freddie were comprised of conforming paper, and like all conforming paper were the safest of loans and performed the best.
“Bush was not pushing mortgages for those who couldn’t afford them. He was trying to cover those toxic loans already in the system, and the undercapitalization of Fannie and Freddie was a major problem area.”
More nonsense. Bush never addressed “toxic loans” in any of his speeches, Fannie and Freddie didn’t deal in them anyway, they required conforming paper even when loans were made to subprime borrowers. NINJA loans, Option Arms, all of the exotic paper was the purview of firms other than F&F. They lost market share exactly because they weren’t dealing in high yield, high risk paper. The sole concern expressed by the Bush administration was the undercapitalisation of the Fannie, and that had exactly nothing to do with exotic paper, it was purely a matter of loans to assets.
“Their overleveraged position meant that should the mortgages they held decline little more than two percent, they would be technically wiped out”
Fine. So their investors would be wiped out. That’s the risk you take when you own stock in a listed company, which is what Fannie and Freddie were in 2008 before Dubya decided that the American taxpayer and not the investors should be left holding the bag.
“Eventually Fannie and Freddie held over half the mortgages in the country, and 45% of those they purchased between 2005, when the bill failed, and 2007 were subprime and other nonprime loans.”
And F&F holding half the mortgages in the country is news to whom, exactly? Apparently to those who don’t know that F&F were created in the first place in order to provide a secondary market for mortgages and at one time had no competition. So 45% represents a big loss of market share for what they once had. In the second half of your sentence you focus on subprime loans without noting that F&F dealt in conforming subprime paper, probably because you have no idea that that is significant because you have never mentioned conforming paper once.
You are obviously eager to excuse Bush but you really know little about the factors that were involved in creating the bubble. It was a perfect storm of events that began in the 1990s, it involved tax law exemptions for real estate, exemption of OTC derivatives from regulation, David X Li’s famous Gaussian copula function, financial engineering by quants, Greenspan dropping interest rates to extreme lows, and Bush was also there with his goofball plan to greatly increase minority home ownership. You can read all about it in his speech to HUD where he somehow fails to mention all of the risks that you seem to believe consumed him.
I’ve known about Glass-Steagall since I passed my Series 7 back in the ‘80s. You’re not telling me anything I don’t know about. Moreover Glass-Steagall was eroded piecemeal over the decades and there was no “repeal” during the Clinton administration. Investment banks were still under the SEC and not the FDIC, they weren’t deposit takers, and they were already free to write mortgages before Clinton. If anything that passed during Clinton led to the debacle it was the Commodity Futures Modernization Act of 2000, not the imaginary repeal of G-S.
“Bush’s speech was pretty much boilerplate we’re going to help the poor and downtrodden”
No, it was the announcement of a very real $200 million per year taxpayer financed program which he supported that was intended to expand minority home ownership. He says it very clearly, it was not boilerplate. He signed the bill in 2003 when the Affordability Index in California was already in the teens, which in every other housing cycle meant a market top. Bush’s foolish program threw fuel on the market when it already should have been topping.
“. It’s just a wee bit disingenuous to talk about how Fannie and Freddie were taking only conforming loans without acknowledging that the standards for what was considered “conforming” had been lowered so drastically, beginning as early as 1993 with the abandonment of the 20% down-payment requirement.”
It’s not disingenuous at all. Conforming loans were the least subject to default after the bubble collapsed, just as they were predicted to do. That’s why there are conforming loans in the first place. Lazard ran a study post collapse that verified this for their clients.
“and were perceived by the public to have government backing “
Which no law required or guaranteed despite what “the public” perceived. And certainly major investors are expected to do their own Due Diligence and it would have taken maybe 5 minutes to figure out that there was no guarantee. At least until Dubya decided to bail out F&Fs investors by sticking the American taxpayer with the tab.
“(and eventually had to be bailed out by the taxpayers to the tune of $400 billion)”
There was no “had to be bailed out” about it. The investors in F&F should have been stuck with the loss... they sure as hell weren’t sharing their profits with taxpayers in the good times. The most likely reason for sticking taxpayers with bailing out F&Fs investors is nothing other than cronyism between Wall Street and the political hacks running Treasury for both Clinton and Bush. The reason that no one has been prosecuted for anything leading to the disaster is because both parties were up to their eyeballs in it, and much of what they were doing wasn’t illegal thanks to bipartisan bills like CFMA 2000.
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