My professor in my Financial Markets class read us this article from the New York Times today in class.

http://query.nytimes.com/gst/fullpage.ht...A96F958260

What struck me was the date that it was published. Am I the only one who's first reaction to reading this was ?

This was the beginning. The started to enforce the CRA. This opened up the Sub prime market. Now we see the results of government intervention. They forced banks to lend money to non credit worthy people. The banks and homebuilders were more than happy because they made more money. Eventually, the market became saturated and people could not afford their homes.

This is a big reason why are economy is in the tank.

Yup. Many people theorize that this was the beginning of all the troubles. Banks wrote loans they knew wouldn't be paid. Then they sold the loans to investors and comingled everything so much you couldn't separate the goods ones from the bad ones and now toxic assests are all over the world.

(03-04-2009 03:39 PM)klake87 Wrote:  This was the beginning. The started to enforce the CRA. This opened up the Sub prime market. Now we see the results of government intervention. They forced banks to lend money to non credit worthy people. The banks and homebuilders were more than happy because they made more money. Eventually, the market became saturated and people could not afford their homes.

This is a big reason why are economy is in the tank.

My Professor addressed the CRA in class today as well and the key thing that he stressed throughout class was that while the government wanted the banks to increase their use of sub-prime loans, the banks were in no way forced to comply with the ordinance.

First off let's get something straight that I'm not sure everyone here understands. The CRA, or Community Reinvestment Act, was passed in 1977. So to set the record straight, this thing has been around for a long time; its not something new that the Bush, or even the Clinton Adminstration cooked up within the last decade. The CRA's goal was to have mortgages extended to all segments of a community to avoid potential discrimination problems. This was in accordance with the Carter Administration's focus on human and equal rights.

One thing that my Professor stressed was that the banks didn't have to follow the provisions of the CRA; if they had wanted to refuse to do it, which would have been reasonable given the amount of risk involved with some of these loans, then they could have. It was merely being recommended and was not forced on the banks.

However, everyone in the U.S. is a "greedy bastard"; we want to make as much money for ourselves as we can by any legal means necessary. And just in case you think you aren't a "greedy bastard", then that means you don't have your head on straight. I'm a "greedy bastard", we're all "greedy bastards."

Anyway, because of this mentality, the banks wanted to make money off of the sub-prime loans, but they also knew that these loans carried a lot of risk with them because there was a chance that the people they were giving loans to would default on their payments. So they told the government that they would increase their use of sub-prime lending if the government would take the loans off of their hands, which was exactly what Fannie May and Freddie Mac did.

Because of this, the banks could make a lot of money off of these sub-prime loans with no responsibility attached because Fannie May was holding all of the loans instead of the banks themselves. This is where you see the massive increase in sub-prime loans in the past few years.

So in essence, and my Professor was very clear on this, no single entity is responsible for this mess. It wasn't just the government, or the banks, or even just the people who got loans that they couldn't afford.

It was everyone.

That banks weren't "required" to may be an "accurate" statement. However if they wanted to buy another bank or expand in their territory, remember most banking was local or at most regional until the mid 90's because of banking law, they needed to show proof of being accomodating to the economically unfit (eg. make loans to people who would have problems paying them off). Goes against what most people complain about bankers, they only lend to people who have money. Makes a certain amount of sense today doesn't. At the forefront of this politicizing of loans, drumroll please, was ..............ACORN. A thorn in the side of every bank that tried to merge in the late '80's early 90's. Banks were graded on how available they were to the underserved. A higher grade meant it was easier and less expensive to get a merger to pass regulatory approval. Therefore while it may be technically accurate to say that they weren't "required" to lend for all practical purposes they were. All business people may be "greedy" but their not all stupid.

Here's another point to bring to your professor, don't know how old he is or if he's ever had a real job, banks traditionally kept the majority of the mortgages they originated. In the 80's they started becoming securitized (not a bad thing) and normally Fannie and Freddie had fairly stringent standards for grading securities AAA. Banks weren't going to originate the subprime and Alt A loans unless they could offload them on someone else. That someone else was Fan and Fred. However, F&F had to alter there grading structures to give the newly securitized loans AAA ratings to get them resold in the secondary market even though they knew or should have known that the loans were speculative at best. All this happened because the powers to be at F&F and the Clinton Administration wanted more low income people in homes. So the original impetus for this was the government interfering and altering the normal structure of a market that was operating fine until the gov't got involved.

And don't tell me this is a lack of regulatory oversight. I've bought four homes and refinanced several times and the amount of paperwork and acknowledgements I have to sign is unbelievable. You have to sign a piece of paper that says you're getting a loan for a house for petes sake. This is not to say that there aren't "greedy", ruthless, unethical mortgage bankers out there but they are in the minority.

(03-04-2009 04:04 PM)BarsemaBone Wrote:  

(03-04-2009 03:39 PM)klake87 Wrote:  This was the beginning. The started to enforce the CRA. This opened up the Sub prime market. Now we see the results of government intervention. They forced banks to lend money to non credit worthy people. The banks and homebuilders were more than happy because they made more money. Eventually, the market became saturated and people could not afford their homes.

This is a big reason why are economy is in the tank.

My Professor addressed the CRA in class today as well and the key thing that he stressed throughout class was that while the government wanted the banks to increase their use of sub-prime loans, the banks were in no way forced to comply with the ordinance.

First off let's get something straight that I'm not sure everyone here understands. The CRA, or Community Reinvestment Act, was passed in 1977. So to set the record straight, this thing has been around for a long time; its not something new that the Bush, or even the Clinton Adminstration cooked up within the last decade. The CRA's goal was to have mortgages extended to all segments of a community to avoid potential discrimination problems. This was in accordance with the Carter Administration's focus on human and equal rights.

One thing that my Professor stressed was that the banks didn't have to follow the provisions of the CRA; if they had wanted to refuse to do it, which would have been reasonable given the amount of risk involved with some of these loans, then they could have. It was merely being recommended and was not forced on the banks.

However, everyone in the U.S. is a "greedy bastard"; we want to make as much money for ourselves as we can by any legal means necessary. And just in case you think you aren't a "greedy bastard", then that means you don't have your head on straight. I'm a "greedy bastard", we're all "greedy bastards."

Anyway, because of this mentality, the banks wanted to make money off of the sub-prime loans, but they also knew that these loans carried a lot of risk with them because there was a chance that the people they were giving loans to would default on their payments. So they told the government that they would increase their use of sub-prime lending if the government would take the loans off of their hands, which was exactly what Fannie May and Freddie Mac did.

Because of this, the banks could make a lot of money off of these sub-prime loans with no responsibility attached because Fannie May was holding all of the loans instead of the banks themselves. This is where you see the massive increase in sub-prime loans in the past few years.

So in essence, and my Professor was very clear on this, no single entity is responsible for this mess. It wasn't just the government, or the banks, or even just the people who got loans that they couldn't afford.

It was everyone.

I give you a real life example. First American Bank has increased its footprint in the chicagoland area. They have tried to open up branches around chicagoland where they feel would generate depositors and customers. Until they would open a branch in less desirable areas, they would told to stop the expansion. They were required to open up branches in areas that had no growth potential so that they could open up a branch in a more desirable area. The government made them locate a bank in an area that would not be profitable becaus they could. Same with loans, if they did not lend enough to unqualified people, then the government would start pressuring them.

Now that is not to say that mortgage bankers and builders did not benefit in the short run by the additonal home owners but this was a big part of the mortgage bubble.

(03-04-2009 04:38 PM)klake87 Wrote:  

(03-04-2009 04:04 PM)BarsemaBone Wrote:  

(03-04-2009 03:39 PM)klake87 Wrote:  This was the beginning. The started to enforce the CRA. This opened up the Sub prime market. Now we see the results of government intervention. They forced banks to lend money to non credit worthy people. The banks and homebuilders were more than happy because they made more money. Eventually, the market became saturated and people could not afford their homes.

This is a big reason why are economy is in the tank.

My Professor addressed the CRA in class today as well and the key thing that he stressed throughout class was that while the government wanted the banks to increase their use of sub-prime loans, the banks were in no way forced to comply with the ordinance.

First off let's get something straight that I'm not sure everyone here understands. The CRA, or Community Reinvestment Act, was passed in 1977. So to set the record straight, this thing has been around for a long time; its not something new that the Bush, or even the Clinton Adminstration cooked up within the last decade. The CRA's goal was to have mortgages extended to all segments of a community to avoid potential discrimination problems. This was in accordance with the Carter Administration's focus on human and equal rights.

One thing that my Professor stressed was that the banks didn't have to follow the provisions of the CRA; if they had wanted to refuse to do it, which would have been reasonable given the amount of risk involved with some of these loans, then they could have. It was merely being recommended and was not forced on the banks.

However, everyone in the U.S. is a "greedy bastard"; we want to make as much money for ourselves as we can by any legal means necessary. And just in case you think you aren't a "greedy bastard", then that means you don't have your head on straight. I'm a "greedy bastard", we're all "greedy bastards."

Anyway, because of this mentality, the banks wanted to make money off of the sub-prime loans, but they also knew that these loans carried a lot of risk with them because there was a chance that the people they were giving loans to would default on their payments. So they told the government that they would increase their use of sub-prime lending if the government would take the loans off of their hands, which was exactly what Fannie May and Freddie Mac did.

Because of this, the banks could make a lot of money off of these sub-prime loans with no responsibility attached because Fannie May was holding all of the loans instead of the banks themselves. This is where you see the massive increase in sub-prime loans in the past few years.

So in essence, and my Professor was very clear on this, no single entity is responsible for this mess. It wasn't just the government, or the banks, or even just the people who got loans that they couldn't afford.

It was everyone.

I give you a real life example. First American Bank has increased its footprint in the chicagoland area. They have tried to open up branches around chicagoland where they feel would generate depositors and customers. Until they would open a branch in less desirable areas, they would told to stop the expansion. They were required to open up branches in areas that had no growth potential so that they could open up a branch in a more desirable area. The government made them locate a bank in an area that would not be profitable becaus they could. Same with loans, if they did not lend enough to unqualified people, then the government would start pressuring them.

Now that is not to say that mortgage bankers and builders did not benefit in the short run by the additonal home owners but this was a big part of the mortgage bubble.

I understand all of that. I was in no way trying to say that the government was absolved from blame. What I'm merely attempting to get people to understand, and I'm not talking about you specifically klake because both you and NIUSAE are both obviously well-informed about the situation, is that just saying that it's the government's fault for this entire problem is just utterly false.

You're point about the Clinton Administration is exactly what I'm trying to get at. I've heard from several posters to this and other boards that this entire crisis was caused by the blunders of the Bush Administration alone. I'm only trying to explain that one entity didn't cause this entire crisis. It was the flaws of several entities including the govenrment, the banks, and the people that defaulted on loan payments.

BarsemaBone Wrote:First off let's get something straight that I'm not sure everyone here understands. The CRA, or Community Reinvestment Act, was passed in 1977. So to set the record straight, this thing has been around for a long time; its not something new that the Bush, or even the Clinton Adminstration cooked up within the last decade. The CRA's goal was to have mortgages extended to all segments of a community to avoid potential discrimination problems. This was in accordance with the Carter Administration's focus on human and equal rights.

It is correct that it was passed in 1977. However, it was amended directly in 1989, under George Bush, and other related changes were made later, including increased scrutiny of lending practices, during the Clinton administration. The changes made later were made to increase lending to subprimes as stated in the NYT article. Also, CRA scores were made public due to the later changes.

BarsemaBone Wrote:One thing that my Professor stressed was that the banks didn't have to follow the provisions of the CRA; if they had wanted to refuse to do it, which would have been reasonable given the amount of risk involved with some of these loans, then they could have. It was merely being recommended and was not forced on the banks.

It was not merely recommended. Please see the below cut and pasted from the FFIEC.gov website.

The CRA requires that each insured depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities, including mergers and acquisitions. (See CRA Ratings) CRA examinations (see Exam Schedules) are conducted by the federal agencies that are responsible for supervising depository institutions: the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).

BarsemaBone Wrote:Anyway, because of this mentality, the banks wanted to make money off of the sub-prime loans, but they also knew that these loans carried a lot of risk with them because there was a chance that the people they were giving loans to would default on their payments. So they told the government that they would increase their use of sub-prime lending if the government would take the loans off of their hands, which was exactly what Fannie May and Freddie Mac did.

Because of this, the banks could make a lot of money off of these sub-prime loans with no responsibility attached because Fannie May was holding all of the loans instead of the banks themselves. This is where you see the massive increase in sub-prime loans in the past few years.

So, if government wouldn't have committed to buying these loans the banks would not have made them, right? Wouldn't that then indicate if the government wasn't involved, these loans wouldn't have been made?

I agree that there is blame to go around, but government involvement created the whole environment. All the banks did is what the government asked them to do.

IMO, the biggest culprit are the greedy subprime borrowers. Just because a bank is required to make a $300k loan to a subprime borrower doesn't mean the borrower should accept the loan. The subprime borrowers now in foreclosure were ignorant (didn't know better) or irresponsible (knew better, but were greedy) in actually going forward with these loans.

In the words of JFK, "Ask not what your country can do for you, ask what you can do for your country." There are too many people in this country looking to blame the government or business for their individual problems. People need to take responsibility for their own decisions - just because someone else (i.e., the government or business) made a bad decision isn't an excuse for the consumer to make bad decisions. But that's what the "fat cat" consumer does - consume, consume, consume and accumulate debt. The next thing the economy takes a dump and the "fat cats" blame the government for their own individual problems.

50 billion swindled here, a few billion there....so what does it then matter in the financial equation if corrupt, greedy investors, banks and CEOs were knowingly cooking books while consumers and investors with scruples remained in the dark - until the sh!t hit the fan?

Among other duties, the Federal Reserve System supervises and regulates financial institutions. Of course, many of the troubled big banks are in Manhattan. The Federal Reserve Bank of New York is arguably the most important of the 12 Federal Reserve Banks in the United States. Who was the President of District 2 from 2003 to 2009?

For those looking to fiilter the signal from the noise in this post, pay attention to NIUSAE, BarsemaBone and GeorgeBorkFan.

A welcome refreshment from name calling and adhoc attacks

(03-04-2009 02:57 PM)BarsemaBone Wrote:  My professor in my Financial Markets class read us this article from the New York Times today in class.

http://query.nytimes.com/gst/fullpage.ht...A96F958260

What struck me was the date that it was published. Am I the only one who's first reaction to reading this was ?

Bone want to see the POLITICAL CLASS in action....

Political Hacks

Hacks again

..That is just a part of it.....


..

It gets ruff when adhocs begin attacking.

(03-06-2009 01:59 PM)HuskieJoe Wrote:  IMO, the biggest culprit are the greedy subprime borrowers. Just because a bank is required to make a $300k loan to a subprime borrower doesn't mean the borrower should accept the loan. The subprime borrowers now in foreclosure were ignorant (didn't know better) or irresponsible (knew better, but were greedy) in actually going forward with these loans.

In the words of JFK, "Ask not what your country can do for you, ask what you can do for your country." There are too many people in this country looking to blame the government or business for their individual problems. People need to take responsibility for their own decisions - just because someone else (i.e., the government or business) made a bad decision isn't an excuse for the consumer to make bad decisions. But that's what the "fat cat" consumer does - consume, consume, consume and accumulate debt. The next thing the economy takes a dump and the "fat cats" blame the government for their own individual problems.

who is to blame when a homeowner can afford their mortgage, but are completely underwater because their home value is so much less than the actual mortgage? there was a show i think on CNBC on this where a family (in california) pretty much lives in a ghost town just because everyone around them foreclosed except them....

(03-06-2009 10:33 PM)huskiealum03 Wrote:  

(03-06-2009 01:59 PM)HuskieJoe Wrote:  IMO, the biggest culprit are the greedy subprime borrowers. Just because a bank is required to make a $300k loan to a subprime borrower doesn't mean the borrower should accept the loan. The subprime borrowers now in foreclosure were ignorant (didn't know better) or irresponsible (knew better, but were greedy) in actually going forward with these loans.

In the words of JFK, "Ask not what your country can do for you, ask what you can do for your country." There are too many people in this country looking to blame the government or business for their individual problems. People need to take responsibility for their own decisions - just because someone else (i.e., the government or business) made a bad decision isn't an excuse for the consumer to make bad decisions. But that's what the "fat cat" consumer does - consume, consume, consume and accumulate debt. The next thing the economy takes a dump and the "fat cats" blame the government for their own individual problems.

who is to blame when a homeowner can afford their mortgage, but are completely underwater because their home value is so much less than the actual mortgage? there was a show i think on CNBC on this where a family (in california) pretty much lives in a ghost town just because everyone around them foreclosed except them....

If a homeowner can afford his mortgage, how are they underwater?

The homeowner chose to pay an overinflated price for the house - he must deal with the consequences of his decision - probably will need to hold onto it for awhile in order to be able to break even. If he was responsible and can afford his mortgage, he should be able to do this even if he doesn't want to.

It's somewhat sad, but it's reality - the bubble has burst. Overinflated prices are coming back to earth. Those that bought at the top market must assume the risk they took. Those that saw it coming, didn't buy that big house, and saved their money will be in good position to enter the market, as will newcomers to the market who couldn't afford to get into it two years ago.

Not that I don't feel sorry for some homeowners, but they made this deal. I've made bad investments before and no one came and bailed me out. In fact, one stock I bought (this was about 10-15 years ago) went from being $25/share to literally $0.12/share overnight because it turned out they lied on their financial statements - and this was a stock highly recommended in Business Week. Now, I lost only $1,000-$1,500 or something like that, but I'm sure some people lost a hell of a lot more, and no one came to bail us out for our poor investment. Why should my tax dollars now bail out people who've been burned by the market, or bail out businesses who made incredibly poor choices? Where do we stop? Should people who chose career fields where there are too many workers get compensated because if they chose another field they would have made more money? What if they got bad advice from a career counselor?? What happened to personal responsibility????

Yes, I know, some people were scammed - so they should go sue whoever scammed them - the taxpayers - all of US - should not be bailing them out. If we do, where's my cut??? I'm not saying that to be greedy - I'm saying that because it's a fact of life. We all make decisions - some turn out great, some terribly, and most somewhere in between. Did I miss the ad where we can get Government insurance to protect us from our own mistakes?