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Wrong, the cause of this mess was banking industry created derivatives...
With all due respect, you have the cart before the horse. Derivatives spread risk, but they did not create the risk in the first place.
Derivatives came after the government-forced extension of mortgage credit to those at the bottom of the economic ladder
But these actions came go together.
Starting in the early days of 1993, then-Secretary of Housing and Urban Development Henry Cisneros, and his hand-picked lieutenant Roberta Achtenberg who was Assistant Secretary for Fair Housing and Equal Opportunity, correctly saw that individuals at the lowest end of the economic ladder were being left behind in wealth creation.
Two generations ago, the model was more straight-forward: Dad had a job which put food on the table, clothes on the family's backs, and a roof over their head.
By the early 90s, the model had changed. A home was a primary source of wealth for many, and dad's job existed to pay the mortgage while equity-based wealth drove the economic well-being of the family.
And Cisneros & Achtenberg, among many other progressives, saw this as a fundamental sustaining threat to low-income people and especially people-of-color as they were missing out on what was at the time the greatest generator of wealth in the country's history.
So they acted -- that's what progressives do, after all.
They convened government regulators from HUD, the Comptroller of the Currency, the Office of Thrift Supervision, the Fed, and a few other minor federal entities to re-write the regulations that implement the CRA of 1977 -- and specifically they required mortgage originators to extend even more credit to people at the bottom end of the economic ladder and specifically to low-income people-of-color.
The new draft regulations were published - and it was clear that any bank or thrift or mortgage originator who failed to comply with the regulations would be punished severely - they would be prevented from carrying out their business plans, all in the interest of social engineering via mortgage origination.
Banks responded to the draft regulations by saying, in essence, they were already extending credit to everyone who was a qualified credit risk; by extending mortgage loans even farther down the spectrum, they risked extreme losses. The only way banks could comply with these new regulations was by off-loading the assets in new and innovative ways...
... and the securitization of mortgages was born, as was the creation of derivatives of risk, all in an effort to spread the risk of mortgages forced to be given to low-income and especially low-income people-of-color, which of course was an attempt at social engineering.
Quote:
Originally Posted by jimhcom
...The community reinvestment act did contribute to the overall fiasco, but seriously, how far do you think this housing bubble would have expanded if the banks knew they had to keep all the bogus loans they were writing...
You are partly correct. The housing bubble was fueled by the bogus loans that were being written - but they were being written precisely because of governmental regulations requiring them to be written, and securitized because they were bogus.
The government created the moral hazard in the first place through its regulatory framework.
Then banks and everyone else discovered they could make a ton of money doing exactly what the government wanted them to do.
So they did.
The rest is history.
Quote:
Originally Posted by jimhcom
...The banks did not care if the applicants could make their payments or not, because they knew they would not be servicing the loans they were writing....
Prior to the re-write, banks DID care. The banks were forced to write bad loans to comply with the re-write of the regulations implementing the CRA. The regulators WANTED more loans to low-income people and especially low-income people-of-color because they wanted those at the bottom of the economic ladder to participate in wealth formation from home ownership.
Prior to the re-write, banks were already extending mortgage loans to everyone who could reasonably be expected to repay those loans -- but it was not enough for Cisneros, Achtenberg and other activists in HUD.
Quote:
Originally Posted by jimhcom
...They knew they were going to be bundling the bogus loans into CMO's and selling them worldwide to pension funds and mutual funds....
Yes... they were allowed to bundle them only because governmental regulators knew many of these loans were bogus in the first place, originated in response to the governmental requirement that they be created in the first place.
Quote:
Originally Posted by jimhcom
...It was the creation of and the regulations allowing derivatives that caused the bubble and the economic collapse...
The creation of derivatives was a response to the change in the requirement that banks extend more credit to people farther down the economic ladder.
The two go hand-in-hand -- Our Federal Government first (1) required the creation of bogus mortgages, and (2) to keep banks creating these bogus mortgages alive, created the derivatives marketplace.
Quote:
Originally Posted by jimhcom
...The really scary part is that we have not even seen a fraction of the damage that derivatives are going to cause going forward...
I fear you are correct.
Quote:
Originally Posted by jimhcom
...The current amount of derivatives in existence at this time is larger that the entire GDP of the world, and they are almost all based on inflated asset values that make them as Warren Buffet said the weapon of mass destruction of the world wide economy. Stop listening to political motivated radio, and do some real research and find out the whole story...
I am deaf so I don't listen to any radio. I suggest you follow your own advice, however, and ask yourself why the derivatives marketplace came into existence in the first place.
Quote:
Originally Posted by jimhcom
...Start with researching Brooksley Born and how the entire political establishment under the direction of Wall St. prevented her from regulating the derivatives that caused the disaster.
Derivatives came after the government-forced extension of mortgage credit to those at the bottom of the economic ladder
Government-forced extension of mortgage credit was small potatoes. The problem loans were not forced.
You seem to know a great deal about the CRA, except for what is most important: its size relative to the overall mortgage market of 04-06.
I think you are confusing CRA and subprime. CRA was a relatively small group of forced loans. Subprime was a HUGE group of loans that the financial industry created under its own free will.
With all due respect, you have the cart before the horse. Derivatives spread risk, but they did not create the risk in the first place.
Derivatives came after the government-forced extension of mortgage credit to those at the bottom of the economic ladder
But these actions came go together.
Starting in the early days of 1993, then-Secretary of Housing and Urban Development Henry Cisneros, and his hand-picked lieutenant Roberta Achtenberg who was Assistant Secretary for Fair Housing and Equal Opportunity, correctly saw that individuals at the lowest end of the economic ladder were being left behind in wealth creation.
Two generations ago, the model was more straight-forward: Dad had a job which put food on the table, clothes on the family's backs, and a roof over their head.
By the early 90s, the model had changed. A home was a primary source of wealth for many, and dad's job existed to pay the mortgage while equity-based wealth drove the economic well-being of the family.
And Cisneros & Achtenberg, among many other progressives, saw this as a fundamental sustaining threat to low-income people and especially people-of-color as they were missing out on what was at the time the greatest generator of wealth in the country's history.
So they acted -- that's what progressives do, after all.
They convened government regulators from HUD, the Comptroller of the Currency, the Office of Thrift Supervision, the Fed, and a few other minor federal entities to re-write the regulations that implement the CRA of 1977 -- and specifically they required mortgage originators to extend even more credit to people at the bottom end of the economic ladder and specifically to low-income people-of-color.
The new draft regulations were published - and it was clear that any bank or thrift or mortgage originator who failed to comply with the regulations would be punished severely - they would be prevented from carrying out their business plans, all in the interest of social engineering via mortgage origination.
Banks responded to the draft regulations by saying, in essence, they were already extending credit to everyone who was a qualified credit risk; by extending mortgage loans even farther down the spectrum, they risked extreme losses. The only way banks could comply with these new regulations was by off-loading the assets in new and innovative ways...
... and the securitization of mortgages was born, as was the creation of derivatives of risk, all in an effort to spread the risk of mortgages forced to be given to low-income and especially low-income people-of-color, which of course was an attempt at social engineering.
You are partly correct. The housing bubble was fueled by the bogus loans that were being written - but they were being written precisely because of governmental regulations requiring them to be written, and securitized because they were bogus.
The government created the moral hazard in the first place through its regulatory framework.
Then banks and everyone else discovered they could make a ton of money doing exactly what the government wanted them to do.
So they did.
The rest is history.
Prior to the re-write, banks DID care. The banks were forced to write bad loans to comply with the re-write of the regulations implementing the CRA. The regulators WANTED more loans to low-income people and especially low-income people-of-color because they wanted those at the bottom of the economic ladder to participate in wealth formation from home ownership.
Prior to the re-write, banks were already extending mortgage loans to everyone who could reasonably be expected to repay those loans -- but it was not enough for Cisneros, Achtenberg and other activists in HUD.
Yes... they were allowed to bundle them only because governmental regulators knew many of these loans were bogus in the first place, originated in response to the governmental requirement that they be created in the first place.
The creation of derivatives was a response to the change in the requirement that banks extend more credit to people farther down the economic ladder.
The two go hand-in-hand -- Our Federal Government first (1) required the creation of bogus mortgages, and (2) to keep banks creating these bogus mortgages alive, created the derivatives marketplace.
I fear you are correct.
I am deaf so I don't listen to any radio. I suggest you follow your own advice, however, and ask yourself why the derivatives marketplace came into existence in the first place.
To say that derivatives came about as a result of regulation is simply not true.
Derivatives were originated long before the legislation you site. They began trading in 1973, so if someone is putting the cart before the horse, it is you.
The financial industry was the driving force behind the very legislation you are railing about. If you are interested in finding the truth, which I doubt seriously you are, follow the money. It always leads to the truth.
In a study done by the IMF http://www.google.com/url?sa=t&sourc...hPikGg&cad=rja they stated
"For example, Citigroup lobbied intensively against H.R. 1051 -- Predatory Lending
Consumer Protection Act of 2001 (for example, it spent $3 million over January-June 2002),
which aimed to put tighter restrictions on lenders (see appendix for more details on the bill),
and this was never signed into law. Indeed, during 1999-2006, 93 percent of all the bills
promoting tighter regulation were never signed into law. Importantly, two key pieces of
legislation to promote lax lending in mortgage markets -- American Homeownership and
Economic Opportunity Act of 2000, and American Dream Downpayment Act --- were in fact, signed into law."
Gee, kind of blows your whole diatribe about the poor banks being forced by the mean old government out of the water, doesn’t it.
The government is not an independent entity. It does what lobbyist who are representing industries looking to make money pay it to do.
The question always boils down to who wants to make the money, and how will this legislation help them to do so.
To suggest that the government would enact legislation to help the poor, without it in some way making money for the lobbyists that finance their elections is ludicrous. It is completely contrary to the way Washington works.
But I do want to thank you for the opportunity to educate some of the readers on this forum on the subject that has been so misrepresented by people like yourself.
The problem with trying to justify lies is, in the end when all the information is known, they just don't make sense.
A bunch of unemployed socialists, go figure.
What do they want a hand out for doing nothing but complaining.
Why don't they move to a socialist country?
Why?
Because they like what capitalism has given them.
Or maybe it's just them.
Have you seen the dirt bags that are protesting?
Who would hire them?
Young and dumb & with no life experience.
frustrated with nothing else to do.
Sheeple.
jmo
If you had a clue... you would realize what they are protesting against if fascism.
Do you call collusion between the corporations and the government to break the law and steal money capitalism?
Sounds more like fascist, socialism to me.
Do you think collusion between the government and corporations to take power from the citizens, and concentrate it with the government and the corporation’s capitalism? Do you think the voters should be overpowered by the spending of the wealthy corporations?
Kind of sounds like fascism to me.
Perhaps the protesters are the patriotic Americans, and their critics who are the dirt bag socialists and facists.
True, but it's not enough. We need to rebuild the system by severing legislature from corporate $$$$ influence. Lobbying is legalized bribery.
Also true. And as that influence is controlling both parties, the instantaious spate of "hippy" comments serves to continue it as it distracts from the REAL issue. So long as we can don't look at the man behind the curtain, we can pretend he isn't there.
Quick question for all you protester types - Why are you only protesting on Wall Street and not Detroit? GM and Chrystler took billions just like the banks and laid off tons of workers, so why not protest there too?? At least the big bailed out banks paid the bailout money back. GM and Chrsytler still owe us money right? Why is everyone only mad at banks?
the auto bailouts have been mostly paid back, and the companies have started hiring and committed to re-opening more factories. i disagreed with bailing them all out how we did it, but they'll slowly fade anyways as other companies replace them if they do not wake up.
This kind of reasoning is almost infantile. Some people are so determined to "get even with the banks" they fail to see what an out-an-out catastrophe would have taken place.I think you are so concerned about the fact that things aren't ideal for you right now that you've lost sight of the big picture. If the whole banking system had been allowed to collapse here are just a few things that would have likely happened:
1. Businesses would have been unable to pay their workers.
2. Stores would have been unable to sell to anyone without cash.
3. People without food storage would have literally gone hungry.
4. Businesses wouldn't have laid off 9% of their workforce. It would have been maybe one third to one half their labor force.
5. The rest of the world would have totally lost confidence in this country. Our dollar might have become a worthless currency. Right now, despite our problems its holding up well against the Euro, the British Pound, and the Canadian Dollar.
Do your realize that hungry people would probably riot? The store owners would have been left with the choice of letting looters take their whole inventory or resorting to shooting and killing them.
It was a nightmare scenario. It took bold, controversial action by leaders from both political parties to stop it. Of course you disagree with it. You have the luxury of hindsight.
it's not the action taken that many disagree with, but the implementation of said action. there was no oversight, and in the end, it's showing to not have been very effective. i think it's unreasonable to assume something could have been done to prevent unemployment increasing, but with everything that happened, there should be some penalties to those involved.
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