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Old 09-28-2008, 09:45 AM   #1
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And who is at fault?

Want to know about the banking problems and who is at fault?

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Old 09-28-2008, 10:22 AM   #2
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The FOX News report doesn't say who's at fault, it only reports on one facet of the problem.

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Old 09-28-2008, 11:28 AM   #3
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I was listening to some of the WaMu offerings,

An ARM that had several payment options each month.

Full payment,
Interest only,
minimum payment.


The min payment was less than the interest only so that the payee at the end of the month owed more than what they started with.

I also heard of serveral, bad credit loans, that if you missed a payment added 25 pct to the payment, as the result of the increase in interest, the 1st month, another 50 pct the next month.
The loan started at 1250 per month at the end the payee owned 4500 per month!!!

amazing,
It's deregulation at it's finest.
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Old 09-28-2008, 11:37 AM   #4
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I remember reading in the Wall Street Journal last year of the family in California with a $90,000 household income who was given a $560,000 interest only variable rate loan. The interest payment alone was $3,500 a month...

The root of this problem though, isn't the size of Fannie and Freddie...nor Barny Frank I'm sorry to have to tell you, but rather how the financial companies gamed the system so they wouldn't have to keep capitol on hand to cover these debts if they defaulted, and the frenzy that followed as everyone wanted to cash in on this hot commodity.

These "credit default swaps" as I've come to learn were completely unregulated by the us government and had grown to a $60+ TRILLION market.

The lenders that are crashing first were heavily invested in this scheme, and they probably deserve to die, but not at the expense of our entire economy.

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Old 09-28-2008, 11:43 AM   #5
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DODD
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Old 09-28-2008, 12:14 PM   #6
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I'm sorry to have to tell you, but rather how the financial companies gamed the system so they wouldn't have to keep capitol on hand to cover these debts if they defaulted, and the frenzy that followed as everyone wanted to cash in on this hot commodity.

These "credit default swaps" as I've come to learn were completely unregulated by the us government and had grown to a $60+ TRILLION market.

The lenders that are crashing first were heavily invested in this scheme, and they probably deserve to die, but not at the expense of our entire economy.

-spence

maybe somebody, likwid, whoever, can tell me how this works

http://en.wikipedia.org/wiki/Credit_default_swap
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Old 09-28-2008, 01:44 PM   #7
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I want to know the names of everyone,no matter who or what the party,
had a hand in the deregulation causing this mess.

Like to see everyone involved voted out of office to send a message that there will be accountability.

I understand there were 2 bills submitted and voted down in 2001 and 2003 that would have added back more regulation.

Who and why?

" Choose Life "
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Old 09-28-2008, 03:43 PM   #8
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Here is the crappy thing. Many people took out interest only arm's as a gamble thinking in 3-5 years their house value would increase 50-100 thousand and they would sell and cash in. They new what they were doing, took a gamble, got spanked and now we are all paying the price for it. I was working in a new development in Hingham once. The houses were decent colonials. I asked the guy running the show how much they were going for? He told me $700 + , I said to him who the hell can afford that? He said alot of young couples taking interest only ARM's for 5 years, banking that the value would go up and then they would sell. Many of them lost their shirts.


The banks took a gamble and also lost. Now we are bailing them all out. I lost thousands on a stock, do you think the gov. would bail me out and give me some coin.

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Old 09-28-2008, 04:37 PM   #9
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maybe somebody, likwid, whoever, can tell me how this works

http://en.wikipedia.org/wiki/Credit_default_swap
Wow, you nearly need a finance degree to understand that.

Based on my understanding, basically what these are is like insurance for the lender. Someone else would agree to pay the loan if it went into default, and in return would get a monthly payment for the liability they were burdened with.

As the lender now had backup if the loan went bad, they could take the capital that government regulations said they needed to protect the loan, and invest it somewhere else.

The problem is, that the regulations are to ensure you can cover a % of loans if they go bad. The credit default swaps allowed a way around this, but the risk is now so obfuscated that nobody really knows where it is.

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Old 09-28-2008, 04:57 PM   #10
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The credit default swaps allowed a way around this, but the risk is now so obfuscated that nobody really knows where it is.

-spence[/quote]

Right,
nobody knows how good or bad it really is as they can't reconcile the total offering.

Amazing
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Old 09-29-2008, 11:07 AM   #11
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you guys are thinking too much.
The message is simple

Barney Frank = bad
John McCain = good

do I have to spell out everything for you guys?

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Old 09-29-2008, 11:49 AM   #12
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you guys are thinking too much.
The message is simple

Barney Frank = bad
John McCain = good

do I have to spell out everything for you guys?
That certainly is what the FOX News piece is attempting to assert.

It's too bad the real problems are so complicated that none of us are really equiped to understand them and know if our leadership is doing the right thing.

-spence
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Old 09-29-2008, 12:07 PM   #13
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Let them fail?

Cool.
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Old 09-29-2008, 10:49 PM   #14
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Quote:
Originally Posted by striperman36 View Post
maybe somebody, likwid, whoever, can tell me how this works

http://en.wikipedia.org/wiki/Credit_default_swap
Grab a cup of coffee and read this: http://accruedint.blogspot.com/2007/...-cds-work.html

And the comments.

More of less his explanation like an insurance policy is a VAST simplification but accurate.

There's no money to pay out the policy.

Honestly, I want to see the hedgefunds all crash hard and regulations put back in place. They need to be cleared out and the system set back a few years. This was predicted during the dotcoms that sooner or later it'd all come crashing down. People were loaning money like it was going out of style, they came down, it stopped (briefly) then started up all over again.

Honestly crap will sort itself out, we'll go back to freaking out about oil. Green energy will be the place to pour money into (already is... drive by TPI some time... they're turning out blades more than boats) and it'll hit a critical mass and come crashing down.

Last edited by likwid; 09-29-2008 at 10:57 PM..

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Old 09-30-2008, 09:30 AM   #15
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Looks like the regs were for mortgage lending were eased under Klinton. You see it's good for votes to take care of those who can't take care of themselves...





eptember 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

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Old 09-30-2008, 09:58 AM   #16
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Looks like the regs were for mortgage lending were eased under Klinton. You see it's good for votes to take care of those who can't take care of themselves...
Blaming this on Clinton demonstrates a lack of understanding of the problem...

Yes, easing lending rules certainly contributed to the issue, but Greenspan's monetary policy, credit default swaps, removing the barriers between lenders/investment houses/insurance, mark to market, greed, probably some illegal activity, etc... all got us to where we are.

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Old 09-30-2008, 10:54 AM   #17
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Blaming this on Clinton demonstrates a lack of understanding of the problem...

Yes, easing lending rules certainly contributed to the issue, but Greenspan's monetary policy, credit default swaps, removing the barriers between lenders/investment houses/insurance, mark to market, greed, probably some illegal activity, etc... all got us to where we are.

-spence
Actually Spence is right. It wasn't all Clinton's fault. Jimmy Carter actually got the ball rolling with the Community Revinestment Act (CRA) which required banks to lend to poor, unqualified candidates in urban areas and "redlined" or prohibited wealthier borrowers fro participating. It wasn't until 1993 when Clinton increased access to mortgage money for poorer and distressed communities relaxing the CRA's standards even more.

Couple that with two decades of that horrendous lending practice with the ineptitude of leaders like Barney Frank who systematically denied any problems with Fannie or Freddie. Sprinkle in the requisite corporate greed, CEO payoffs and politicians taking cash "donations" from these same companies they are now assailing... voila...Mortgage Meltdown.

The charm of fishing is that it is the pursuit of what is elusive but attainable, a perpetual series of occasions for hope. ~John Buchan
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Old 09-30-2008, 11:09 AM   #18
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Are you forgetting that President Bush worked also to expand homeownership to lower income families as part of his pledge to create an "ownership society"?

And how about the markets who found a way to make money off of these sub-prime loans like they were investment grade stocks? So much of the problem here is that they don't know where the risk is anymore.

Like I said, there's a lot of blame to go around.

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Old 09-30-2008, 11:36 AM   #19
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Specialist - Here's the point you're missing from your quote. " Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped."
Note that we're talking about 1 point above market rate,fixed rate, 30 year products..generally with a 5% d.pmt. requirement and debt ratio's that are slightly above the standard 1/3 of gross for housing expense. This is not the "standard" for the types of loans that are currently in default and foreclosure...typically an adjustable rate starting off as below market and escalating according to terms & conditions. The major problem hit when Mortgage backed securities became an investment option (deregulation) and this coincided with the big escalation in the housing market...not some dinkey little HUD demo program.
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Old 09-30-2008, 11:58 AM   #20
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New McCain ad....

Bubba agrees with the Repubs.


The charm of fishing is that it is the pursuit of what is elusive but attainable, a perpetual series of occasions for hope. ~John Buchan
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Old 09-30-2008, 12:49 PM   #21
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New McCain ad....

Bubba agrees with the Repubs.
You're citing a McCain ad as supporting evidence?

-spence
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Old 09-30-2008, 02:18 PM   #22
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The point is that the Dems pushed for it to start. Once it started it steam rolled. Frank, and Schumer wanted no oversight, when others had pushed for it. The banks, and investment firms pushed the envelope, this is why we need strict regulation, and oversight.

Had there been some oversite on these guys do you think it would have gotten this bad.

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Old 09-30-2008, 02:23 PM   #23
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there has been 8 years of oversight. money grubbing, get it now while you can kind of oversight...
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Old 09-30-2008, 03:28 PM   #24
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Actually Spence is right. It wasn't all Clinton's fault. Jimmy Carter actually got the ball rolling with the Community Revinestment Act (CRA) which required banks to lend to poor, unqualified candidates in urban areas and "redlined" or prohibited wealthier borrowers fro participating. It wasn't until 1993 when Clinton increased access to mortgage money for poorer and distressed communities relaxing the CRA's standards even more.

Couple that with two decades of that horrendous lending practice with the ineptitude of leaders like Barney Frank who systematically denied any problems with Fannie or Freddie. Sprinkle in the requisite corporate greed, CEO payoffs and politicians taking cash "donations" from these same companies they are now assailing... voila...Mortgage Meltdown.
Nope. Still not understanding the problem. The idea that it is all created by long-departed Democrats with a "sprinkling" of corporate greed is just spin to try the make the mess stick only to Democrats. Someone's been getting their briefings from AM radio by the sound of it. The proportion of mortgages that are not performing is bad, but not fatal by itself. If it were just that, banks and brokerages would be retrenching and building up capital, not vanishing utterly with a popping sound. Mortgages, good and ill, have been repackaged, sliced and diced in an awful lot of ways and those parts and packages, many of which may actually pay in the end, have become illiquid.

You don't make it to stardom in the financial world by making money for your institution. You make it by making more money for your institution than the other guy is making for his. The pressure to identify angles, inefficiencies and arbitrages is serious and the rewards if you do are staggering. So people sell a billion of this and buy a billion of nearly identical this, certain they're right about the latter being worth a shade more than the former. An awfully large proportion of financial crises consist in people being right, or only a little wrong, about the value of the two sides of their trade, but oblivious to the liquidity of one side. My understanding is, that's what's happening now.

If this were about a mortgage hangover from the Carter or Clinton administrations, nationalizing the mess would be a lot cheaper and quicker. The institutions involved would make the claim that "you made us issue these crap mortgages; now you can clean it up." That's not the problem. Nobody forced these guys to shove bizarre ARMS on everybody as hard as they could, to insure them and securitise them the way they did or to screw up their balance sheets the way they did. These are what M. Lewis called "big swinging d***s" who thought they knew everything and were wrong. Did you read about the AIG unit that sank that company? They thought they found a way to mint money and they were running the presses day and night. At no point was Jimmy Carter twisting their arm to force them to do credit default swaps or whatever the hell they were doing.
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Old 09-30-2008, 03:45 PM   #25
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for an explanation of the problem, go to the scuppers and look for Hoopers link to the NPR episode. It gives a brillaint overview of the issue, purely focsuing on the mortgage backed investments which where the primary driver. I do believe that this is complicated by the Freddie/Fannie issue, but thats not the sole driver.

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