From who did Obama "inherit" the economic mess?

[fishpoopoo]

Spence you're not listening.

Sub prime and CRA were the beginnings of the dumbing down of lending standards that contributed to this mess.

If you include everything done in the name of AFFORDABLE HOUSING policies, you would see how we got here.

Sub prime got the ball rolling for reduced down payment or no down payment loans, and reduced documentation loans, ALL of which were government creations in the wake of CRA.

CRA created moral hazard. If the federal government could force banks to lend to deadbeats and then GUARANTEE subprime loans, then why couldn't EVERYONE ELSE get hust as good of a deal?

Sub prime issuance was small relative to other products, but sub prime failures via the failure of two Bear Stearns hedge funds were the catalysts for the credit crisis.
Posted from my iPhone/Mobile device

[scottw]

once upon a time....

car repair shops were doing business in brake repair the way they'd always done and then one day a government official stopped in and told them that "too many people couldn't afford to have their brakes done" particularly in certain areas and that the car repair shops were going to be required to do brake jobs for much, much less, "we like to call it the CRA (Car Repair Act)", he said...the car repair shop was wondering how they could stay in business with these regulations and the government official told them that they could use much cheaper materials and parts and less qualified workers....the car repair shop said " that might not be safe and we can't guarantee the quality" but the government official said "don't worry, we'll stand behind you and guarantee your work as long as you go by our new guidelines", "just bundle your traditional warrantees together with your "newly improved" warrantees and send them along to our pseudo-government agency Freaky Mac..and we'll take care of everything"....well...years went by and the car repair shop did a brisk business and other brake specialty shops opened up doing the same and soon suppliers, repairers and everyone(even Freaky Mac through various book cooking exploits), involved profited greatly by being able to use the inferior materials and service to repair brakes not just on the cars in certain areas but on most cars and some really smart Ivy League grads invented even newer ways to fix brakes with cheaper materials, everyone was getting their car's brakes fixed for practically nothing and the business grew exponentially although some members of Congress were growing concerned about what they saw going in the braking business...they were told that there was no problem with the braking business and that the braking business regulators should be replaced(get it?) because they were racists.... and that removing the braking system from the list of things to check during an inspection would be a splendid idea....sadly, it soon became apparent that brake sysyems everywhere were failing and many, many people were dying in car accidents from failed brake systems....the government blamed the car repair shops, the shops blamed the government and their suppliers...the suppliers blamed the repair shops and the government...

and Spence claimed that the CRA had absolutely nothing to do with it

brakes fixed through the CRA(Car Repair Act) represent only a tiny number of deaths or brake failures compared to the the overall number of deaths or brake system failures attribute to changes in the way business was done and so therefore the CRA had no role in the ultimate overall failure of the braking systems....

[spence]

Originally Posted by fishpoopoo

Spence you're not listening.

Sub prime and CRA were the beginnings of the dumbing down of lending standards that contributed to this mess.

If you include everything done in the name of AFFORDABLE HOUSING policies, you would see how we got here.

Sub prime got the ball rolling for reduced down payment or no down payment loans, and reduced documentation loans, ALL of which were government creations in the wake of CRA.

CRA created moral hazard. If the federal government could force banks to lend to deadbeats and then GUARANTEE subprime loans, then why couldn't EVERYONE ELSE get hust as good of a deal?

The data seems to indicate that when properly regulated this wasn't the case. In fact as I've noted, even in the run up to the crisis CRA regulated sub-prime loans weren't the problem.

The "slippery slope" argument is dubious as it ignores the regulatory side of the equation. Sub-prime isn't evil, but when firms like Countrywide run wild there's a problem. Mortgage backed securities aren't evil, but when they're sent into a derivative black hole there's a problem.

Interestingly enough, the most detailed study of this mess has just been completed.

http://www.nytimes.com/2011/01/26/bu...uiry.html?_r=1

While there's plenty of predictable blame to go around, here's on line that stuck out...

The report does knock down — at least partly — several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.

Should make for some interesting reading.

-spence

[fishpoopoo]

Originally Posted by spence

The data seems to indicate that when properly regulated this wasn't the case. In fact as I've noted, even in the run up to the crisis CRA regulated sub-prime loans weren't the problem.

The "slippery slope" argument is dubious as it ignores the regulatory side of the equation. Sub-prime isn't evil, but when firms like Countrywide run wild there's a problem. Mortgage backed securities aren't evil, but when they're sent into a derivative black hole there's a problem.

Interestingly enough, the most detailed study of this mess has just been completed.

http://www.nytimes.com/2011/01/26/bu...uiry.html?_r=1

While there's plenty of predictable blame to go around, here's on line that stuck out...



Should make for some interesting reading.

-spence

Spence, that is a political document.

The sad thing is, regulators won't pay heed to that report. They can ignore it, because, it is a political document.

All the bad loans came from somewhere, and if you bothered to even see where a few of them came from and what kind of loans they were, regardless of subprime or prime credit, you'd have a clue.

But nobody bothers to do their own work anymore.

[spence]

Originally Posted by fishpoopoo

Spence, that is a political document.

The sad thing is, regulators won't pay heed to that report. They can ignore it, because, it is a political document.

All the bad loans came from somewhere, and if you bothered to even see where a few of them came from and what kind of loans they were, regardless of subprime or prime credit, you'd have a clue.

But nobody bothers to do their own work anymore.

I got tired of all these economists saying the same thing so I figured we'd give the politicians a try

What's most interesting are the dissenting opinions. The bulk of the Republican dissent (aside from Wallison who seems to think the market can do no wrong, guess that's why he works for the AEI) was that they felt the global nature of the credit bubble wasn't adequately included in the main findings. I didn't see any mention of the CRA in their dissent either.

I actually think the Republican dissent is more on the mark than the main findings. All together it's a pretty good look at how this happened.

Remember, the context of the discussion is how Liberal policy caused the crisis...The government forcing banks to make loans to dead beats remember? I still haven't seen any data that really backs this up...I guess I just don't have a clue.

-spence

[scottw]

Originally Posted by spence

Remember, the context of the discussion is how Liberal policy caused the crisis...The government forcing banks to make loans to dead beats remember? I still haven't seen any data that really backs this up...I guess I just don't have a clue.

-spence

can't argue with the last part...


by government forcing banks to change their established lending practices and standards for more "liberal" lending...and eventually encouraging the same be applied through the rest of the industry....

"Countrywide tends to follow the most flexible underwriting criteria permitted under [Government Sponsored Enterprises] and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria. Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the [Government Sponsored Enterprises] programs. Countrywide uses nontraditional credit, a practice now accepted by the [Government Sponsored Enterprises].

Given these lending practices mandated by the Fed and encouraged by Fannie Mae and Freddie Mac, the resulting financial problems for financial institutions such as Countrywide and Bear Stearns are not too surprising.

[fishpoopoo]

Originally Posted by spence

I still haven't seen any data that really backs this up...I guess I just don't have a clue.

-spence

You haven't seen any of the data, period.

Get your facts and timelines correct, first.

Read the actual source documents for the articles you cut and paste with a jaundiced eye.

Have you even read the 500+ pages that constitute the latest congressional report?

Probably not.

[RIJIMMY]

Originally Posted by fishpoopoo

Spence you're not listening.

]

you could have ended your post there.

[spence]

Spence said...

Feel free though to actually provide a counter argument for specific points rather than just flip petty insults. I think this topic is pretty well documented already and I'm always up to gain another perspective.

Bump...

-spence

[justplugit]

At this point does it matter who's fault it is, except to
learn from the past ?

Point is he has had 2 years to fix it, but chose to spend his
time pushing his HC agenda.

[fishpoopoo]

Originally Posted by justplugit

At this point does it matter who's fault it is, except to learn from the past ?

By unofficial counts, there were about three dozen strategists, pundits and wordsmiths who visibly called the credit crisis before it happened. I am privileged to be one of them, although I don't put myself in the same category of a publishing market strategist.

I do this sort of stuff for a living. Generally, if you can predict something to happen, with any degree of accuracy, you have a pretty good idea of what caused it to happen, regardless of what other people might be thinking or speculating after the fact.

Of the rabble (bankers and politicians) who don't like to have fingers pointed at them ... I quote Lord Keynes, who for once said something sensible:

A sound banker (or politician), alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.

Translation: "We didn't see it coming, everybody else didn't see it coming, so ya can't blame us because it happened."

For the love of God, folks, wake up. First rule of investing is ... don't lose money.

I'll quote a seasoned portfolio manager, a genuine stock market pro with decades of experience, with whom I had the privilege of having lunch with last week:

Folks nearing retirement age who bailed on the stock market when it blew up in '08 ... will NEVER earn their money back.

Let that sink in.

[justplugit]

All great points FPP, and ones for all to learn from.

"Folks nearing retirement age who bailed on the stock market when it blew up in '08... will NEVER earn their money back."

Decisions made on emotion almost never work out.