From who did Obama "inherit" the economic mess?

[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.

[spence]

Originally Posted by scottw

can't argue with the last part...

Glad we can agree on something.

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....

That's a gross and misleading oversimplification.

The data shows is that a very small % of sub-prime lending can be attributed to the CRA, and even then, those loans didn't perform all that badly. Programs under the guise of "affordable housing" encouraged by both the Left and the Right certainly worked to lower standards to extend credit, but the data doesn't reflect a substantial negative impact to the overall system. If anything it actually increased home ownership which I'd think was a good thing.

That's not to say that deteriorated lending standards weren't a massive part of the problem...quite to the contrary...low rates and a demand for the mortgage backed securities started to drive the number of loans, but at the risk of increased defaults the products changed and we saw the explosion of ARMs with ultra low or no interest rates. This made it easy for anyone to get a loan that they could probably make payments on...at least long enough for the warranty to the underwriter to expire.

This deterioration in lending standards really didn't start until 2002 and combined with the other factors previously discussed led to the blow up...again, mostly of adjustable rate loans originated in just the last few years before the crisis. Affordable Housing mandates might have helped to build some of the infrastructure, but I've still yet to see any real data or thoughtful analysis that shows it was a signification contributor when put in context with the other factors.

"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].

I would expect any business to do what it can within the law to create shareholder value. That firms like Countrywide did it in such a reckless manner would seem to put the blame on them first and foremost.

-spence

[Piscator]

Originally Posted by spence

Glad we can agree on something.

I would expect any business to do what it can within the law to create shareholder value. That firms like Countrywide did it in such a reckless manner would seem to put the blame on them first and foremost.

-spence

The fault lies with the people who took out the crazy loans. They are the ones accountable as they are the ones that signed the loan/contract.
I agree that lending standards were lowered way too much by the banks and also agree that banks didn't have had the best "business practices". They didn't look out for the people but do any banks really do that with all the ATM fee’s, hidden charges, etc? All of that aside, they didn't actually FORCE anyone to take out these loans. Anyone who took a hour of their time and looked into what these loans were and how they were structured (risks involved) before signing them should have been smart enough to figure out that it was a gamble to say the least. Now they don’t want to be held accountable for their gamble.
I feel the responsible folks out there who educated themselves before making the “largest purchase of their life” and did the right thing are now stuck paying for the “poor me” people who won’t take responsibility but turn all of the blame on the banks.
Makes me shake my head whether it's a house, car, boat etc when people are only interested in "the monthly payment" but don’t look at the other details.

PS. I can't spell, this site needs SPELL CHECK

[spence]

Originally Posted by Piscator

The fault lies with the people who took out the crazy loans. They are the ones accountable as they are the ones that signed the loan/contract.

I think we'd all agree that personal responsibility was a large contributing factor...as was predatory lending.

PS. I can't spell, this site needs SPELL CHECK

Get Firefox, spell check is built in and works pretty well.

-spence

[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.

[spence]

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

[fishpoopoo]

Originally Posted by spence

As for actual data, I'm not qualified for analysis of raw numbers nor do I have the desire to make it a science project.

Then you have not earned the right to definitively adjudicate on the subject matter.

All you have is your opinion based on others cut and pastes.

Having said that, it doesn't take a rocket scientist to figure this all out, if you have the patience to weave through all the data and the gov't publications.