Let's see some real facts here. Out of the total $700 billion bail-out, how much is for bad ACORN loans?
a HUGE number of these loans went to house flippers, and ACORN does not assist them at all.
Typically, a house gets flipped twice and the first two make out like bandidos. Flipper number three usually has to do some fixing up to get the loan and then finds that finding tenants that actually pay the rent are hard to find and those that don't are harder than hell to evict, and leave behind a mess to clean up.
That whole article's a crock a shit. If anyone wants to point a finger, point it at McCain's economic adviser Phil Gramm, who advocated and pushed through the deregulation of the industry that made the whole greedfest possible.
"'We want more people owning their own home. There's nothing like saying this home is my home,' Bush said, adding: 'I've called on private-sector mortgage banks and banks to be more aggressive about lending money to first-time home buyers. And the response has been really good.'
"During an October 2004 speech to the National Association of Home Builders, Bush talked about his administration's record on encouraging homeownership -- including a proposal to allow first-time buyers to make no down payment. He cast the effort as part of an 'ownership society' that would also include health-care and retirement accounts."
| The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk. Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared. |
| - The Federal Reserve. The original sin of this crisis was easy money. For too long this decade, especially from 2003 to 2005, the Fed held interest rates below the level of expected inflation, thus creating a vast subsidy for debt that both households and financial firms exploited. The housing bubble was a result, along with its financial counterparts, the subprime loan and the mortgage SIV. [...] - Banking regulators. In the Beltway fable, bank supervision all but vanished in recent years. But the great irony is that the banks that made some of the worst mortgage investments are the most highly regulated. The Fed's regulators blessed, or overlooked, Citigroup's off-balance-sheet SIVs, while the SEC tolerated leverage of 30 or 40 to 1 by Lehman and Bear Stearns. [...] Meanwhile, the least regulated firms -- hedge funds and private-equity companies -- have had the fewest problems, or have folded up their mistakes with the least amount of trauma. All of this reaffirms the historical truth that regulators almost always discover financial excesses only after the fact. [...] - The Community Reinvestment Act. This 1977 law compels banks to make loans to poor borrowers who often cannot repay them. Banks that failed to make enough of these loans were often held hostage by activists when they next sought some regulatory approval. Robert Litan, an economist at the Brookings Institution, told the Washington Post this year that banks "had to show they were making a conscious effort to make loans to subprime borrowers." The much-maligned Phil Gramm fought to limit these CRA requirements in the 1990s, albeit to little effect and much political jeering. |
The reason banks loaned to subprime borrowers was that they got a much higher interest rate. They were not worried about defaults, because they bundled these into derivatives and sold them to other banks.
No one said it was limited to that, least of all me. In point of fact, I said just the opposite. So this criticism is irrelevant.
<< . . . these two mortgage lending institutions [Fannie and Freddie] are at the center of the crisis. >>
Centre of the crisis, left field of the crisis, third base of the crisis - - BFD. This collapse is not even close to being limited to Fannie and Freddie.
Indeed. Good thing no one did that.
Blaming this all on two federal entities is like picking out two locusts in a swarm and claiming "THERE'S the problem, them two in the 2,398th and 2,399th positions in the 10,832rd line of the swarm."
So because it's been around for 70 years there must not be any inherent problem with it? Don't be ridiculous. No one said their part in the crisis doesn't stem from more recent events. You're again criticizing something no one argued. And no, this theory does not ignore similar fates by other lenders. And all this is made clear by the next part of the quote. So what you've done is ignored the context of three sentences and made bogus criticisms about them.
<<The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.>>
Which Fannie was apparently able to hide for about 70 years and Freddie for only about half as long. Anyone with half a brain has to be able to figure out that their problems are of much more recent origin. Moreover this absurd theory completely ignores the identical fates of similar lenders and investors whose debts were NOT implicitly or explicitly guaranteed by the Federal Government.
Not at all. You make up the most marvelously generalized nonsense. This is hardly a failure of the capitalist system. This is, in point of fact, the capitalist system doing what it should do to correct for bad choices made by government and those in the lending institutions themselves. I am constantly astounded that people think capitalism and/or the economy is supposed to forever exist in some ideal state where nothing bad ever happens. Anytime something bad does happen, suddenly it's a failure of capitalism and a need for more regulation. Which is complete nonsense.
<<Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.>>
Congress PUSHED to have the restrictions loosened on sub-prime lending? Seems to me there was some lobbying going on by the lenders themselves to be free of irksome Federal government restraints on their lending practices. Besides, the absence of restraints does not shift the blame for the foolish decisions made by the lenders once their restraints were loosened. Corporations remain profit-making institutions and their officers and directors remain responsible only to their shareholders for maximising corporate profits. While some blame for the failure of tightly-regulated private corporations can be assigned both to the corporate management AND the regulators, in a loosely regulated business environment, blame for failure becomes obviously more concentrated on management than on the Federal regulators. The failure of the credit-granting institutions in America today is a failure of the capitalist system, not a failure of government regulation.
No one said it excused faulty judgment on their part. That doesn't alter the effect of the Federal Reserve on the economy. People make choices within the economy as it is, not as it might be.
<<http://online.wsj.com/article/SB122204078161261183.html?mod=special_page_campaign2008_mostpop
- The Federal Reserve. The original sin of this crisis was easy money. For too long this decade, especially from 2003 to 2005, the Fed held interest rates below the level of expected inflation, thus creating a vast subsidy for debt that both households and financial firms exploited. The housing bubble was a result, along with its financial counterparts, the subprime loan and the mortgage SIV.>>
WRONG! Wrongwrongwrongwrongwrong. The loosening of credit-granting restrictions gives more freedom of action to the lenders' managers, but it does not excuse faulty judgment on their part. Failure to evaluate risk competently is the root cause of the crisis. Because I CAN spend all my discretionary food budget on crystal meth does not mean I SHOULD spend all of my discretionary food budget on crystal meth.
You seem to be missing the point. You seem to be claiming hedge funds to be inherently safe because they're hedge funds. This is not true. Hedge funds can be risky, and, as I understand it, part of Bear Sterns' problem was a result of hedge funds.
<<Meanwhile, the least regulated firms -- hedge funds and private-equity companies -- have had the fewest problems, or have folded up their mistakes with the least amount of trauma. >>
Oh no! What a huge surprise!! and who do you think are the primary investors in hedge funds? What do you think a hedge fund does, anyway? It bets both ways, so it's always covered. It doesn't make spectacular profits, but it's safe and meant to be safe. Hedge funds are for folks who don't NEED spectacular profits anyway because they are already wealthy.
Not really. Imo, what it reaffirms is that corporatism is a bad idea. When businesses and government partner up, it leads to abuses, bad policy, poor judgment, and the average taxpayer gets screwed.
<<All of this reaffirms the historical truth that regulators almost always discover financial excesses only after the fact.>>
LMFAO. All it reaffirms is that when regulators don't regulate, businessmen will steal the farm and the whole fucking country if left alone long enough.
Subprime as a word for lending practices probably did not exist when the act was passed. Do you understand what subprime lending is? Subprime lending is basically lending to people who pose a higher lending risk, which means people with bad or little credit history and/or people with low-incomes. So you have, in point of fact, shown exactly where the act talks about subprime lending. Also, I have discovered, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 made an adjustment to the Community Reinvestment Act. Essentially, it established a rating system that put more pressure on financial institutions to provide subprime loans.
<<The Community Reinvestment Act. This 1977 law compels banks to make loans to poor borrowers who often cannot repay them. Banks that failed to make enough of these loans were often held hostage by activists when they next sought some regulatory approval.
[...]
That is just total bullshit. The act itself can be found here:http://www.fdic.gov/regulations/community/community/12c30.html
There is no requirement anywhere in the act that it make loans to subprime borrowers; in fact, "subprime borrowers" are not even mentioned in the act. The key requirement of the act is that banks be assessed by federal regulators on a periodic basis:
" the appropriate Federal financial supervisory agency shall - (1) assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution"
Entrepreneurs? You want to criticize entrepreneurs as part of the problem? This is why I have a problem taking you seriously sometimes, Michael.
<<Robert Litan, an economist at the Brookings Institution, told the Washington Post this year that banks "had to show they were making a conscious effort to make loans to subprime borrowers." The much-maligned Phil Gramm fought to limit these CRA requirements in the 1990s, albeit to little effect and much political jeering...>>
[...]
Robert Litan, who is associated with the Kauffman Foundation, a so-called "think tank" associated with two primary objectives, the promotion of education and of entrepreneurship, obviously comes to the problems of the financial crisis with the POV of an entrepreneur and represents nothing more than the entrepreneurial reaction to increased government regulation. Most of the crooks, thieves and liars who have been ripping off the American people since the days of the Keating Five are entrepreneurs, and as such are a part of the problem and not a part of the solution.
No, this is not an obvious consequence of deregulation, and you have said nothing to prove that it is. Any commentator that "recognizes" it as such is, as I said before, ignorant, a liar or a fool.
<<This is not a crisis of too little government. Any one who says it is, is ignorant, a liar or a fool.>>
More fucking bullshit. This is an obvious consequence of deregulation and almost every responsible commentator recognizes it as such.
Fidel Castro doesn't help 'em with mortgage money, he helps them by providing help, land and low-cost building materials and plans so that deserving families can build their own homes.http://www.habitat.org/ (http://www.habitat.org/)
Once again proving the superiority of the Communist system.
Fidel Castro doesn't help 'em with mortgage money, he helps them by providing help, land and low-cost building materials and plans so that deserving families can build their own homes.
Once again proving the superiority of the Communist system.
Getting back to Prince's contention that overregulation was the cause of the current crisis, this is apparently the latest conservative effort to shift the blame for the entire debacle onto the Democrats.
CRA was enacted more than 30 years ago.
| MARIA BARTIROMO Mr. President, in 1999 you signed a bill essentially rolling back Glass-Steagall and deregulating banking. In light of what has gone on, do you regret that decision? FORMER PRESIDENT BILL CLINTON No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter. But I have really thought about this a lot. I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch (MER) by Bank of America (BAC), which was much smoother than it would have been if I hadn't signed that bill. Phil Gramm, who was then the head of the Senate Banking Committee and until recently a close economic adviser of Senator McCain, was a fierce proponent of banking deregulation. Did he sell you a bill of goods? Not on this bill I don't think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment. |
| We agree that Mr. Clinton isn't wrong about everything. The Gramm-Leach-Bliley Act passed the Senate on a 90-8 vote, including 38 Democrats and such notable Obama supporters as Chuck Schumer, John Kerry, Chris Dodd, John Edwards, Dick Durbin, Tom Daschle -- oh, and Joe Biden. Mr. Schumer was especially fulsome in his endorsement. As for the sins of "deregulation" more broadly, this is a political fairy tale. The least regulated of our financial institutions -- hedge funds -- have posed the least systemic risks in the current panic. The big investment banks that got into the most trouble could have made the same mortgage investments before 1999 as they did afterwards. One of their problems was that Lehman Brothers and Bear Stearns weren't diversified enough. They prospered for years through direct lending and high leverage via the likes of asset-backed securities without accepting commercial deposits. But when the panic hit, this meant they lacked an adequate capital cushion to absorb losses. |
Banks should have liquid assets on hand to cover 10% or more of their outstanding mortgages.
Bundling derivatives from various mortgages together separated from th mortgages themselves and selling them should be banned.
No more interest only loans, and only the most creditworthy should be able to get a loan without putting 10% down.
Ban ARM loans altogether for house flippers, defined as anyone who has sold more than one house in the past year.
I bet that would be a good start.
I was asked how to avoid the crisis. That's how I would do it.
If you got a VA loan, then you paid $0 down. The government subsidized you because you were a vet. I see nothing wrong with that. Plus, you had a government job in a specialized filed.That would also get you extra points. So I doubt that my rules would disqualify you.
=====================================
Being as I have always realized that brains were more important than money, I decided to use my brains more when I bought this house.
In 1977, I paid $4500 down and assumed a $26,500 loan on a house worth (according to an appraiser I hired) $31,500. It was hard to find this deal and took four or five months. I had realtors swarming all over me, telling me that there WERE no $32K houses, that there WERE no assumable loans, that I should consider a house costing at least $50K. I told them to kiss off. My wife started to believe them. I told her to kiss off. And then I found this house, which had a small efficiency apartment I could rent out easily for $135 a month.
I have also never bought a new car or refrigerator or sofa or range. I could, but I don't need to. Commissions are needless expenses that fools can pay.
If everyone treated this the way I did, houses would be a lot more affordable. There might be fewer realtors, too, but how is that a bad thing?
abolition of the "excessive" Glass-Steagal regulations wasn't responsible for the current mess because they didn't abolish ALL of the regulations (kind of like arguing that abolishing 1,000 existing border crossing watch posts wouldn't result in increased illegal immigration if twenty existing posts would still be left in place.)
This is one of the most infuriating and deliberately deceptive arguments the Republicans can make to excuse themselves. Hedge funds are by nature, and as is apparent in their very name, RISK-AVERSE; they cover both sides of any bet. They are for the extremely wealthy investor who values stability over high profit. You have tried in the past to pretend that "some" hedge funds are high-yield and risky. That may be true for a very small percentage of them, but most hedge funds DO bet both sides, ARE very risk-averse and DO NOT produce high yields. To argue the exception, as if the exceptions account for the fact that "the least regulated of our financial institutions" have "posed the least systemic risks" is flagrantly deceptive.
Similarly to blame this on the undercapitalization of some of the brokerage firms rather than deregulation is also misleading, because proper regulation would have prevented credit-granting by insufficiently capitalized lenders. In any event there is no cap level in the world that will prevent an imprudent lender from going bust - - undercapitalization might have accelerated the collapse of some lending institutions but the primary cause has to be poor or reckless risk evaluation stimulated by greed. PRECISELY what regulation is designed to prevent. As well as the prevention of credit-granting by undercapitalized lenders.
| It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market (mutual funds generally can't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market. |
The reason hedge funds require people to have millions to buy into them is because they are much riskier.
QuoteMay want to try and explain that to Tee. He's under the misguided impression they're largely risk averse
I think I did, assuming he reads this.
What you said was exactly this:
"Meanwhile, the least regulated firms -- hedge funds and private-equity companies -- have had the fewest problems, or have folded up their mistakes with the least amount of trauma."
Obviously some hedge funds are riskier than others and the general rule that you can apply to the average hedge fund would not apply to those at the extreme limits of the class. It's possible that the infectious atmosphere of greed carried some hedge fund managers away, but their losses SHOULD be lower because they do bet both sides of the future. Also, they can certainly "fold up their mistakes with the least amount of trauma," as you put it, because they ARE for only the wealthiest of investors, who generally can well afford the loss.
Regulations can deny the opportunity to make certain types of risky investment, or limit it to a certain percentage of fixed assets or a percentage of total invested capital. There is literally no limit to what regulations can do.
<<And you can deny the influence of the government's actions on the economy that lead to this crisis all you like, but that is equally unrealistic. While it's easy to criticize businesses and banks for not acting according to what the economy might be, everyone acts according to what the economy is. >>
That is meaningless gobbledeygook. Pretty much like saying everyone puts on clothes to go outside.
No one is proposing regulation to remove all risk.
Once again, you try to win through misrepresentation.
The issue is not whether to "prevent all bad things from happening." The idea behind regulation is to minimize and confine the risk.