Obama Mortgage Overhaul

Off Topic Politics & World Issues
21

Thanks for the insights, AC.

I’ve been curious, because I’ve never seen any numbers quoted (And it gets at the crux of the arguments “for” and “against” the bailout).

Would letting more banks fail (especially the large ones) cost MORE of LESS in actual money ( mainly FDIC) and chaos within the whole domestic and international financial markets…than the cost of the bail-out?

In other words; the bail-out represents a LOT of taxpayer coin; but could it have been even more if nothing was done?

Mufasa

22

Angry Chicken…Nice writeup. No matter who did it, or the intent it still creates more debt to throw money at that. The government pushed the banks in that direction to begin with.

Bush was a dumb ass to let those rules play out and continue. Congress was worse, telling everyone all was fine as well. Who was to blame in gov overall?

23

Slobberin’ Barney Frank and Chris Dodd were the prime culprits, but the Democrats as a group fought very hard (and successfully) against reform, for which there were some attempts well prior to the crash.

Problem is, the GSE’s (Fannie Mae, Freddie Mac) are under the purview of Congress, not the Executive branch. It was their baby.

I do think Bush should have hammered it home in State of the Union addresses and other opportunities, but really that’s all he could have done: talk about it. But the bully pulpit can be effective. He didn’t use it.

24

I guess the point I was trying to make with all of this, is that the “solution” they are bringing forth now is what would have worked TWO years ago with the budget they ended up spending. At this point it is like pissing on a forest fire.

But to be VERY clear: We are in this mess because of BANKS being greedy. Now I am all for a free market and Capitalism has been VERY kind to me, however, being ON the roller coaster that was the mortgage industry has taught me ONE thing - SOME regulation is an absolute MUST. These banks became too powerful and there were no checks and balances to reign them in. As a result, their greed destroyed our economy and created a situation that THEY (the banks) could not (or would not) fix by themselves.

So now the government steps in and everyone starts screaming SOCIALISM! That’s bullshit. SOME ENTITY had to step in and put the economy on life support. The banks certainly weren’t going to! If the government HADN’T stepped in and pumped money into the economy, we would be in a Depression that would shit all over the 1930’s in terms of scale and international impact.

Did they do a perfect job? FUCK NO! They were SOOO scared of stepping in and making the wrong move, that they didn’t do SHIT for months. And when they decided to take action it was timid and hesitant. It was designed to make the best POLITICAL impact, but not to help in any meaningful way. I mean I am just a low down silly loan officer, who doesn’t have a PhD in Economics or anything, and I could see that none of the shit they were doing was going to work… They responded in such an inappropriate way it makes my head spin as to how STUPID our government is… And then the Democrat comes in and tries to throw as much money as he can on the issue, but he’s throwing it at the wrong area! At this point, we are SO fucked as a country economically, that I don’t know if we can recover any time soon. There’s just so much that’s fundamentally wrong and out of balance…

I don’t know how much money we could have saved, or how reacting sooner to all of this would have lessened the impact, but I do know that our government is fucking retarded. BOTH sides of the aisle stepped on their dicks with this one. It has evolved into a big shit sammich that we all have to take a bite of…

25

I notice you had no reply to my post regarding the fact that it wasn’t lack of regulation but rather Congress CAUSING this to happen via the GSE’s. And you write now as if that weren’t so.

And not only the GSE’s, but Congress also caused this with the Community Reinvestment Act.

Without the GSE’s snapping up bad loans and banks therefore putting their own money at risk with loans, banks were quite careful. Congress didn’t like that some people, e.g. minorities, weren’t getting loans and so they pushed all this.

It wasn’t LACK of regulation that caused this.

Heck, quite recently Slobberin’ Barney (D-Massachusetts, Chairman, House Financial Services Committee) was STILL pushing for more loans to the non-creditworthy.

26

Angry chicken is quite right. A combination of NO regulation and BAD regulation contributed to this. Setting poor lending policies helped get us here, but it was really the banks and not the government. The government gave and inch, and the banks took a mile. Anyone who thinks otherwise does not actually deal with the financial field. I work with these banks and accounting firms all the time. They are major clients.

We don’t need micromanagment of the banks. We do need regulation that forces transparency and exposes ridiculous policies that result in massive short-term profit but make no longterm sense.

Here is my favorite cartoon showing the absurdity of subprime mortgages. My favorite is the Slide 29, the an Accounting Slide (“blow me…”)

http://docs.google.com/present/view?skipauth=true&pli=1&id=ddp4zq7n_0cdjsr4fn

27

[quote]Bill Roberts wrote:
I notice you had no reply to my post regarding the fact that it wasn’t lack of regulation but rather Congress CAUSING this to happen via the GSE’s. And you write now as if that weren’t so.

And not only the GSE’s, but Congress also caused this with the Community Reinvestment Act.

Without the GSE’s snapping up bad loans and banks therefore putting their own money at risk with loans, banks were quite careful. Congress didn’t like that some people, e.g. minorities, weren’t getting loans and so they pushed all this.

It wasn’t LACK of regulation that caused this.

Heck, quite recently Slobberin’ Barney (D-Massachusetts, Chairman, House Financial Services Committee) was STILL pushing for more loans to the non-creditworthy.[/quote]

No, it was both bad regulations such as those pushed by Fife and lack of regulation. No one really understood derivative instruments, and the laws allowed the banks and and accounting firms do a lot of off-balance sheet shit out of the public eye that should have been upfront.

And as far as government culpability, as opposed to the financial institutions, deregulatory efforts such as Regan’s Garn-St. Germain Depository Institutions Act and Clinton’s partial repeal of the Glass Steagel Act had as much to do with the financial crisis as the Community Reinvestment Act.

28

Is seems to me that based on what AC posted; this all was not driven from pressure from the Government…it was driven by greed and the desire to turn a quick buck.

As a matter of fact, everyone seemed to have no concern whatsoever about any repercussions…real or perceived…government or otherwise.

Mufasa

29

Another bad policy decision was enactment of the Commodity Futures Modernization Act, allowing the ‘self-regulation’ of derivaties. What a joke. Warren Buffet was quite right when he referred to derivaties as “financial weapons of mass destruction.” Note that the CFMA was passed in 2000 under Clinton. Deregulatory mistakes are not limited to one particular party. Fortunately, the Treasury Department is now pushing legislation that will create some oversight over derivatives.

30

[quote]Mufasa wrote:
Is seems to me that based on what AC posted; this all was not driven from pressure from the Government…it was driven by greed and the desire to turn a quick buck.

As a matter of fact, everyone seemed to have no concern whatsoever about any repercussions…real or perceived…government or otherwise.

Mufasa[/quote]

Of course it was. If you talk to the junior people at any of these big financial institutions, they will tell you flat out that any suggestion from them that the financial instruments and policies employed did not make any longterm sense was decidely unwelcome. Senior management did not want to hear it.

31

[quote]jsbrook wrote:

[quote]Bill Roberts wrote:
I notice you had no reply to my post regarding the fact that it wasn’t lack of regulation but rather Congress CAUSING this to happen via the GSE’s. And you write now as if that weren’t so.

And not only the GSE’s, but Congress also caused this with the Community Reinvestment Act.

Without the GSE’s snapping up bad loans and banks therefore putting their own money at risk with loans, banks were quite careful. Congress didn’t like that some people, e.g. minorities, weren’t getting loans and so they pushed all this.

It wasn’t LACK of regulation that caused this.

Heck, quite recently Slobberin’ Barney (D-Massachusetts, Chairman, House Financial Services Committee) was STILL pushing for more loans to the non-creditworthy.[/quote]

No, it was both bad regulations such as those pushed by Fife and lack of regulation. No one really understood derivative instruments, and the laws allowed the banks and and accounting firms do a lot of off-balance sheet shit out of the public eye that should have been upfront.

And as far as government culpability, as opposed to the financial institutions, deregulatory efforts such as Regan’s Garn-St. Germain Depository Institutions Act and Clinton’s partial repeal of the Glass Steagel Act had as much to do with the financial crisis as the Community Reinvestment Act.
[/quote]

So: you think that banks, when their own money is being risked, need regulation to be sure that they don’t stupidly give bad loans that are unlikely to be repaid, as happened now?

Government regulators would decide better how to lend their money with little risk of default than they would themselves?

Perhaps on a different planet.

On this one, government regulators will instead decide how political and “social” needs should be met by the banks, which is the opposite of making prudent loans.

32

[quote]Bill Roberts wrote:

[quote]jsbrook wrote:

[quote]Bill Roberts wrote:
I notice you had no reply to my post regarding the fact that it wasn’t lack of regulation but rather Congress CAUSING this to happen via the GSE’s. And you write now as if that weren’t so.

And not only the GSE’s, but Congress also caused this with the Community Reinvestment Act.

Without the GSE’s snapping up bad loans and banks therefore putting their own money at risk with loans, banks were quite careful. Congress didn’t like that some people, e.g. minorities, weren’t getting loans and so they pushed all this.

It wasn’t LACK of regulation that caused this.

Heck, quite recently Slobberin’ Barney (D-Massachusetts, Chairman, House Financial Services Committee) was STILL pushing for more loans to the non-creditworthy.[/quote]

No, it was both bad regulations such as those pushed by Fife and lack of regulation. No one really understood derivative instruments, and the laws allowed the banks and and accounting firms do a lot of off-balance sheet shit out of the public eye that should have been upfront.

And as far as government culpability, as opposed to the financial institutions, deregulatory efforts such as Regan’s Garn-St. Germain Depository Institutions Act and Clinton’s partial repeal of the Glass Steagel Act had as much to do with the financial crisis as the Community Reinvestment Act.
[/quote]

So: you think that banks, when their own money is being risked, need regulation to be sure that they don’t stupidly give bad loans that are unlikely to be repaid, as happened now?

Government regulators would decide better how to lend their money with little risk of default than they would themselves?

Perhaps on a different planet.

On this one, government regulators will instead decide how political and “social” needs should be met by the banks, which is the opposite of making prudent loans.

[/quote]

The banks are concerned with short-term profit, which securitization and poor practices achieved. When the shit hit the fan, the respnded by massive layoffs and cost-cutting measures (and were bailed out in many instances). In most of the banks that did not go under, there is the same management and they are doing quite well today. Goldman had a banner year.

No one is advocating the type of regulation you are talking about (well, I suppose some are) Appropriate regulation will ensure transparency and put an end to things like absurd off-balance sheet arrangements.

33

I wouldn’t “suppose” some are: that’s what Congress has been doing for some time and is STILL doing.

Just try not having a “sufficient” percentage of loans to minorities, or of loans going to given neighborhoods, or of loans going to people with low incomes. And heaven forbid you should discriminate against illegal aliens.

34

[quote]Bill Roberts wrote:
I notice you had no reply to my post regarding the fact that it wasn’t lack of regulation but rather Congress CAUSING this to happen via the GSE’s. And you write now as if that weren’t so.

And not only the GSE’s, but Congress also caused this with the Community Reinvestment Act.

Without the GSE’s snapping up bad loans and banks therefore putting their own money at risk with loans, banks were quite careful. Congress didn’t like that some people, e.g. minorities, weren’t getting loans and so they pushed all this.

It wasn’t LACK of regulation that caused this.

Heck, quite recently Slobberin’ Barney (D-Massachusetts, Chairman, House Financial Services Committee) was STILL pushing for more loans to the non-creditworthy.[/quote]

Hey Bill, I wasn’t saying that you were wrong in your statement of the GSE’s (Government Sponsored Enterprises AKA: Fannie Mae, Freddie Mac and Ginnie Mae) contributed to the problem. But the fact is that during the time prior to 2008, it was a Sub-Prime dominated market (with respect to all of the problem loans that were written) and the guidelines that the GSE’s had were not much better, but they were competing with the banks and by comparison, their guidelines WERE conservative for that time. Now hindsight is 20/20 and we all know the whole industry had it’s head up it’s ass, but it was a lack of regulatory control over the BANKS (and Mark to Market accounting) that caused all this mess with the economy. The GSE’s followed the banks, not the other way around.

Don’t get me started on Barney! THAT muther fucker is continuing to fuck things up in the industry!

But I don’t know what you mean about loans being pushed on the “non-creditworthy”. The lending climate right now is such that I have to practically TRICK a bank into giving good borrowers a loan. I had an 800 credit score borrower shot down by two banks before I got him approved at a third bank, simply because he owned two businesses and the underwriter was too STUPID to understand his tax returns (even after I pointed them to the section in the 4155 that showed the income was allowable, they STILL just shot it down rather than take the risk)

It’s fucking ridiculous as shit with how “job-scared” underwriters are right now. Add the HVCC and other new regulations that have been passed to “help” things, and the whole mortgage industry has been completely hamstrung with regard to getting things done. I ask for 45 days to close a loan now because I need an extra two or three weeks to cut through all the red tape.

Trust me, NO unqualified borrowers are getting through (along with many people that are qualified) unless they are committing loan fraud.

35

[quote]Mufasa wrote:
Is seems to me that based on what AC posted; this all was not driven from pressure from the Government…it was driven by greed and the desire to turn a quick buck.

As a matter of fact, everyone seemed to have no concern whatsoever about any repercussions…real or perceived…government or otherwise.

Mufasa[/quote]

It was driven by both, the government wanted to push a particular social agenda and banks climbed on because it would make them money.

Theres plenty of blame to go around.

36

[quote]Bill Roberts wrote:

[quote]jsbrook wrote:

[quote]Bill Roberts wrote:
I notice you had no reply to my post regarding the fact that it wasn’t lack of regulation but rather Congress CAUSING this to happen via the GSE’s. And you write now as if that weren’t so.

And not only the GSE’s, but Congress also caused this with the Community Reinvestment Act.

Without the GSE’s snapping up bad loans and banks therefore putting their own money at risk with loans, banks were quite careful. Congress didn’t like that some people, e.g. minorities, weren’t getting loans and so they pushed all this.

It wasn’t LACK of regulation that caused this.

Heck, quite recently Slobberin’ Barney (D-Massachusetts, Chairman, House Financial Services Committee) was STILL pushing for more loans to the non-creditworthy.[/quote]

No, it was both bad regulations such as those pushed by Fife and lack of regulation. No one really understood derivative instruments, and the laws allowed the banks and and accounting firms do a lot of off-balance sheet shit out of the public eye that should have been upfront.

And as far as government culpability, as opposed to the financial institutions, deregulatory efforts such as Regan’s Garn-St. Germain Depository Institutions Act and Clinton’s partial repeal of the Glass Steagel Act had as much to do with the financial crisis as the Community Reinvestment Act.
[/quote]

So: you think that banks, when their own money is being risked, need regulation to be sure that they don’t stupidly give bad loans that are unlikely to be repaid, as happened now?

Government regulators would decide better how to lend their money with little risk of default than they would themselves?

Perhaps on a different planet.

On this one, government regulators will instead decide how political and “social” needs should be met by the banks, which is the opposite of making prudent loans.

[/quote]

Dude, it wasn’t their OWN money being risked - it was their INVESTOR’S money being risked! OUR money! Repository institutions weren’t exactly running a 15/1 lending to capital ratio! They got greedy and we got screwed.

37

[quote]Bill Roberts wrote:
I wouldn’t “suppose” some are: that’s what Congress has been doing for some time and is STILL doing.

Just try not having a “sufficient” percentage of loans to minorities, or of loans going to given neighborhoods, or of loans going to people with low incomes. And heaven forbid you should discriminate against illegal aliens.[/quote]

True. I’m in agreement with all that. Nor do I support the Community Reinvestment Act or any similar measures.

However, it it should be noted that the majority of bogus subprime loans originated from lenders not regulated by the CRA. Studies have estimated that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Istitutions fully regulated by CRA made about one in four sub-prime loans, and the worst and most widespread abuses occurred in the institutions with the least federal oversight.

Still, I think that the Act encouraged suprime loans, contributed to the overall climte and atmosphere, and functioned as catylst for irresponsible lending prcatices.

38

Angry Chicken, you clearly don’t comprehend what I wrote, and don’t comprehend the key reason why mortgages were extremely safe loans for more than 100 years but then became, commonly, unsafe loans.

Your attempt at word parsing, objecting to my phrase “the bank’s own money”, is simply playing with words and is missing the point: If you think banks would have lost hundreds of billions of their investors’ money by making such extremely bad loans, having to eat the losses themselves, there is a great deal of history you could look at to see that that is not reasonable.

Rather, they made the loan because “their investors” bottom line was not at risk principally because of the GSE’s.

You don’t understand the cause-and-effect here, and that if that cause had not been there then neither would have been the effect? None of your posts show that you are getting that and you are saying things that clearly seem to show that you don’t get it.

You do get what you have seen with your own eyes – that was a good write-up on that – but you are clearly missing the bigger picture and do not understand that Congress caused this mess by its interference in the banking industry, both with CRA and with its GSE’s.

39

[quote]angry chicken wrote:

[quote]Bill Roberts wrote:

[quote]jsbrook wrote:

[quote]Bill Roberts wrote:
I notice you had no reply to my post regarding the fact that it wasn’t lack of regulation but rather Congress CAUSING this to happen via the GSE’s. And you write now as if that weren’t so.

And not only the GSE’s, but Congress also caused this with the Community Reinvestment Act.

Without the GSE’s snapping up bad loans and banks therefore putting their own money at risk with loans, banks were quite careful. Congress didn’t like that some people, e.g. minorities, weren’t getting loans and so they pushed all this.

It wasn’t LACK of regulation that caused this.

Heck, quite recently Slobberin’ Barney (D-Massachusetts, Chairman, House Financial Services Committee) was STILL pushing for more loans to the non-creditworthy.[/quote]

No, it was both bad regulations such as those pushed by Fife and lack of regulation. No one really understood derivative instruments, and the laws allowed the banks and and accounting firms do a lot of off-balance sheet shit out of the public eye that should have been upfront.

And as far as government culpability, as opposed to the financial institutions, deregulatory efforts such as Regan’s Garn-St. Germain Depository Institutions Act and Clinton’s partial repeal of the Glass Steagel Act had as much to do with the financial crisis as the Community Reinvestment Act.
[/quote]

So: you think that banks, when their own money is being risked, need regulation to be sure that they don’t stupidly give bad loans that are unlikely to be repaid, as happened now?

Government regulators would decide better how to lend their money with little risk of default than they would themselves?

Perhaps on a different planet.

On this one, government regulators will instead decide how political and “social” needs should be met by the banks, which is the opposite of making prudent loans.

[/quote]

Dude, it wasn’t their OWN money being risked - it was their INVESTOR’S money being risked! OUR money! Repository institutions weren’t exactly running a 15/1 lending to capital ratio! They got greedy and we got screwed.[/quote]

Ture in some sense.

40

[quote]jsbrook wrote:
However, it it should be noted that the majority of bogus subprime loans originated from lenders not regulated by the CRA. Studies have estimated that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates.[/quote]

I think you would find that a high percentage of bad loans were sold either directly to a GSE or indirectly ended up there. Therefore the bank originating the loan had nothing to lose if the loans defaulted.

As for those not ever ending up at a GSE, their sale was still enabled by the massive purchases of the GSE’s making bundled mortgages a readily-tradeable asset.

To illustrate: an Investor C may purchase something at a given price not because he is interested so much in the income it will generate while he holds it, but because mega-investors A and B are always buying such investments at a high price. There’s an ongoing busy market. with them as principal buyers. Therefore C expects to be able to sell to them whenever he may desire; or to an Investor D, who would buy it for that same reason.

Without the big market-drivers A and B, investors C and D would be much more reluctant to hold such things, at least at such high valuations, and the total amount held would be not nearly so high. Investors C and D might also be more careful about analyzing value, rather than knowing that the mega-investors are paying such-and-such and so therefore that is the market value.

Congress is responsible for creating that situation where issuance of bad loans was economically rewarded, through the GSE’s.