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Saturday, April 16. 2016
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Too bad there wasn't anything in that explanation about the unscrupulous banks and the greedy Wall Street investors to explain Carrell's last line about how the regular people were the ones who were going to get stuck paying the bills - the CRA and Fannie Mae and Freddie Mac. Forbes was warning as far back as 2005 that the whole real estate bubble was built on the idea that the government was driving lenders to make riskier loans and it really didn't matter how risky they were as long as everybody knew when the whole thing collapsed the governent would be there to bail them out. And that's exactly what happened. There's a moral hazard when government decrees you can jump off a cliff because they're going to repeal the law of gravity before you hit the ground. Once the government starts interfering in the free market to the point where they're not just picking winners and losers but actually changing the score once the game is played, it's more important to play the government than to play the game.
Hey Lefty, your argument is seriously flawed. You start out claiming that the banks are unscrupulous and the Wall Street investors are greedy. Then you "support" this statement by saying that the bubble was due to GOVERNMENT forcing lenders to make risky loans. From your supporting statements, the conclusion is that the bad guy was the government (it was). The greedy people were the risky borrowers who voted for pols who created (Jimmie) and expanded (Slick) the community reinvestment act that forced banks to make those risky loans.
I saw the movie and enjoyed it. Lots of action, good acting and it kept you waiting for the next big scene. The problem is it was a white wash. I’m not saying they lied but sometimes they stretched the truth and they left out the most important fact(s). In this clip they had one statement that really sums up the problem: “Mortgages were issued to folks with shitty or low credit scores”. Everything else in the movie was intended to cover up the “WHY” were these mortgages issued to people with shitty or low credit scores? AND equally important why did they issue mortgages to people with little to no money down?
The reason for both of these major facts about the 2008 mortgage bubble burst goes back to 1998. Clinton’s administration pushed/nudged/mandated that Fanny and Freddie MUST make loans available to more low income people, more people of color and make these loans with 3% or 0% down. The banks and mortgage companies got the same exact marching orders and if they stepped out of line and didn’t comply the DOJ came down on them and threatened to put them out of business and even jail them. Additionally all of these mortgages were backed by the good faith and credit of the U.S. government. This was a terrible mistake and many economists and bureaucrats told congress and the administration it was a mistake and would lead to exactly what happened. Congress and the administration pushed back forcefully accusing the naysayers of being racist or opposed to healping the poor. The die was cast and all we had to do was wait.
This movie came very close to telling the truth except it left the impression that it was ALL the banks and mortgage companies and the government was totally innocent. This movie was an excellent whitewash of the facts and an indictment of the innocent (or if not totally innocent guilty of nothing more than doing what they were mandated to do). It was a good flick but it was not made for entertainment but rather to absolve the Democrats and in particular the black caucus of blame for what they did.
I couldn't get past the first two minutes being screamed at in the video. I heart the Big Short was very good, though, and will give it a shot.
Sadly it was the government polities of forcing lenders to make imprudent loans under the CRA that created the situation. The CRA forced lenders to make hundreds of billions of dollars worth of bad loans. They tried to protect themselves by packaging the bad loans in mortgage backed securities and credit default swaps. The rest is history. The government and those decision-makers responsible still have not been held to account for what they did to America. They are still blaming the problem on the lending industry, which only did what they were forced to do by government regulation.
Just as sadly, we are well on our way to another crisis. Any time the government gets its fingers into the economic pie, you Average Joes and Janes climb back to the ledge waiting to jump off. The salaries drawn by the non-elected appointees to the various departments and quasi-govenment entities (such as Freddie and Fannie and Ginnie) guarantee those people will NEVER disclose the risks taken to secure fantastic payoffs for the Big Guys at the top.
And it's planned. Don't think it isn't. How else are those elites going to plummet the prices for key parts of the economy so they can grab them up a recession prices? The only way to stop it is to stop participating in The Game. Disband the Federal Reserve, cut the departments by half and return those responsibilities, if still wanted, to the states, then vote for term limits and lobbying laws that restrict "professional politics" that ignore the voters and respects individual enterprise.
Try out electing leadership that recognizes the importance of our sovereignty in a world turned into chaos by our present politicians.
Jerryskids: the CRA and Fannie Mae and Freddie Mac
mike m: the community reinvestment act
Jim: The CRA forced lenders
That theory isn't not plausible. While the government might be able to force banks to grudgingly lend, it can't force independent borrowers to buy. During the run-up, trillions of investor dollars poured into the shadow markets in securities. The bubble, like all bubbles, was demand driven.
CRA is not implicated in the origination of most of the problem loans.
Sorry, Zach, I was there, so I know how the CRA corrupted the system. We are a real estate law firm that a did a lot of documentation for loans during the pre-crash period. We shook our heads as we saw the kind of crappy loans all the banks started underwriting. We then saw the predatory lenders come in to capitalize on the lack of underwriting standards nationally (Gresham's Law: the bad chases out the good).
We had Bank of America's local headquarters as the prime tenant in the lobby of our building. We watched as the rent-a-mobs regularly showed up to picket Bank of America, claiming they were racists and "redlining" and failing to make enough CRA loans to "disadvantaged" customers. Bank of America actually shut down here before the crash, because they decided it wasn't worth the risk doing business in our city because of all the impositions they faced.
Remember, one way the CRA blackmailed national financial institutions is that federal government approval could be held up nationally on all your expansion and operation decisions for which you needed federal government approval, if you were deemed deficient in any community and didn't have a high enough CRA rating. There was a huge amount of extortion and corruption going on forcing the banks to write billions of dollars worth of bad loans in order to continue operating.
The financial collapse was entirely the result of corrupt government policies being forced on the lending community.
When you say the the situation was demand driven, it was only to the extent that people were being given more "free stuff" from the government. Especially in states with anti-deficiency protections (e.g., you weren't personally on the loan), you were basically being given free real estate, without having to qualify or make a down payment. You had immigrant gardeners buying $400,000 houses in new subdivisions in Southern California without any real vetting. And then when the market turned, hundreds of thousands of these folks who had nothing invested simply walked away and abandoned the properties, leaving the financial institutions and ultimately the citizens and taxpayers with the result.
Jim: I know how the CRA corrupted the system.
That's lovely. However, only 6% of problem loans were made by CRA-banks in CRA-areas.
Jim: We then saw the predatory lenders come in to capitalize on the lack of underwriting standards nationally (Gresham's Law: the bad chases out the good).
Because there were buyers for those loans.
Jim: There was a huge amount of extortion and corruption going on forcing the banks to write billions of dollars worth of bad loans in order to continue operating.
That's lovely, however, you can't make investors buy bad loans. That is called "demand".
Read my post again, Ace. I simply quoted jerry's premises and conclusions and pointed out the logical fallacy of his argument. Aside from that, you're wrong about your economics. When the price of something goes down, demand rises. With the govt intervention via CRA, suppliers were not allowed to reduce supply as would normally be the case. The borrowers may not have been forced to borrow - I never said they did - but they had a greater incentive to borrow than if the banks had been allowed to charge them appropriate rates (or deny them loans outright). You need to stop reading all that lefty propaganda from the Obama administration.
mike m: The borrowers may not have been forced to borrow
The key to any market bubble is demand. There was a rapid growth in demand for mortgage securities.
Demand driven? Not as simple as that. There is a never ending demand for free stuff but human nature is such that we choose to not give too much free stuff. But the government collectively are not smart nor human but more like a mob and what the hell it wasn't even their money so why not give it away. If you truly believe this was not caused by and even exacerbated by the government and in particular the liberal wing of government than you do not understand anything.
GoneWithTheWind: There is a never ending demand for free stuff
That's right, which is the basis of market bubbles. It's not the intrinsic value of the commodity, but the near universal belief that the value will continue to rise and that people can make money essentially "for free".
...And now you know -- the rest of the story!