LH526
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So, Who Really Started The Crisis?

Tue May 26, 2009 10:24 am

Last week I overheard a discussion about finding out who really started the financial crisis.
Given it all started in US suburbs where the average Joe was unable to pay back his mortgage starting a domino effect that spread fom Tulsa to Tokyo .... why did they even apply for a mortgage in the first place?? They knew they would have a hard time paying back their loans ... so now they blame the banks for granting them a mortgage, now who is to blame here? The bank for giving out mortgage money or the Average Joe for going into a bank and asking for a loan? Who is the smallest piece in this whle puzzle?
Trittst im Morgenrot daher, seh ich dich im Strahlenmeer ...
 
oly720man
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RE: So, Who Really Started The Crisis?

Tue May 26, 2009 11:19 am

As far as mortgages are concerned it's a combination of the ignorance of those talked into getting mortgages they couldn't afford along with the insatiable greed of the mortgage brokers and investment banks forever wanting to expand and, having reached the bottom of the barrel of potential clients, digging under it for more revenue, bending all rules along the way if necessary, and all of this riding on the back of a housing boom in California.

This is probably as good a summary as any

http://www.bloomberg.com/apps/news?pid=20601109&sid=a8VFwgtdQ9FM

The subprime industry -- and investors' losses -- would never have gotten so big were it not for a small army of independent mortgage brokers and hustling salesmen like Afghani, who was fired in October.

Afghani and other subprime veterans say their job was to reel in borrowers, period. Never mind whether customers needed loans or could manage payments.
wheat and dairy can screw up your brain
 
swissy
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RE: So, Who Really Started The Crisis?

Tue May 26, 2009 11:20 am

I guess we cannot just blame one party (side), credit was available too many people were not in the financial position to sustain a living with all these debts attached to their valets.... people paid way too much for houses and the banks knew it, too many things were taken on on credit, if too many people base their living on credit things will turn sour fast. Financial reality was lost about 4-5 years ago...... My ultimate conclusion is: I blame the banks for the greed and the average Joe for being so silly taking on debt out of their range and countries basing their growth on giving out credits....

Cheerios,
 
rfields5421
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Joined: Thu Jul 19, 2007 12:45 am

RE: So, Who Really Started The Crisis?

Tue May 26, 2009 2:28 pm

I don't think you can call it all due to any one thing.

The world has built an interlocking pyramid scheme out of the financial industry over the past 40-50 years.

The individual investor killed the Savings and Loan industry, when they pulled their money out of 1.5 & 2% savings accounts to get into 5 & 6 % money market funds in the 1970s.

The myth of forever rising home values has been pushed since my wife left high school five decades ago.

The entire system, our entire concept of the stock market, are today based on the concept that someone will pay more tomorrow for what we paid today for that item. Eventually, you run out of suckers.

Quoting LH526 (Thread starter):
where the average Joe was unable to pay back his mortgage starting a domino effect that spread fom Tulsa to Tokyo .... why did they even apply for a mortgage in the first place??

For a HUGE percentage of those mortages, average Joe was very able to pay the mortage under the terms of the loan. However average Joe had to sell the house at the end of the first three or five years when the payments would balloon.

Even the reasons a home loan defaults are still:
1 - Loss of primary income / job
2 - Major medical expenses
3 - Changes in payment terms

Sub-prime or not - reasons #1 and #2 above are why most homes go into default. Sub-prime just had a much narrower cushion, and reason #3 built in to the loan.

When Joe stopped being able to sell the house, usually at a nice profit, the bubble collapsed. Remember Joe was sold the mortage based on the idea that it was money he was putting into an investment which would grow. He was never sold a mortage / home on the idea that he would live in it and pay it off.

The reality is that no one want to settle for near average returns on their money. They want above average returns. Be it their 401K or their home value.
 
rfields5421
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RE: So, Who Really Started The Crisis?

Tue May 26, 2009 2:32 pm



Quoting Oly720man (Reply 1):
along with the insatiable greed of the mortgage brokers and investment banks forever wanting to expand

I get between 20 and 30 refinance offers every week in the mail, and about 10 phone calls.

These people do not care if I have a job, if I can afford my mortage. All they care about is the $3,000 - $4,000 they will make on a refinance package.

The same thing with people buying a home. Almost never will a person buy a home and get a loan from someone who expects you to payoff the loan. They will sell it.

And frankly, in today's world if a bank invest a lot of money in 30 year loans which pay off at 5-6.5% - their stock will crash, their depositors will run to withdraw their savings, and the bank will fail.

Everything today is about more, more, more, more - growth. Nobody cares, especially the instituional investor, if the growth in sales/ income is real. Only that it creates enough interest that they can sell the stock at a profit.
 
CHRISBA777ER
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RE: So, Who Really Started The Crisis?

Tue May 26, 2009 2:50 pm

It was the Americans.

Their brokers started it, the greedy paper traders made it worse, the bankers made it worse again, and their media made it ten times as bad as it needed to be. Then their Government did nothing but rescue a small percentage.

Then, being good little lapdogs, it spread to Japan and the UK as our banking and media sectors are slaved to theirs, and it all went off from there.

Still, hopefully people will have learnt by now that paper trading is not a good idea.

This is the crisis we talked ourselves into.
What do you mean you dont have any bourbon? Do you know how far it is to Houston? What kind of airline is this???
 
baroque
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Joined: Thu Apr 27, 2006 2:15 pm

RE: So, Who Really Started The Crisis?

Tue May 26, 2009 3:24 pm



Quoting CHRISBA777ER (Reply 5):
It was the Americans.

But when? 2006 seems the best guess.

There was a relevant segment on the Lehrer Newshour last week

http://www.pbs.org/newshour/bb/business/jan-june09/andrews_05-21.html

PAUL SOLMAN, NewsHour Economics Correspondent: New York Times economics reporter Ed Andrews knows a lot about toxic mortgages.

EDMUND ANDREWS, The New York Times: This was something I wrote in June of '04, "The Ever More Graspable, And Risky, American Dream."

PAUL SOLMAN: It turns out Andrews wasn't just covering that dream; he was living it.


And read on.

You might suppose that if Economics Correspondents get caught there might be something a bit wrong with the system - no?
 
Arrow
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RE: So, Who Really Started The Crisis?

Tue May 26, 2009 4:15 pm



Quoting Oly720man (Reply 1):
As far as mortgages are concerned it's a combination of the ignorance of those talked into getting mortgages they couldn't afford along with the insatiable greed of the mortgage brokers and investment banks forever wanting to expand and, having reached the bottom of the barrel of potential clients, digging under it for more revenue, bending all rules along the way if necessary, and all of this riding on the back of a housing boom in California.



Quoting RFields5421 (Reply 3):
The myth of forever rising home values has been pushed since my wife left high school five decades ago.

That pretty well covers it. The whole pyramid scheme, from both the lender's and the borrower's point of view, was predicated on an ever-inflating housing bubble where demand and price always goes up. That concept cascades all through the system -- going right back up to all those US and Canadian sawmills that were making money hand over fist churning out two-by-fours.

It doesn't take much for that house of cards to collapse, which it obviously did.
Never let the facts get in the way of a good story.
 
AGM100
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RE: So, Who Really Started The Crisis?

Tue May 26, 2009 4:59 pm



Quoting Arrow (Reply 7):
It doesn't take much for that house of cards to collapse, which it obviously did.

For every action there is a negative reaction .... lets keep in mind that the vast majority of homeowners in the US are still paying for there mortgage.

The massive increase in development both in infrastructure , new homes and the spread of the suburbs created millions of jobs. With the boom in rel-estate it also created a huge boom in public infrastructure building .. adding utilities , roads , schools ,parks and all the other intrinsic necessities. Greedy dishonest bankers , rating agencies and government officials all jumped right in of course and ran into the ground . It is the way of human kind , but the benefit in the long run will out weigh the down side in my opinion.

With every economic boom ... there will always be a element that takes advantage of it and corrupts the process. Much like buying a web sight for 1.5 million dollars in 1996 .... a web-sight that I can now get for 50 bucks. But , where would the world wide web be without the .com boom ? See , there is a positive side to everything .
You dig the hole .. I fill the hole . 100% employment !
 
flexo
Posts: 344
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RE: So, Who Really Started The Crisis?

Tue May 26, 2009 5:15 pm

The problem really was the distribution of risk. Banks no longer cared about who they loaned money to because they would just wrap a big package out of a thousand or so loans and sell them to someone else for some extra profit.

Greed? Sure, to some extent, but many if not most people thought this distribution of risk was a good thing and would actually stabilize the banks. Pretty much everyone went blind to the obvious flaws - a world in which people with bad credit can borrow as much money as they could ever wish for...
 
AGM100
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Joined: Thu Dec 04, 2003 2:16 am

RE: So, Who Really Started The Crisis?

Tue May 26, 2009 5:59 pm



Quoting Flexo (Reply 9):
Pretty much everyone went blind to the obvious flaws - a world in which people with bad credit can borrow as much money as they could ever wish for...

Well , it was not the case of the blind leading the blind . The lenders ,agents and credit evaluators were in bed and pushing product. There is plenty of blame to go around and the buyers were certainly not being very smart either. They were in some cases stupid ... but in other sold a bad deal by sharks.

Now we have the FM's in play . The government was in the mortgage business ..and used the backing of the fed to make huge plays in the the market.

My experience : I bought house in 2005 , I have a very high credit rating , I have very good income . The banks were trying to offer me Fannie Mae loans ... Fannie Mae being issued to a rich white guy who had a 1/3 down payment. Something stinks ... the FM's are in place to help poor disadvantaged first time buys ... not guys like me but they were in play. Corrupt politicians ..corrupt bankers .. and big banks who all in the end got paid off . Unbelievable.
You dig the hole .. I fill the hole . 100% employment !
 
babybus
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RE: So, Who Really Started The Crisis?

Wed May 27, 2009 4:22 pm

I think it all began back in the 80s with Mrs Thatcher.

She started a dangerous trend that industry should aim for maximum profit by getting rid of a lot of jobs.

The snowball has kept going. There are probably more people unemployed than employed these days, no one has money to spend (and those with it are scared their job is next to go) so no need to produce...blah blah blah.

We have to get people into safer jobs and restore their confidence to spend.
and with that..cabin crew, seats for landing please.
 
TristarAtLCA
Posts: 636
Joined: Fri Jul 27, 2007 3:16 pm

RE: So, Who Really Started The Crisis?

Wed May 27, 2009 6:19 pm



Quoting Babybus (Reply 11):
I think it all began back in the 80s with Mrs Thatcher.

She started a dangerous trend that industry should aim for maximum profit by getting rid of a lot of jobs.

I am quite confident that US companies always aimed for maximum profit before Thatcher.

I would argue that the global economy was a lot less global in the 80's than it is now and the 'innovations' of the financial world giving people 5, 6, 7 times their salary for a mortgage was unheard of in the eighties.

As an aside, does anybody know when us Brits will stop using Thatcher as a reason for all our ill's whenever we don't have anything more substantial to say? It is getting really tiresome.
If you was right..................I'd agree with you

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