Check out President Obama's weekly address at whitehouse.gov. Well well well, I love this new financial reform to protect consumers and set strict oversight rules and regulations on wall street, the "people" who caused the majority of the mess that we are in now. This will be great, so this type of disaster of irresponsbility, mismanagement, fraud, extortion, corporate scandals, corporate deception, and corporate greed will never happen again hopefully if they appoint the right type of people who have an extraordinary amount of responsibility, financial responsibility, maturity, patients, conservatism, trust and honesty in others and in life. Well, Obama should appoint me to be the director of the oversight agency, yea it should be me, that has a credit score of 740, that 55% higher than the U.S. population. I never in my life had a late credit card payment, no delinquinces, no over limits, no fraud, no extortion, no banktruptcies. NONE at all, except all the goodness of life. I am only 25 and I have a credit score of 740, and no college degree, well I am already educated, cant buy a new home with a PH.D can you, but you can with a credit score of 740. Take care yall!

Of course, the GOP, never interested in the welfare of most of the people in this nation, will wail and moan and scream that this will hurt American business, etc, even though those on Wall Street and in other areas have proven they cannot be trusted without oversight.

As for your credit score, that's great. Keep it there! Don't get into the credit trap. Getting out of it is hell. I can attest to that! We're getting there, but it's a long, difficult process.

Good luck!

We are from the Government, and we are here to help.

              

As bad as some business leaders are, government officials are even worse. The crooks on Wall Street did not cause this ressession, the governemt did by letting those who shouldn't have bought so much house do it (Fannie-Mae and Freddie-Mac, both run by the US Government).

Quoting Propilot83 (Thread starter): Check out President Obama's weekly address at whitehouse.gov. Well well well, I love this new financial reform to protect consumers and set strict oversight rules and regulations on wall street, the "people" who caused the majority of the mess that we are in now.

Right. Are Fannie and Freddy, the two entities that collapsed and dragged down the entire economy, being affected by this sweeping increase in regulation? Nope.

The "mess" as you call it, in spite of strident attempts to point the finger at everyone else, was caused by government intervention in the credit markets that caused a distortion in the markets behavior. What do you expect happens when too much credit is given with inadequate securitization, and artificially low interest rates, as mandated by the government? You get what we got. And we will get it again, because all these new regulations do not address this simple truth (including all the other laws and bailouts and executive orders passed since last September). It is just an excuse to extend more control, and NOTHING has been done to avoid this happening again.

Quoting Falcon84 (Reply 1): Of course, the GOP, never interested in the welfare of most of the people in this nation

What is your deal Falcon? You're as bad as Rosie O'Donnell. Are you so incapable of empathy that you cannot consider that maybe we are trying not to inflict tremendous damage to the economy for no apparent reason other than a political power grab. I see very little in this legislation that will help anyone (apart from some much needed attention towards fighting Madoff-type fraud). The credit card reforms for example are a sick joke intended to actually increase the profits for credit card companies.

How do you think these reforms will improve anything, on either a micro or macroeconomic level?

Quoting KC135TopBoom (Reply 2): As bad as some business leaders are, government officials are even worse.

Agreed. Had the Republicans not repealed the Glass-Steagall Act we may have never had the kind of problems we've had in the past few years.

Quoting KC135TopBoom (Reply 2): The crooks on Wall Street did not cause this ressession, the governemt did by letting those who shouldn't have bought so much house do it (Fannie-Mae and Freddie-Mac, both run by the US Government).

Agreed again. Had the government regulated the industry more and not allowed Fannie and Freddie to leverage their assets 20:1 and 70:1 we may not be in the mess we're in.
Fannie Mae and Freddie Mac were not run by the government, they were government sponsored enterprises, which are private companies that were publicly chartered.

Quoting Dreadnought (Reply 3): Right. Are Fannie and Freddy, the two entities that collapsed and dragged down the entire economy, being affected by this sweeping increase in regulation? Nope.

First off, they didn't collapse the entire industry. The banks that gave out the mortgages that Fannie and Freddie bought are the reason for the collapse. While Fannie and Freddie definitely deserve some of the blame, it wasn't entirely caused by them. Second, they will be affected by the new regulations, their new regulations were done earlier in the year though.
http://money.cnn.com/2009/01/23/news/economy/Fannie_freddie/index.htm

Quoting Dreadnought (Reply 3): The "mess" as you call it, in spite of strident attempts to point the finger at everyone else, was caused by government intervention in the credit markets that caused a distortion in the markets behavior.

Or a lack of government intervention, which caused the markets to do anything they could to make short term profits, with no regard for the future.

Quoting Dreadnought (Reply 3): What do you expect happens when too much credit is given with inadequate securitization, and artificially low interest rates, as mandated by the government?

Ask Former President Bush that question.
http://findarticles.com/p/articles/mi_m0EIN/is_2002_Feb_8/ai_82669972/

Quoting Dreadnought (Reply 3): You get what we got. And we will get it again, because all these new regulations do not address this simple truth (including all the other laws and bailouts and executive orders passed since last September). It is just an excuse to extend more control, and NOTHING has been done to avoid this happening again.

This I have to agree with you on. The new regulations need to go further. A bank should be required to keep more than 5% of a loan they give to someone. That's what they have to keep under the new regulations. I wish the government would go further so that the banks have a bigger stake in the loans they are giving out.

Quoting Max550 (Reply 4): Fannie and Freddie bought are the reason for the collapse.

And Fannie and Freddie bought these instruments based on ratings.. right?

Quoting KC135TopBoom (Reply 2): the governemt did by letting those who shouldn't have bought so much house do it

Huh? Whose money was it? (It wasn't the government's.)

Quoting KC135TopBoom (Reply 2): (Fannie-Mae and Freddie-Mac, both run by the US Government).

They are NOW, but they weren't at the time.

Quoting Mt99 (Reply 5): And Fannie and Freddie bought these instruments based on ratings.. right?

Yes, which is another problem I have with the new regulations. The government needs to do much more to regulate the CRA's. They are one of the biggest factors in this mess. The new regulations don't do anything to change how the CRA's operate.

Quoting Max550 (Reply 7): The government needs to do much more to regulate the CRA's.

And the CRA's are owned by the government?

(i know.. i am just being facetious to prove a point)

How come the CRA never get blamed?

Quoting Max550 (Reply 4): Agreed. Had the Republicans not repealed the Glass-Steagall Act we may have never had the kind of problems we've had in the past few years.

I've heard this argument many times and nobody has been able to explain how the recent problems and Glass-Steagall were cause-related. It sounds like one of those sound bytes made up for people to pretend to know what they are talking about.

Quoting Max550 (Reply 4): Agreed again. Had the government regulated the industry more and not allowed Fannie and Freddie to leverage their assets 20:1 and 70:1 we may not be in the mess we're in.

Many people sounded the warning bells about this problem over the last 8 years, including GW Bush, only to be ignored by Congress.

Quoting Max550 (Reply 4): Fannie Mae and Freddie Mac were not run by the government, they were government sponsored enterprises, which are private companies that were publicly chartered.

But they took their instructions from the government. They were under orders to buy increasing amounts of sub-prime mortgages over the last 15 years, with the implicit guarantee that the Fed and Congress would back them up.

Quoting Max550 (Reply 4): First off, they didn't collapse the entire industry. The banks that gave out the mortgages that Fannie and Freddie bought are the reason for the collapse.

Would the banks have sold those mortgages had CRA not been in place, and Fannie/Freddy not been in the mix as marketmaker? No they would not have. Risky mortgages would have carried a higher interest rate and near junk-valuations, which would have eliminated the whole purpose of "Affordable Housing" - the house of cards Congress built.

Quoting Max550 (Reply 4): Second, they will be affected by the new regulations, their new regulations were done earlier in the year though. http://money.cnn.com/2009/01/23/news...x.htm

That was back in january. When Turbotax Tim was asked the other day why no new regulations have been applied to Fanny/Freddie, he said quite clearly that they did not think it was that urgent, and that they "would get to it in time".

Quoting Max550 (Reply 4): Or a lack of government intervention, which caused the markets to do anything they could to make short term profits, with no regard for the future.

I would also want to unload mortgages that I was forced by regulations to make at interest rates that did not meet my risk criteria.

Look, the market rules are simple. If you don't have any money down, and the bank has to take all the risk, the appropriate interest rate SHOULD be up in the 20% range, which obviously would make the home unaffordable. If you have some money down, but have a bad credit history, you should have an interest rate 3-4% higher than if you have an excellent credit history. If you have neither money down or good credit, well, you should be renting, end of story.

This is what the market would have done if left to its own devices. CRA and other government regulations forced banks to offer people with no money down and poor credit mortgages at damned close to low-risk rates. Of course the whole house of cards was going to come down - what else could it do.

Macroeconomics is like gravity or any other law of nature. It seeks equilibrium. You can divert nature for a while, like building a levee to hold back a sea or an airplane to fly, temporarily and by expending energy, but eventually, nature will win. The whole CRA/Affordable Housing program is nothing different than building an airplane and claiming that it will never need to land.

The free market already has a proper and efficient means of providing affordable housing. It's called "Rent".

Quoting Max550 (Reply 4): This I have to agree with you on. The new regulations need to go further. A bank should be required to keep more than 5% of a loan they give to someone. That's what they have to keep under the new regulations. I wish the government would go further so that the banks have a bigger stake in the loans they are giving out.

I agree with their keeping a stake. But if they are keeping a stake, then government should butt out of telling them what they have to sell.

Quoting Max550 (Reply 7): Yes, which is another problem I have with the new regulations. The government needs to do much more to regulate the CRA's. They are one of the biggest factors in this mess. The new regulations don't do anything to change how the CRA's operate.

Agreed, to a point. CRA's have far too much power in this country in particular. That said, there are few real barriers to entry for a company to become a CRA and compete. The CRA that provides the best quality ratings should dominate after a while.

Quoting Dreadnought (Reply 9): Many people sounded the warning bells about this problem over the last 8 years, including GW Bush, only to be ignored by Congress.

Awww poor GWB had no say in the issue. He did not have ANY power at all against that evil evil congress - he was just the President. Where does the buck stops again? Was Bush a powerless President?

Where Leaman Brother/Country Wide/Citibank complaining when they were making Billions?

Quoting Mt99 (Reply 10): Awww poor GWB had no say in the issue. He did not have ANY power at all against that evil evil congress - he was just the President. Where does the buck stops again? Was Bush a powerless President?

He takes a lot of blame. He could have been more vocal about it. There is plenty of blame to go around.

But you know, I think this is one of those things that just could not be stopped. Politically it had become a third rail, and as much as people could warn against it, the simple fact was that killing the program (which was and still is the thing that needs to be done) is political suicide for any congressman who tried it. Which is just one more reason why we should never allow the government so much power to begin with, they just can't help snowballing it. Just wait until they get their hands on healthcare!

Quoting Dreadnought (Reply 11): Politically it had become a third rail, and as much as people could warn against it

Politically and economically. The stock market was sky rocketing. Who wants to be a party pooper? The banks? President Bush?

Quoting Max550 (Reply 4): Agreed. Had the Republicans not repealed the Glass-Steagall Act we may have never had the kind of problems we've had in the past few years.

Umm, it was a veto proof majority vote in Congress that passed it. Signed into law by President Clinton in 1999.

From Wikipedia:

"The bill that ultimately repealed the Act was introduced in the Senate by Phil Gramm (Republican of Texas) and in the House of Representatives by Jim Leach (R-Iowa) in 1999. The bills were passed by Republican majorities on party lines by a 54-44 vote in the Senate[12] and by a 343-86 vote in the House of Representatives[13]. After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90-8 (1 not voting) and in the House: 362-57 (15 not voting). ' The legislation was signed into law by President Bill Clinton on November 12, 1999. [14]" President Obama's New Financial Reform To Protect (by Propilot83 Jun 20 2009 in Non Aviation)

Quoting Mt99 (Reply 12): Politically and economically. The stock market was sky rocketing. Who wants to be a party pooper? The banks? President Bush?

Agreed. But here lies the problem. Generally something like that gets worse and worse and it takes a disaster for realization to set in and for the problem to be fixed.

But here we are, 9 months after the onset of the crash, and have you heard a SINGLE voice in congress say, "let's scrap CRA"? I haven't. As long as the government continues to artificially make the uncreditworthy creditworthy, it will continue to be bubble/bust.

Quoting Dreadnought (Reply 14): SINGLE voice in congress say, "let's scrap CRA"? I haven't. As long as the government continues to artificially make the uncreditworthy creditworthy, it will continue to be bubble/bust.

Aren't CRAs independent?

Quoting Mt99 (Reply 15): Aren't CRAs independent?

Community Reinvestment Act of 1977. The law that allowed government to give quotas to banks to force them to make cheap loans available to those who would not qualify under normal rules - the distortion of the market I was talking about.

Quoting Dreadnought (Reply 9): I've heard this argument many times and nobody has been able to explain how the recent problems and Glass-Steagall were cause-related. It sounds like one of those sound bytes made up for people to pretend to know what they are talking about.

It would have prevented banks from getting "too big to fail." When Glass-Steagall was law, banks weren't allowed to invest their deposits in securities because they were seen as too risky to the gov't (since they subsidized the banks insurance through the FDIC.) After it was repealed a bank could give someone a mortgage, then have another part of the company sell the mortgage as a mortgage backed security to other investment firms and banks. That's fine until the company realizes they can make lots more money by giving out lots of mortgages and selling them off to other companies, with very little future risk since they would no longer own most of the mortgage.
Had Glass-Steagall not been repealed I don't think the crisis would have been as large as it was because there would have been less money involved. Banks are where most of the money is kept so by allowing banks into the investment markets you're making the amount of money involved much larger.
We would have still had a crisis, but the government wouldn't have had nearly as much liability and the banks would not be in the situation they are in now.

Quoting Dreadnought (Reply 9): Many people sounded the warning bells about this problem over the last 8 years, including GW Bush, only to be ignored by Congress.

I know that Bush was one that sounded the warning bells, but he didn't do anything about it. He could have made it a priority and I doubt the Republican House and Senate would have still ignored him. I don't blame him for the crisis, it built up over many decades, but to make it sound like he wanted to avoid the crisis but couldn't because of Congress is ridiculous.

Quoting Dreadnought (Reply 9): Would the banks have sold those mortgages had CRA not been in place, and Fannie/Freddy not been in the mix as marketmaker? No they would not have. Risky mortgages would have carried a higher interest rate and near junk-valuations, which would have eliminated the whole purpose of "Affordable Housing" - the house of cards Congress built.

First you ask if the banks would have sold their mortgages had CRA's not existed. Then you say they wouldn't have because they would have near junk valuations. Who would have given them these near junk valuations?
(Now I see your last post is about the Community Reivestment Act, not Credit Reporting Agencies so it makes more sense).

Quoting Sv7887 (Reply 13): Umm, it was a veto proof majority vote in Congress that passed it. Signed into law by President Clinton in 1999.

I know, was I defending Clinton in my other post? Clinton shares the blame with all the other politicians from the last couple decades. As for Congress, they're funded by the financial institutions, regardless of party. I don't see that going away until we have publicly funded elections.

Quoting Dreadnought (Reply 16): Community Reinvestment Act of 1977

I thought we were talking about Credit Rating Agencies. The ones who valued the packaged mortgages that got taken over by Fannie and Freddy. AKA Fitch, Standards and Poors.. ect..

You know the ones looked at the re-packaged loans from banks who were forced by evil government entities to take risk and make billions in profits against their will (please don't twist my arm!!) - and said: Yep these are sound investments...

Quoting Max550 (Reply 17): First you ask if the banks would have sold their mortgages had CRA's not existed. Then you say they wouldn't have because they would have near junk valuations. Who would have given them these near junk valuations?

What I meant was that if banks wanted to resell all their mortgages, and normal market rules applied, the sub-prime mortgages would have been resold at a substantial discount to reflect a higher interest rate, just like Fed bonds. Basically, they would have lost money on the deal, and would have stopped the practice. The fact that Fanny and Freddie were there under orders to buy up as much of the sub-prime loans as they could made them the marketmaker for the primary market. The secondary market just follows the leader. All this allowed the banks to liquidate these mortgages at profitable levels (market distortion) which without government interference could not happen. Last I heard, 50% of all mortgages purchased by Fanny/Freddie were supposed to be sub-prime/high-risk/low-interest. A perfect storm in the making.

Quoting Dreadnought (Reply 3): The "mess" as you call it, in spite of strident attempts to point the finger at everyone else, was caused by government intervention in the credit markets that caused a distortion in the markets behavior. What do you expect happens when too much credit is given with inadequate securitization, and artificially low interest rates, as mandated by the government? You get what we got. And we will get it again, because all these new regulations do not address this simple truth (including all the other laws and bailouts and executive orders passed since last September). It is just an excuse to extend more control, and NOTHING has been done to avoid this happening again.

        

Yep. I hear a lot of people blaming the "free market" when the market wasn't free to begin with! If it was truly a free market most of the sub-prime mortgages would never have happened because private banks wouldn't have qualified those people in the first place.


What is the reason behind Fannie and Freddie anyway? I don't understand it. What's the history behind their formation?

Why not just let private banks deal with loans? That's how it's done here.

Quoting Mt99 (Reply 18): I thought we were talking about Credit Rating Agencies. The ones who valued the packaged mortgages that got taken over by Fannie and Freddy. AKA Fitch, Standards and Poors.. ect..

Yep, got a little confusing talking about 2 different CMAs there. Only just realized.

Quoting Mt99 (Reply 18): You know the ones looked at the re-packaged loans from banks who were forced by evil government entities to take risk and make billions in profits against their will (please don't twist my arm!!) - and said: Yep these are sound investments...

The only reason the agencies gave them high ratings was this this implicit guarantee that the US government was standing behind the securities. Otherwise, as I said, they would have been rated as near-junk - high risk, low interest rates, and would have thus been sold at a substantial loss. That would have killed the business and disaster would have been averted before it ever grew.

One more case of government screwing up whatever it touches. Wonder what they will do with healthcare, hmmm.

Quoting VonRichtofen (Reply 20): sub-prime mortgages would never have happened because private banks wouldn't have qualified those people in the first place.

Ill give that some of the blame. Was it the main cause? Debatable.

One thing you cannot deny the fact that financial institutions were making money hand over fist while this was going on - and they were loving it.

Quoting Mt99 (Reply 22): One thing you cannot deny the fact that financial institutions were making money hand over fist while this was going on - and they were loving it.

They were taking advantage of a government-designed program that allowed them to make money and distribute the risk. You can't blame them for doing what they are supposed to do - make money. You blame the government which designed a poorly conceived system in an attempt to distort the market in their favor (politically). But you can only fool the market for so long.

Quoting Max550 (Reply 17): I know, was I defending Clinton in my other post? Clinton shares the blame with all the other politicians from the last couple decades. As for Congress, they're funded by the financial institutions, regardless of party. I don't see that going away until we have publicly funded elections.

I don't think it was even Clinton's fault per se. Even though I'm Republican, I think Clinton was a pretty good President compared to the likes of Bush and Obama. I will fault him for the rampant accounting fraud that occurred under his watch, that he IS responsible for.

But it's not just Congress. The American people just live in a state of denial. The pathetic financial state of California just shows this. They want a nanny state, don't want to pay for it, and then complain when massive deficits results.

People overextended themselves. The personal savings rate was negative before the recent market crash. People "Had to Have" the house, the car, the vacations, etc.

As for the subprime loans, people knew damn well what they could afford. I don't care how you massage the numbers, someone making 40-50K a year should not be buying a 300K house. You know what you cannot afford. And if you have to resort to ARM, and other financial tricks, you definitely can't afford it.

It's not just the housing market, you should see how some people finance cars. I've seen some 72 month loans to stretch out payments to make them "Affordable" No one should be financing a car for that long.

Quoting VonRichtofen (Reply 20): What is the reason behind Fannie and Freddie anyway? I don't understand it. What's the history behind their formation?

They are semi government institutions created to maintain liquidity in the mortgage markets. That is, they buy up mortgages from the private sector to keep the flow of money going to the lending markets.

It's pure government intervention when you don't need it. All it does is just pass the risk from the private sector to the government and as we've seen the taxpayers in the end.

That said, it wasn't JUST the government. Mortgage brokers and assessors were equally fallible. Wall Street firms like Moody's just slapped AAA ratings on the Subprime Mortgage Backed Securities on the basis on shaky correlations. (Look at Li's Theory)

Derivatives are a prickly business. The big banks should have known better, but they were chasing profit. This was especially true in the case of Merrill Lynch. Goldman Sachs I believe was a bit quicker on the uptake, and as a result they're doing well now.

Quoting Dreadnought (Reply 23): You can't blame them for doing what they are supposed to do - make money.

So they knew the risk that they where taking? And they proceeded, and kept taking the risk. Walking closer to the edge.

Why have guard rails in ledges.
I am sure car companies can make more money if they don't provide seat belts or air bags.

Don't blame me I was just making money ! Are you serious?

Quoting Dreadnought (Reply 23): But you can only fool the market for so long.

The market fooled itself..

[Edited 2009-06-23 15:35:55]

Quoting Mt99 (Reply 25): So they knew the risk that they where taking?

What risk? These mortgages were "federally insured". A term that has been bandied around for a couple of generations but we found out meant nothing.

Quoting Mt99 (Reply 25): The market fooled itself..

Government fooled the market (for a while). If the market can be blamed for anything, it was believing what the government told it.

Quoting Dreadnought (Reply 23): They were taking advantage of a government-designed program that allowed them to make money and distribute the risk. You can't blame them for doing what they are supposed to do - make money.

I'll ask again - whose money was it?

Who's responsible for Jimmy's money? Jimmy. So, when Jimmy makes a bad play and it fails, how can you blame the government?

That's like blaming the government for allowing me to go to Las Vegas if I go there and lose all my money.

Quoting D L X (Reply 27): That's like blaming the government for allowing me to go to Las Vegas if I go there and lose all my money.

Warped logic. The casinos would exist even if governement were not involved. Jimmy would not have gotten that loan if the government had not been involved.

People still refuse to see it even if it stares them in the face. The sub-prime market was a creation of the government. They created the rules and played the role of marketmaker. 100% of the responsibility was theirs.

Quoting Dreadnought (Reply 28): The sub-prime market was a creation of the government.

No it ain't. The sub-prime market is a naturally occurring phenomenon of economics just like the "market filled with people with weely weely high credit ratings" is. Just like casinos would pop up regardless of regulation, this market always existed, regardless of regulation. The only thing that changed was that it became allowable to access the sub-prime market and sell them mortgages, just like it became allowable to access casinos.

Quoting Dreadnought (Reply 28): 100% of the responsibility was theirs.

Charles,

WHOSE MONEY WAS IT? (That's the third time.)

Quoting D L X (Reply 29): WHOSE MONEY WAS IT? (That's the third time.)

What money?

Quoting D L X (Reply 27): That's like blaming the government for allowing me to go to Las Vegas if I go there and lose all my money.

The GSEs bought all your Las Vegas bets, before the games were over. That means you make money without incurring the risk of losing it. Without proper due diligence in choosing which to buy and which to refuse, loose risk-taking ensues (no money down, etc).

If you have a good CEO, who doesn't want to jump on the bandwagon because he sees the problems, he is likely to end up getting fired because he can't keep up with the subsidized and reckless competition (GSEs). He gets branded incompetent, a fool, etc and ends up replaced by a truly incompetent risk-taker and we have another organization going down the tubes.

This without getting into the loose monetary policy, what really blew this out of proportion. Bubble-economics, presented by Paul Krugman:

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

This guy's insane.

Quoting D L X (Reply 29): The only thing that changed was that it became allowable to access the sub-prime market and sell them mortgages, just like it became allowable to access casinos.

I'm not sure what you mean by this.

Quoting Dreadnought (Reply 14): But here we are, 9 months after the onset of the crash, and have you heard a SINGLE voice in congress say, "let's scrap CRA"? I haven't. As long as the government continues to artificially make the uncreditworthy creditworthy, it will continue to be bubble/bust.

Umm, no. Some facts about the CRA:
- It was passed in 1977. If it's so bad, why didn't it hurt us until now?
- Clinton enforced its provisions more heavily than Bush. Why did the crash come under Bush and not Clinton?
- Fifty percent of subprime loans came from institutions not governed by the CRA. Another twenty-five percent or so of them came from institutions only partly governed by the CRA.
- CRA-governed loans tended to have lower interest rates and were less likely to be resold.
- There is no statistical difference in foreclosure rates between CRA-regulated institutions and non-regulated institutions.
- The CRA reads in part:

Quote: It is the purpose of this title to require each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.

The law specifically states that the banks are not required to do anything inconsistent with sound banking practice. Any loans given to uncreditworthy individuals were not required by the CRA - they were the bank's decision.

Quoting Yellowstone (Reply 32): The law specifically states that the banks are not required to do anything inconsistent with sound banking practice. Any loans given to uncreditworthy individuals were not required by the CRA - they were the bank's decision.

Then you might want to explain this:

"Community bank finds paranoid a smart bet FDIC begs to differ, tells bank to lend more"

"Joseph A. Petrucelli is one of the most cautious bankers in America.

In fact, Petrucelli is so cautious that the Federal Deposit Insurance Corp. recently criticized his bank for not lending enough.

The FDIC’s negative review of East Bridgewater Savings Bank’s loan volume is an anomaly in today’s current banking scene as lenders reel from their role in offering too many cruddy mortgage products to borrowers with weak credit.

Still, the FDIC slapped East Bridgewater Savings with a rare “needs to improve” rating after evaluating the bank under the Community Reinvestment Act."

Source:http://boston.bizjournals.com/boston/stories/2009/03/16/story3.html

There are other instances of banks being sued by the Clinton Administration for so called discrimination against minorities.

The Federal Reserve actually tried to rewrite the lending standards based on a flawed study by the Boston Fed Branch "proving" minorities were discriminated against:

"the Boston Fed then called for what amounted to undermining many of the lending criteria that banks had used for decades. It told banks they should consider junking the industry’s traditional debt-to-income ratio, which lenders used to determine whether an applicant’s income was sufficient to cover housing costs plus loan payments. It instructed banks that an applicant’s “lack of credit history should not be seen as a negative factor” in obtaining a mortgage, even though a mortgage is the biggest financial obligation most individuals will undertake in life. In cases where applicants had bad credit (as opposed to no credit), the Boston Fed told banks to “consider extenuating circumstances”"

More on this:
http://www.realclearmarkets.com/arti...he_long_road_to_slack_lending.html

The government clearly pushed lower standards in the name of "Equal Opportunity Lending"
whether it was through the CRA or the reckless expansion of Fannie Mae and Freddie Mac.

Quoting Yellowstone (Reply 32): - It was passed in 1977. If it's so bad, why didn't it hurt us until now?

At first it was fairly small. Around 10% of the FM Twins' loans. Under Clinton it started to increase towards 50%

Quoting Yellowstone (Reply 32): - Clinton enforced its provisions more heavily than Bush. Why did the crash come under Bush and not Clinton?

Because Bush didn't hit the brakes on it. The effect is cumulative

Quoting Yellowstone (Reply 32): Fifty percent of subprime loans came from institutions not governed by the CRA. Another twenty-five percent or so of them came from institutions only partly governed by the CRA.

But CRA created the market that would not have existed (or at least would not have been so favorably valued).

Quoting Dreadnought (Reply 30): Quoting D L X (Reply 29): WHOSE MONEY WAS IT? (That's the third time.) What money?

The money that was lent out. In other words, who did the lending?

Quoting Dreadnought (Reply 34): Because Bush didn't hit the brakes on it. The effect is cumulative

So it was Bush' fault. Thank you.

Quoting Dreadnought (Reply 34): But CRA created the market that would not have existed (or at least would not have been so favorably valued).

You seem to know a lot about this. Why didn't you warn us in 2006/2007? You could have saved us al!!!

Quoting Sv7887 (Reply 33): Then you might want to explain this: "Community bank finds paranoid a smart bet FDIC begs to differ, tells bank to lend more"

Doesn't contradict what I said. It's entirely possible that Mr. Petrucelli's bank could have increased its loan volume to low income clients and neighborhoods without violating sound banking practice. The article states, in fact, that the bank in question had only 28 cents in loans for every dollar in deposits, while the average bank that size has 90 cents in loans per dollar of deposit--seems to me the bank could give out quite a few more loans without undue risk.

Quoting Sv7887 (Reply 33): The Federal Reserve actually tried to rewrite the lending standards based on a flawed study by the Boston Fed Branch "proving" minorities were discriminated against:

I agree that federal policy in the 1990s overprioritized home ownership, and tried to make it easier to get loans, but that was not part of the CRA.

Quoting Dreadnought (Reply 34): But CRA created the market that would not have existed (or at least would not have been so favorably valued).

That comment makes no sense. The CRA didn't make subprime lendees any safer. Even if the CRA did require banks to make bad loans--which it didn't--wouldn't the institutions not covered by the CRA still choose not to make bad loans? (Well, clearly, many of them did, but because of greed, not because of the CRA.)

Quoting Yellowstone (Reply 37): Doesn't contradict what I said. It's entirely possible that Mr. Petrucelli's bank could have increased its loan volume to low income clients and neighborhoods without violating sound banking practice. The article states, in fact, that the bank in question had only 28 cents in loans for every dollar in deposits, while the average bank that size has 90 cents in loans per dollar of deposit--seems to me the bank could give out quite a few more loans without undue risk.

They were using the CRA to cite him. The notion of lending to minorities without regard to their credit scores, employment history, is risky by definition which is what the CRA is all about.

Quoting Yellowstone (Reply 37): That comment makes no sense. The CRA didn't make subprime lendees any safer. Even if the CRA did require banks to make bad loans--which it didn't--wouldn't the institutions not covered by the CRA still choose not to make bad loans? (Well, clearly, many of them did, but because of greed, not because of the CRA.)

The CRA did require them to make loans to "high risk" groups under the premise of equal opportunity loans. If they didn't they were sued:

See this article from the 1990's

http://www.nytimes.com/1994/10/30/us...its.html?sec=&spon=&pagewanted=all

The government created the market with legislation like the CRA. It only exacerbated the problem in the 1990s with the flawed Boston Fed study claiming minorities were being discriminated against. Then add the reckless expansion of Fannie Mae, Freedie Mac, and low interest rates from the Fed and you have the origins of this mess.

Quoting Dreadnought (Reply 34): Because Bush didn't hit the brakes on it. The effect is cumulative

Quoting Mt99 (Reply 36): So it was Bush' fault. Thank you.

Both Bush AND McCain tried to do something about it but the Dems would not listen. Just look and see where Fannie and Freddies PAC and campain money go.

There would have been a simple way to avoid this mess, make the loans zero percent interest for the life of the loan.

The real problem was, a "high risk" borrower making 2000 dollars a month after taxes buys a 400,000 dollar house at say zero percent interest, but it's an ARM, so that zero percent is only good for a year, at the end of the year, the borrower, who can afford his 1000 dollar a month mortgage payment, suddenly finds that thanks to his poor credit rating, his rate has jumped to 11 percent, so all of a sudden, his mortgage payment jumps to 2100 a month, since the borrower only makes 2000 a month, he can't make the payment, the house goes into foreclosure and he loses everything. Is he really to blame? or is it the market itself, which is greedy?

IMO, the best way we can avoid this kind of mess in the future is to institute a 5 percent interest rate cap regardless of credit rating.

What happened, in the end, was that the investors got greedy, they wanted more money back to buy higher risk loans from banks. Take the greed out of the equation, set a reasonable return on investment, like 5 percent, and everyone will be happy. The investor makes a little bit of money and the homeowner can stay in the house and keep making his payments.

Finally, Dreadnought's solution seems to be that anyone who doesn't have perfect or near perfect credit should just rent. the problem with that is that it's often more expensive to rent than it is to own, and in the end, you get nothing out of it when you rent. When i moved to southern california, i rented a 650 sq foot rabbit hutch in Newport Beach for 800 dollars a month, three years later, the complex was sold, the new owners jacked up rent to 1100 per month for the same 650 square foot rabbit hutch, so i bought a condo in another town, my monthly mortgage payments, at first, were 843 per month, and i later reduced them to 700 a month. In the end, i had a great 936 sq foot condo for 400 per month less than what it would have cost me to rent a smaller place. Renting is not the panacea it seems to be.

Quoting D L X (Reply 35): The money that was lent out. In other words, who did the lending?

The bank. Using money borrowed (for which they must pay interest for and are responsible for) from their depositors, investors or the government.

Quoting NorthstarBoy (Reply 40): he can't make the payment, the house goes into foreclosure and he loses everything. Is he really to blame? or is it the market itself, which is greedy?

He is. The bank and the customer signed a contract. The bank promised to pay for the house, and the customer promised to meet the payment schedule over time. The bank lived up to its part of the agreement. If the customer was not ready to live up to his side of the bargain, it's 100% on him. BTW, only the dimmist of idiots would ever sign an ARM.

Quoting NorthstarBoy (Reply 40): IMO, the best way we can avoid this kind of mess in the future is to institute a 5 percent interest rate cap regardless of credit rating.

Do that and you will find that only people with excellent credit will get any loans. If you unreasonably cap interest rates, banks can't make enough margin to buffer against defaults. Although it might work if the down payment becomes variable - eg if you have bad credit, you can get the low interest rate but only if you put 40-50% down.

Quoting NorthstarBoy (Reply 40): What happened, in the end, was that the investors got greedy, they wanted more money back to buy higher risk loans from banks. Take the greed out of the equation, set a reasonable return on investment, like 5 percent, and everyone will be happy. The investor makes a little bit of money and the homeowner can stay in the house and keep making his payments.

Without risk premiums, nobody would loan any money. What if one of your acquantances came up to you. He wants to buy a house, but has no money. You know that he's had debt problems before. He asks you to lend him 110% of the value of the house (to cover the house, closing costs and a little money to redecorate). Would you be happy with a 5% interest rate?

Quoting NorthstarBoy (Reply 40): Finally, Dreadnought's solution seems to be that anyone who doesn't have perfect or near perfect credit should just rent. the problem with that is that it's often more expensive to rent than it is to own, and in the end, you get nothing out of it when you rent.

Rent allows you to live without making commitments you can't keep. Save your money to make a down payment and look to buy. But in the meantime, rent. We've all done it. There is nothing wrong with it.

Quoting Dreadnought (Reply 41): Quoting D L X (Reply 35): The money that was lent out. In other words, who did the lending? The bank. Using money borrowed (for which they must pay interest for and are responsible for) from their depositors, investors or the government.

So how can you blame the government for the BANK lending out the money the BANK is responsible for? Sounds like the BANK should have kept better care of the money that it was responsible for, doesn't it?

Quoting D L X (Reply 42): So how can you blame the government for the BANK lending out the money the BANK is responsible for? Sounds like the BANK should have kept better care of the money that it was responsible for, doesn't it?

I suppose you skipped the references to CRA, and the various tactics used by the government to force banks to make these loans. Janet Reno was famous for threatening banks with investigations and lawsuits if they did not tow the line. CRA regulations were rewritten in 1995 to make them more performance-based - i.e. outcome-based. In other words, if you did not make your quota of risky loans, you had no excuse.

CRA was originally developed to combat "redlining", or so they say. Red-lining is wrong and this is a legitimate area of concern. No community should ever be denied access to credit on a blanket basis. However, that does not mean loans should have been granted to people without the financial ability to meet their obligations. Unfortunately, the CRA, particularly after the 1995 revisions, led to such lending practices not only by CRA-regulated institutions, but to the adoption of such practices industry-wide (because of the marketmaker effect).

Quoting Sv7887 (Reply 38): See this article from the 1990's

Anything from this century? Where were the cries of pain of the banks in 2005-2007?

Quoting Ual777 (Reply 39): Both Bush AND McCain tried to do something about it but the Dems would not listen. Just look and see where Fannie and Freddies PAC and campain money go.

Aww poor powerless President Bush. 8 year. Siting with his hands tied for 8 years. So Sad.

Quoting Dreadnought (Reply 43): I suppose you skipped the references to CRA, and the various tactics used by the government to force banks to make these loans.

So you are saying that when 60% (give me a better number) of all the loans coming in where CRA the government should have intervened? Who was in charge then? hmm