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« Reply #25 on: July 08, 2012, 06:14:53 pm »
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A textbook right-winger explanation of the 2008 housing/financial crisis:

CARTER CLINTON DEMOCRATS BIG GUBMINT POOR PEOPLE STUPID BANKS=VICTIMS OMG
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« Reply #26 on: July 08, 2012, 06:38:01 pm »
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The crash was caused by the collapse of the housing bubble.  The housing bubble was caused by the government (yes, including some liberal Republicans like Bush) forcing lenders to make politically-correct loans to "eliminate the racial gap in housing".

I know you don't actually believe what you just typed, so I won't dignify it with much of a response.

Suffice to say that the "Community Reinvestment Act caused the GFC!!!!!1111" 'theory' has been thoroughly debunked, to the extent it was taken seriously at all - not least because, as Ernest points out, the vast, vast majority of subprime lending was by banks that weren't even subject to the Act in the first place.

Here's the remarks of Randall Kroszner, who was one of the Governors on the Federal Reserve board. And, since you'll undoubtedly dismiss this, a member of the Bush administration and notable Chicago school economist - not exactly a bleeding-heart socialist. Smiley

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Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.

But by all means continue peddling the kind of bulls--t that only persists in the racial fantasies of Free Republic posters. It's not like you're going to listen to me, or do any research at all. Smiley
I'm not saying Krozner isn't right (he might well be) but him being from the Bush administration doesn't lend him credibility in the direction you are suggesting. W. Bush agreed with CRA-type policies - it was part of his vision of the "ownership society."
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« Reply #27 on: July 08, 2012, 10:15:30 pm »
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The crash was caused by the collapse of the housing bubble.  The housing bubble was caused by the government (yes, including some liberal Republicans like Bush) forcing lenders to make politically-correct loans to "eliminate the racial gap in housing".

I know you don't actually believe what you just typed, so I won't dignify it with much of a response.

What did I say exactly (quote me please) that you think is "impossible to believe"?

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Suffice to say that the "Community Reinvestment Act caused the GFC!!!!!1111" 'theory' has been thoroughly debunked, to the extent it was taken seriously at all - not least because, as Ernest points out, the vast, vast majority of subprime lending was by banks that weren't even subject to the Act in the first place.

Don't get hung up on the CRA.  It was only one of the tools in the toolbox of the people trying to use government sticks and carrots to "close the racial gap in housing".  There were lots of tools.

[quoteHere's the remarks of Randall Kroszner, who was one of the Governors on the Federal Reserve board. And, since you'll undoubtedly dismiss this, a member of the Bush administration and notable Chicago school economist - not exactly a bleeding-heart socialist. Smiley[/quote]

OK.  I looked at it.  I see what look like a lot of "weasel words" which he uses to shape his statistics the way he wants.  But no matter.  As I said, the CRA was only one -- but also one of the best known -- of the government interventions for "close the racial gap in housing". 

I didn't want to start naming them all, but look at the Housing Act of 1992 and see what it did to Fannie Mae in terms of quotas for loans.  (Fannie Mae wasn't a "CRA-covered institution", to use Kroszner's term.)

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It's not like you're going to listen to me, or do any research at all. Smiley

I'm told I'm a great listener.  And research is pretty much what I do all day long.  Go ahead, make my day.
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« Reply #28 on: July 09, 2012, 01:22:33 am »
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Ok, what caused the crash if not the collapse of the housing bubble?

Capitalism, buddy - it always crashes.  That is simply what it does - its a failed system.  Time to move on.

How can something we do not have in this country, "The Bad Place", have caused the crash? (See signature if confused)
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« Reply #29 on: July 09, 2012, 08:08:08 am »
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Ok, what caused the crash if not the collapse of the housing bubble?

Capitalism, buddy - it always crashes.  That is simply what it does - its a failed system.  Time to move on.

How can something we do not have in this country, "The Bad Place", have caused the crash? (See signature if confused)

Excellent "Five Steps to Corporatism".
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« Reply #30 on: July 09, 2012, 08:36:05 am »
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Making irresponsible sub-prime loans was hugely profitable for companies. Small banks led the way and big banks followed, with Fannie Mae and Freddie Mac bringing up the rear. Banks had a license to print money through fees and commissions, and they used it. That's why CRA and "other tools" didn't enter into the equation.
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WhyteRain
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« Reply #31 on: July 09, 2012, 09:57:22 am »
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The crash was caused by the collapse of the housing bubble.  The housing bubble was caused by the government (yes, including some liberal Republicans like Bush) forcing lenders to make politically-correct loans to "eliminate the racial gap in housing".

Oh, come on. You can't honestly believe that the banks weren't happy to make those loans. Housing prices were always going up. It was win-win.

Housing prices rose because of artificially high demand created by "closetheracialgap" loan requirements of the federal government.

It was indeed a "win-win" for the borrowers and lenders because the bad loans were guaranteed by the taxpayers.  For the taxpayers, it was "lose-lose-lose-lose-lose-lose-lose-lose-lose".

I've seen a lot of people say that "the credit ratings agencies were at fault for overrating the mortgage-backed securities (MBS)".  But by ignoring the taxpaper guarantees, these people mistake what the ratings meant.  The credit rating agents were not saying, "These securities are full of great, sound mortgages!"; what they were saying was, "These securities are full of crappy mortgages, but they're guaranteed by the taxpayers, so they're golden!"

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It's a complex issue and everyone deserves their fair share of the blame: The government, the banks, and the people buying homes they really shouldn't have been buying.

It's not that complex.  The government had a policy:  "Close the racial gap in home ownership".  In pursuit of this policy the government had a stick:  Quotas on mortages.  See the Housing Act of 1992 that imposed progressively higher quotas on non-CRA lenders like Fannie Mae.  More importantly, it had a carrot:  Taxpayer guarantees for bad mortgages.  The lenders said, "Hmmm, these are horrible loans but they're no skin off our noses; if the borrowers can't pay us back, then the taxpayers will!"

Paraphrasing JFK, "Success has a thousand fathers; failure is an orphan."  All the "fathers" of the 2008 Financial Crash want to claim that it's an orphan.
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« Reply #32 on: July 09, 2012, 10:02:39 am »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.

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« Reply #33 on: July 09, 2012, 10:41:51 am »
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Ok, what caused the crash if not the collapse of the housing bubble?

Capitalism, buddy - it always crashes.  That is simply what it does - its a failed system.  Time to move on.

How can something we do not have in this country, "The Bad Place", have caused the crash? (See signature if confused)

Yes, that's right, capitalism is always better as a fantasy.
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« Reply #34 on: July 09, 2012, 12:51:32 pm »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.

Actually, no, government guarantees had absolutely nothing to do with the major profit system of the subprime market.  It was entirely a private enterprise.   There's a huge public misconception about it because it's made out to be incredibly complicated, but really it's not.  It's, in effect, a life insurance scam.  And I hope you read this, WhyteRain.

First off, you start off with the subprime lenders, guys like Countrywide.  Contrary to popular belief, they really aren't players here.  They are manufacturers for the real players: investment banks and insurance companies, or best yet investment/insurance companies.

So, let's say you're Countrywide and you manufacture $750 million in terrible sh**tty loans.  You know that these loans are highly likely to fail.  In a normal, regulated loan system this would be a path to bankruptcy.  $750 million in loans and likely only $50 million worth of them will end up paying them back.  How does one profit here?  Simple, they sell the debt.  

In comes our first player, the investment bank.  Countrywide has $750 mil in terrible loans and needs to find some way to make a profit and so they go to Goldman Sachs and say, hey, we will sell you this $750 million in loans for $1 billion.  Goldman says yes and Countrywide profits $250 mil for making terrible loans.  But why Goldman Sachs buy these?  In a normal, government regulated loan system, Goldman would end up losing even more money than Countrywide, with $950 million in losses.  But this isn't a normal system, because in comes the next player.

The brains behind the operation is the second player, the investment/insurance bank--most famously played by AIG.   They know Goldman is running around with $1 billion in toxic assets that they bought from Countrywide and like any good insurance company, they know that all cars will crash, all people will die, and all homes will burn down eventually; and there's money to be made in the meantime.  AIG comes to Goldman with proposal: for a premium of $10 million per month, AIG will give Goldman a $2 billion insurance policy on those assets, if they were to fail.  In normal, regulated government system, this offer would be illegal.   There literally was a line in our US code that prevented this deal in the books until 1998, Gramm–Leach–Bliley Act allowed insurers and bankers to do business with each other.

The hugely profitable, totally irresponsible, entirely free market, system was now place.  AIG would profit $15 million a month (when combined with other similar deals billions a month) until an asset failed.  Goldman would sit and wait HOPING for loans to default so that way they could make the $1 billion profit of the insurance payout, which trumped any profits off mortgage interest.  At the same time, they would be ORDERING Countrywide to give out more bad loans for them to buy, hoping that they would default faster and they could collect AIG's money.  Everybody sees profit.

AIG would hope that they wouldn't default soon, or better yet, like life insurance systems, the annual profit from the premiums would outweigh the payout of a few $2 billion plans here and there.   The problem was in the housing bubble, the defaults all happened at one time: 2008.  AIG ended up owing Goldman Sachs some $150 billion in the end and Goldman wasn't the only insurer they worked with during this time.  That is why Goldman famous posted profits during the financial collapse.  They were the company all that bailout money was owed.  

So you see, it was the free market that created this profit motive.  In fact, the free market is far more efficient in these matters of risky bad business than the government, as violent economic swings are always hugely profitable.
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« Reply #35 on: July 09, 2012, 12:55:59 pm »
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One thing I hate about this forum... my story was pretty short, but it looks like a big lame wall of text that even I wouldn't read and I wrote it.
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« Reply #36 on: July 09, 2012, 04:15:37 pm »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.



I said it sounded crazy without acknowledging the role of government guarantees and then King went and proved it -- by trying to explain how it worked without acknowledging the role of government guarantees.

King, I have a few questions based on your explanation:

First, why would Countrywide loan $750 mil on $50 mil worth of assets?
Second, why would Goldman Sachs pay $1,000 mil for $50 mil worth of assets?
Third, why would AIG insure for $2,000 mil assets that were worth only $50 mil?

King, let me ask something else.  Let's say you're a banker and I come to you for a car loan.  I tell you I want to buy a Toyota Camry for $140,000 and I want you to lend me the money.  Are you going to do it?  After all, there's a lottttt of money you as the banker can make if I pay all the payments, right?  But let's say not only am I wanting to borrow $140,000 for a $35,000 car, you also learn that I'm unemployed and basically have no collateral -- other than the car -- for the loan.  Are you going to give me the money?  You could probably make $700 easy every month on the interest I'll pay you, so think hard!

I really need an answer on this loan question soon.
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« Reply #37 on: July 09, 2012, 04:24:03 pm »
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WhyteRain: In a roundabout way, it sounds a bit like you're trying to blame irresponsible blacks. I don't like it.

Even then, maybe the government was trying to close the racial gap. But don't just blame Congress. No one cared if these "irresponsible blacks" defaulted because the housing market was so active that foreclosures seemed like great things for the banks. Wall Street was happy.
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« Reply #38 on: July 09, 2012, 04:24:28 pm »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.



Tell us more how that works, with specifics as to the guarantees.
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Torie
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« Reply #39 on: July 09, 2012, 04:28:57 pm »
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The government put a lot of pressure on lenders to go the subprime route. The surprise is that the financial gurus were at once too stupid and greedy, so the suck loans were successfully sold on the secondary market on margin, to folks who had no idea what they were doing, or what was in the loan tranches. It was fine as long as housing prices kept going up (there was always an equity cushion). It was obvious that when prices stopped  going up, the loans would go bad. What we didn't know is that the quake would be a 9 on the Richter scale rather than a 7 due to the leverage at a 10-1 margin, or some insane amount, at which the securitized loan portfolios were purchased, thereby compounding the financial dislocation by a factor of 10 or so. It's true that in the financial industry, the players tend to focus on how to make a lot of money in the short term, and if it all later collapses, no problem, they have several million in their bank account, and can just lie on the beach until it blows over, and the next cycle begins.

Another little problem is that the market cannot hedge very well, or price, this kind of "omega" risk. When the 9 quake hits, all the gears and brakes in the system are stripped, and burnt out, and the financial vehicle spins out of control. One needs to plan for omega risk, and have a bomb shelter to survive it. That is why the wise have a portion of their portfolio in Treasuries and high grade munis. Given high grade short term corporate bonds take a tumble when the quake hits, in the Lehman quake that tumble being about a 15% drop nearly overnight. I was not a happy camper when that happened.
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« Reply #40 on: July 09, 2012, 04:32:57 pm »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.



Tell us more how that works, with specifics as to the guarantees.

If the government guaranteed everything, it would have been the government which failed, rather than all the financial institutions (and yes, almost all of them effectively did - all of them).  Smiley
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« Reply #41 on: July 09, 2012, 05:31:01 pm »
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WhyteRain: In a roundabout way, it sounds a bit like you're trying to blame irresponsible blacks. I don't like it.

I try not to let my emotions cloud my judgment.

I think there were a LOT of irresponible people who caused the financial collapse, and damned few of them were black.  (Franklin Delano Raines is the worst of the black offenders.  He's the reason why there have been no legal repercussions against the bankers:  Because he'd have to be the first one to go to prison.)

Quote
Even then, maybe the government was trying to close the racial gap. But don't just blame Congress. No one cared if these "irresponsible blacks" defaulted because the housing market was so active that foreclosures seemed like great things for the banks. Wall Street was happy.

That's actually one of the saddest parts of the whole debacle:  The people who the policy was designed to "help" were precisely the ones who it hurt the most.  I just heard on the radio today that while the net worth of the AVERAGE American sank 40% because of the Financial Crash, for BLACK Americans it was 53%.   (On average, blacks and other minorities were later getting "into the game" than whites were and therefore did not participate in the gains of the market, only the crash.)
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« Reply #42 on: July 09, 2012, 05:36:47 pm »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.



Tell us more how that works, with specifics as to the guarantees.

Here you go -- 22,300,000 hits:  http://www.google.com/#hl=en&sclient=psy-ab&q=how+do+federal+home+loan+mortgage+guarantees+work%3F
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« Reply #43 on: July 09, 2012, 05:41:03 pm »
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 It's true that in the financial industry, the players tend to focus on how to make a lot of money in the short term, and if it all later collapses, no problem, they have several million in their bank account, and can just lie on the beach until it blows over, and the next cycle begins.


True, and don't you wonder why?  Why in 1929 were the bankers leaping out of windows and going "SPLAT!" on Wall Street while in 2008 they scheduled their next yacht trip to the Caymans?
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« Reply #44 on: July 09, 2012, 05:45:32 pm »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.



Tell us more how that works, with specifics as to the guarantees.

If the government guaranteed everything, it would have been the government which failed, rather than all the financial institutions (and yes, almost all of them effectively did - all of them).  Smiley

I'm not sure what you're saying.

But a government never "fails" until people start refusing to accept the paper it prints and calls "money".  If banks or any other institution or person could do that, they'd almost never fail either.
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« Reply #45 on: July 09, 2012, 07:41:12 pm »
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Fannie Mae and Freddie Mac got into the subprime game late, long after the market was established. Other players got in first and made a killing.
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« Reply #46 on: July 09, 2012, 09:11:43 pm »
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Making irresponsible sub-prime loans was hugely profitable for companies.

You're right, but think about this:  In a free market, doesn't this sound crazy?

"Making irresponsible sub-prime loans was hugely profitable for companies."

We all know the REASON why the "irresponsible sub-prime loans were HUGELY PROFITABLE", but it seems we can't face it:  The irresponsible government guarantees.



I said it sounded crazy without acknowledging the role of government guarantees and then King went and proved it -- by trying to explain how it worked without acknowledging the role of government guarantees.

King, I have a few questions based on your explanation:

First, why would Countrywide loan $750 mil on $50 mil worth of assets?  Because they could turn around sell it for $1,000 mil.
Second, why would Goldman Sachs pay $1,000 mil for $50 mil worth of assets?  Because they would make $2,000 mil if it failed.
Third, why would AIG insure for $2,000 mil assets that were worth only $50 mil? Because the premiums on the assets that don't fail or haven't failed yet would more than cover the cost.  See life insurance plans.  This was the equivalent of a life insurance company seeing all its clients die in the same year and owing more policies than it has assets.

King, let me ask something else.  Let's say you're a banker and I come to you for a car loan.  I tell you I want to buy a Toyota Camry for $140,000 and I want you to lend me the money.  Are you going to do it?  After all, there's a lottttt of money you as the banker can make if I pay all the payments, right?  But let's say not only am I wanting to borrow $140,000 for a $35,000 car, you also learn that I'm unemployed and basically have no collateral -- other than the car -- for the loan.  Are you going to give me the money? Yes, if I was told by higher ups to say yes, which is what Countrywide told it's reps, what Goldman told Countrywide, and AIG told Goldman  You could probably make $700 easy every month on the interest I'll pay you, so think hard!  The income on interest in this system pales in comparison to the income earned on selling the debt.

I really need an answer on this loan question soon.

Also, it seems like you misunderstood what I mean by $750 mil on $50 mil.  It's $750 mil on $750 worth of homes, but about $700 mil worth of those risky mortgages end in foreclosure so it ends up only being worth $50 mil in payments from the borrowers.

Point is, it's a system that ran completely without a government involved and, in fact, thrived because there was no government intervention involved.
« Last Edit: July 09, 2012, 09:21:18 pm by King »Logged

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« Reply #47 on: July 10, 2012, 12:09:47 am »
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The crash was caused by the collapse of the housing bubble.  The housing bubble was caused by the government (yes, including some liberal Republicans like Bush) forcing lenders to make politically-correct loans to "eliminate the racial gap in housing".

Oh, come on. You can't honestly believe that the banks weren't happy to make those loans. Housing prices were always going up. It was win-win.

Housing prices rose because of artificially high demand created by "closetheracialgap" loan requirements of the federal government.

It was indeed a "win-win" for the borrowers and lenders because the bad loans were guaranteed by the taxpayers.  For the taxpayers, it was "lose-lose-lose-lose-lose-lose-lose-lose-lose".

I've seen a lot of people say that "the credit ratings agencies were at fault for overrating the mortgage-backed securities (MBS)".  But by ignoring the taxpaper guarantees, these people mistake what the ratings meant.  The credit rating agents were not saying, "These securities are full of great, sound mortgages!"; what they were saying was, "These securities are full of crappy mortgages, but they're guaranteed by the taxpayers, so they're golden!"

Quote
It's a complex issue and everyone deserves their fair share of the blame: The government, the banks, and the people buying homes they really shouldn't have been buying.

It's not that complex.  The government had a policy:  "Close the racial gap in home ownership".  In pursuit of this policy the government had a stick:  Quotas on mortages.  See the Housing Act of 1992 that imposed progressively higher quotas on non-CRA lenders like Fannie Mae.  More importantly, it had a carrot:  Taxpayer guarantees for bad mortgages.  The lenders said, "Hmmm, these are horrible loans but they're no skin off our noses; if the borrowers can't pay us back, then the taxpayers will!"

Paraphrasing JFK, "Success has a thousand fathers; failure is an orphan."  All the "fathers" of the 2008 Financial Crash want to claim that it's an orphan.

HOLD UP! Idk if you realized but it was the bubble like nature of the housing prices had little to do with quotas and much more to do with speculative buying. The regionality of the housing boom and bust is basically relegated to CA, FL, AZ, NV and GA. When you have tens of shows about flipping houses and people using their house as a wallet rather than a homestead this happens.

Also regarding your 1929 suicidal bankers comment, I guess another Great Depression woulda been the solution too, right!? Honestly, bailing out the banks was the only thing we could have done.
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« Reply #48 on: July 10, 2012, 01:16:20 am »
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Hey Torie, what do you make of Richard Posner's argument that the biggest failure of the government in contributing to the facilitation of the housing crash was the Fed's not, from the middle of the decade on, inching up interest rates?  This, he argued, would have brought about a slower increase in price, a slowdown in speculation and given the financial institutions some time to deleverage.
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« Reply #49 on: July 10, 2012, 01:23:34 pm »
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Ok, what caused the crash if not the collapse of the housing bubble?

Capitalism, buddy - it always crashes.  That is simply what it does - its a failed system.  Time to move on.

How can something we do not have in this country, "The Bad Place", have caused the crash? (See signature if confused)

LOL, I swear diehard capitalists remind me of unreformed Marxists. "No, it's never properly been tried!" Grin
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Do not touch the bat or open the door. If there are any openings to the room containing the animal, seal them. Bats can collapse their skeletons to slip through a hole as small as the head of a pencil.
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