Romneymania keeps sweeping America.

[WhyteRain]

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.

OK, let's go through this, because you're HALF-right:  There was definitely some "upside" to holding the crappy loans -- the value of the underlying assets (the houses) were rising and so even if the borrowers defaulted the loan-holders might -- MIGHT -- be able to get their money back easily.  But keep in mind that they would get only THEIR money BACK; any "profit" would have to be given to the original borrower. 

So, you're right about the upside.  But you 100% ignore the downside. 

Maybe it would help if we talked about some OTHER real estate investments instead of homes.  How about farm land and commercial real estate and apartment complexes?  They, like houses, were increasing in value.  Why were there no "bubbles" in those in the 1990s and 2000s?  Why weren't there "liar loans" and "no money down loans" for those?  From a lender's POV what was the most important thing that distinguished a HOME loan from any OTHER kind of real estate loan in the 1990s and 2000s?

That's right:  Thanks to taxpayer guarantees, there was no downside!  It was "heads-the-lender-wins -- he gets all that interest income or he gets to sell the loan, tails-the-taxpayer-loses". 

If you're really a Republican, I'm surprised you hadn't already noticed this.  Don't Republicans know that "whatever you subsidize (through things such as loan guarantees) you get more of"?

[King]

What you're talking about really has nothing to do with the housing bubble or anything related to the economic collapse.  And if you're trying to insinuate that businesses do not have tremendous access to lines of credit even when in poor fiscal shape, then you're dead wrong again.

I'm not really sure Republicans do know anything about subsidies, considering many vehemently support them despite both being fiscally irresponsible and picking winners/losers.

[WhyteRain]

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!"

I'm pretty much a "diehard capitalist", but you're right.  Anyway, there never has been or will be a perfectly free market under the rule of law, I tell my capitalist friends.  But some of them are, as you say, as utopian as the Marxists they hate.

[old timey villain]

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.

OK, let's go through this, because you're HALF-right:  There was definitely some "upside" to holding the crappy loans -- the value of the underlying assets (the houses) were rising and so even if the borrowers defaulted the loan-holders might -- MIGHT -- be able to get their money back easily.  But keep in mind that they would get only THEIR money BACK; any "profit" would have to be given to the original borrower. 

So, you're right about the upside.  But you 100% ignore the downside. 

Maybe it would help if we talked about some OTHER real estate investments instead of homes.  How about farm land and commercial real estate and apartment complexes?  They, like houses, were increasing in value.  Why were there no "bubbles" in those in the 1990s and 2000s?  Why weren't there "liar loans" and "no money down loans" for those?  From a lender's POV what was the most important thing that distinguished a HOME loan from any OTHER kind of real estate loan in the 1990s and 2000s?

That's right:  Thanks to taxpayer guarantees, there was no downside!  It was "heads-the-lender-wins -- he gets all that interest income or he gets to sell the loan, tails-the-taxpayer-loses". 

If you're really a Republican, I'm surprised you hadn't already noticed this.  Don't Republicans know that "whatever you subsidize (through things such as loan guarantees) you get more of"?

WhyteRain, there's an old saying in politics that goes like this: "If you're explaining, you're losing."

This usually hurts Democrats, but this year, Romney can talk until he's blue in the face about how the financial collapse if the fault of liberal and Democratic policies. But in the end, most people are still going to blame Bush and the Republicans more than Obama.

[WhyteRain]

WhyteRain, there's an old saying in politics that goes like this: "If you're explaining, you're losing."

This usually hurts Democrats, but this year, Romney can talk until he's blue in the face about how the financial collapse if the fault of liberal and Democratic policies. But in the end, most people are still going to blame Bush and the Republicans more than Obama.

Thanks, cope, and you're right but I never suggested that any candidate try to "explain" the 2008 Financial Crisis.

The MSM and other far-left societal megaphones have already convinced most people that it was due to "deregulation" or "greed" or something.  No one can undo that programming in a campaign.

But it is important that we among the "illuminati" know the truth, so that if and when the time comes, we can provide the real reform necessary.

[SUSAN CRUSHBONE]

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!"

Both are true.

[Torie]

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.

I don't know, but it is not that interest rates were that low. I think it is more that folks could buy homes who were less credit worthy, and with a smaller or no down payment. With no payment, it is sort of like renting a house with a free option to buy. Who wouldn't take that option?  And once folks read that housing prices went up 15% or 30% in a year, the frenzy really gets going, as folks chase past performance. As long as the credit is there, the bubble can go on for a long time.