Gill

Actually, it did happen under a Democratic President, Jimmy Carter. The root of subprime mortgages traces back to the 1980 Depository Institutions Deregulation and Monetary Control Act (DIDMCA), signed into law by Jimmy Carter in 1980. This law eliminated state ceilings on mortgage loan interest rates, creating the subprime mortgage industry. This law also eliminated interest rate ceilings for home equity loans.

Sub-prime loans really took off in the 1990’s. Subprime mortgage loans grew from $35 billion in 1994 to $140 billion in 2000, an annual growth rate of 26%.

While I’m sure that subprime mortgages continued to grow after Bush became president, your partisan attempt to place the entire blame for this mess at Bush’s feet is disingenuous.

As usual, your partisan blinkers have grown completely over your face, making you blind to facts.

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There is so much unforced variability in the system which we can’t predict — the chaotic component of the climate system — which is not predictable beyond two weeks, even theoretically.
Gavin Schmidt, NASA GISS

Binary_Digit

Fine. Let them give loans to subprime borrowers. Then the borrowers and lenders both can eat the consequences of their dumb decisions. That is none of the Federal gov't's business, and it's disturbing to me that you think it should be involved to tell lenders who they can and cannot do business with.

I applaud Bush for deregulating the mortgage industry. If that led to the crisis we're seeing now, then it only indicates that lenders and consumers both needed the Federal teet popped from their mouth so they'll start making sound financial decisions on their own.

rhinefire

With so many folks losing their homes that means they are not paying taxes that go to schools and municipal services and that is where we will see some damage. This could go on for 2-3 more years according to some people.

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DeeJayH

According to most people i know, we will bottom this year and actually see gains by years end
that includes teh National Association of Realtors
New construction will take a year or two longer to recover due to the overbuilding and extra inventory

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Ikari

Deregulation most certainly exploded this problem, there is no doubt about that. It allowed banks to engage in very predatory type loans, and since banks are backed by the federal government they don't need to be worried. So instead of people saying these individuals should have known better and they lose their house (this is true), we should also be saying these banks and investment firms knew what they were doing and now it's time to let them fail. No government bailout if there is no regulation. Banks get a lot of special treatment, backed by the government (by my money) and are allowed to operate in manners most free business couldn't because of government (my government) garuntee. I'm fine with this, but if you're getting special treatment from my government and being backed by my money, then you are going to have to obey my rules. Regulation in this case is not a bad thing, it prevents this sort of thing from blowing up and we need that.

But here we sit, we're going to bail out the banks and wallstreet with more of my money because while we can let individuals get thrown out onto the street, heaven forbid if we ever let anything bad happen to the banks. Live by the sword, die by the sword. Y'all want to throw people out because of predatory lending practices and other effects caused by deregulation, then it's high time we chuck some bankers out too. Let the companies that made these loans fold, it's the only way for the market to learn its lesson. You can't run around always bailing a market out when it gets in trouble, they will act irresponsibly because of it. If we hold a standard to the individual, we should hold at least that standard to companies and banks.

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Gill

I think you are a little confused. Bank DEPOSITS are guaranteed by the Federal Government, but conventional mortgage loans are not. The only loans back by the government are FHA and VA loans. To my knowledge, FHA and VA does not allow subprime loans.

Secondly, I have not heard of any proposal to 'bail out' banks and mortgage companies for the subprime loans. The proposals I'm familiar with call for restructuring the loans to allow people some breathing room to catch up.

I do agree that mortgage companies share a lot of the blame for this mess, however the people that agreed to these loans also share much of it.

__________________
There is so much unforced variability in the system which we can’t predict — the chaotic component of the climate system — which is not predictable beyond two weeks, even theoretically.
Gavin Schmidt, NASA GISS

Cremaster77

You're right. In fact, a big part of the proposed solution, freezing rates, actual lays the burden of the financial loss on the financial companies. How is the government stepping in and saying to a mortgage company, "We know you signed a contract that would pay you 10% interest on the money you loaned, but you're going to take 5% and like it" bailing out the mortgage company?

TOJ

Come on guys. It's not fair to use facts and reality to refute a good story.

ashurbanipal

The Federal Reserve does make it a business to bail banks out. The primary reason to have a central bank in a fractional reserve system is just so it can bail out member banks with an infusion of liquidity when their cash flow is running short.

Remember all those stories a month or two ago about "Helicopter Ben?" Where do you think he dumped all that cash?

Depends on how convincingly all the bad paper can be covered over. I suspect they'll find a way to do it, but it's only going to prolong the inevitable. This should have happened under Clinton's presidency--see below.

The problem is, so will everyone else. One thing that happens when you have an economy is that when one suffers, all suffer to a degree. As more and more lose, the effect snowballs. Those people who can't afford their houses any more are people who won't be buying new flat screen TVs or going to Disneyland--and hence causing others to not be able to afford their homes. The people who lent them the money will lose a portion of it even after an eventual resale of the property (probably to an enterprising Chinese businessperson), and that's less money they have to loan to people who want to start new businesses. We are well past the time when a recession would just stay a recession, and the big boys understand that. The post 911 recession is the last one we will ever see. What's coming next (probably not as a result of this, but soon) is a Depression that will make 1933 look like child's play.

Then what is? What is the point of government that doesn't do any governing?

I agree to some extent, but this position ignores some real-world issues. For one thing, the world is just too complex any more for people to always do that. And the economy is too interconnected to not call for regulation. I'm not saying we need a planned economy as per the socialist model, but allowing unbridled capitalism isn't going to turn out well either.

Anyway, this is really based in the market's reaction to the 1987 crash. At that time, Reagan assembled the President's Working Group on Markets, affectionately known in some circles as the "Plunge Protection Team." Instead of allowing the market to crash, this group of institutional bankers and Fed member banks (also including the Secretary of the Treasury and the Fed Reserve Board and Chair) operates in a novel way. Whenever the market starts to tank, the institutional bankers step in and purchase large blocks of stock and sit on it. By the simple laws of supply and demand, this raises the price of the stock and keeps the market from crashing. In their turn, the Treasury Dept and the Fed agree to fund those purchases through a Byzantine system of finance and loopholes that I only vaguely understand.

Now, there are two caveats here. First is that the market has to be allowed certain reasonable declines. Who determines what is "reasonable" is not clearly defined. But as long as there's no imminent plunge, the market is usually allowed to drift downward. But when there is a sudden and drastic decline, the PPT goes into action. Remember a week or so ago when everyone was calling for the DJIA to absolutely tank, and it miraculously rose back over 12,000? That was the PPT at work. All the news was terrible. People were heading for the hills. But someone stepped in and started buying up stock, bringing the price back up and restoring faith in the "free market."

The second caveat is that it doesn't always work. There are limits to how much cash can be prudently manufactured at any one time (or, there used to be, anyway). The dotcom bubble was an instance of something that couldn't be saved completely. We should have just let the market crash and endured the brief depression that would have resulted. But instead, the answer was to inflate another asset bubble--in this case, real estate. It was the only thing left anyway; all the manufacturing was heading overseas. Now that bubble is trying to pop, and the response is an attempt to keep the stock market afloat. I think they're going to succeed; the bad paper and derivatives bubbles will continue to remain hidden for the time being.

Gill

Can you point out any current proposals to "bail out" banks and mortgage companies for the sub prime mortgage problem??

__________________
There is so much unforced variability in the system which we can’t predict — the chaotic component of the climate system — which is not predictable beyond two weeks, even theoretically.
Gavin Schmidt, NASA GISS