Objective Voice

I think PeteEU summed things up very nicely.

Grim17, you're not wrong. You just take a narrow view of the matter. Look at it this way...

The housing market was rather stable up until 1998 when signs of the first bubble came about. Fortunately, the risks were limited to a few banks/lending institutions who, through government intervention, came together and fixed the problem before it became a major national or international disaster. Unfortunately, a decade later the very same financial institutions failed to learn their lesson and once again used the housing market to gain substaintial profits taking huge risks for fast capital rewards. But this time, the risks were spread so far and wide using some very complex accounting forumulas very few could decipher what was going on with them. But the problem wasn't the housing market in iteself. The problem was the complexity in the math and how housing, lending, investing, and insurance were all inter-connected in such a way that if one thing failed, they all failed at the same time!

I don't claim to fully understand it because the situation is so complex. Just know that had it just been bad loans, the financials and housing markets could have withstood the economic downturn and recovered on its own. But because everything was so inter-connected...

Think of it like this...if you've ever played the game Jinga or tried to build a house of cards or even tried to line up dominos without making them fall, then you know that if you pull one peg out or if one card falls or you accidentally knock over one domino it's very likely your entire structure will topple. Well, that's what happened with the housing bubble. One investment went bad but because it was tied to another investment accout, that other account went down with it. And the cycle continued with one deal after another falling apart.

Now, when did everything start falling apart? If you recall, all was going well until fuel prices started rapidly going through the roof! Had fuel cost remained stable or gradually increased, I doubt we would have seen a housing bubble. Still, fuel cost wasn't to blame. It was just an outside force consumers had to deal with. Why? Because it impacted so many other things; the price of food, transportation, clothing, heating and cooling...they all increased substantially in price at the same time. And when you can't pay for food what are the three things most people juggle paying for almost immediately:

• Electricity
• Car note (if you have one)
• Rent

When it got to the point where people stopped paying their mortgages, that's when the crisis really kicked in because it was the one thing most financial institutions were all connected to - mortgage backed securities....derivitives...CDOs. And how did these financial institution have the wherewithall to create such financial instruments and take on such high risks? Deregulation and the lack of oversight that should have come with it.

Do just a little bit of research (or as I like to say "homework") on this issue and you'll begin to realize that while bad home loans were a big part of the problem, it wasn't because such loans were forced upon people by the housing/banking industry as a whole (though I'm sure there were some isolated instances). It was because such loans were presented to look too good to be true...offers most people couldn't refuse. Yes, the industry pushed them. It was easy money to most banks. After all, home values hadn't dropped in decades and everyone needs a place to stay. What are the odds that millions of Americans would stop paying their mortgages at the same time? (Of course, it didn't help that most of those mortgages required big balloon payments that came due around the same time this country faced a fuel crisis.)

It's a complex deal. The housing bubble clearly set our economy down a terrible path, but there wouldn't have been a bubble had the regulators done their jobs or the regulations were stricter against allowing such derivities to be created in the first place. Everyone turned a blind eye to quick riches....until it was too late.

Grim17

Of course greed is involved, but what facilitated that greed?

Did you even read the article?

I have already explained that If the government hadn't insisted that lenders extend credit to people who couldn't afford to make the payments, this would have never happened.

Maybe you should read a few articles from the time, rather than believing the spin of today. Here are a few you can browse:

From October 2000 - The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities by Howard Husock, City Journal Winter 2000

Here is a 1998 video of Clinton HUD Secretary Andrew Cuomo - Hot Air Blog Archive The quotes that explain the entire financial meltdown

This one, from a September, 1999 article in the New Your Times - Fannie Mae Eases Credit To Aid Mortgage Lending - The New York Times

Here are a few excerpts from that one:

Janet Reno said in a 1994 press conference on a CRA based lawsuit:

“today’s actions demonstrate that wewill tackle lending discrimination wherever andin whatever form it appears. No loan is exempt,no bank is immune. For those who thumb theirnose at us, I promise vigorous enforcement.”

And finally, there's this speech from March 1998 by Janet Reno about the CRA and their enforcing it - 03-20-98: REMARKS OF THE HONORABLE JANET RENO TO THE NATIONAL COMMUNITY REINVESTMENT COALITION

Here are a few excerpts:

The preceding explains exactly what started this... So tell me again who's being "partisan" here?

liblady

the gov't never insisted that banks make bad loans, period. they made bad loans out of greed. what don't you get about that?

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Grim17

Geez... What's the use.

Kernel Sanders

Government policies aided and encouraged a dramatic increase in bad loans. Wall street then took these loans and created financial derivatives with them that looked good on paper, but were based on the assumption that the housing market would continue to improve. Ratings agencies gave these fragile derivatives excellent ratings, bolstering the value and percieved lack of risk of these instruments. Over-leveraging made the health of major financial institutions dependant on the health of these toxic assets.

All of these factors and many more came together to cause the housing crisis. Without fail, any time I've seen somebody push one single aspect as "the cause" it has been with a partisan agenda in mind.

PeteEU

Exactly. I have never denied the US governments part in the problem. However saying that, the US governments involvement in the issue was on several fronts. Not only did they as usual bow to the industries speicel interests and lobbyist to tear down decades long regulatory barriers in the banking industry, they also allowed the whole creation of the risky assets in the first place and afterwards did nothing to regulate or even oversee the industry. But that does not change the fact that the government was nothing but a tool for an industry that long wanted less regulation and it was the industry themselves that not only created the risky assets but exploited the market to the fullest out of pure greed and disregarded the very huge risks that there were.

There is plenty of blame to go around but if you listened to the right, it was all fannie and freddies fault...

And most of these bad loans had nothing to do with Freddie Mac and Fanny Mae, since those 2 companies were under government regulation and oversight of some kind, where as the "bad loans" were not.

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PeteEU

apdst

Fannie and Freddie do own half the bad debt. So, it's safe to say they played a pivotal role in the crash of the housing market.

I'm surprised to see that no blame has been placed upon the borrowers. They took out loans they knew they couldn't afford. Those folks have to accept responsibility for their own actions at some point.

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Grim17

Kernel Sanders and PeteEU, you two, like LL, keep asserting that wall street and corporate greed was the cause of the credit crisis, but you skip the factors that allowed that to happen.

The Clinton administration demanded that banks and lending institutions lower their standards, and extend credit to minority and low income communities, or face government penalties and legal action being taken against them. Banks found out quickly, that if they didn't meet the governments new standards, and a group like ACORN filed a discrimination complaint against them, they were doomed. Then in a move to further increase home ownership to low income families, they encouraged Fannie Mae and Freddie Mac to buy up as many of these loan as they could get their hands on. They in turn, encouraged small lenders to take on as many high risk loans as they could, because they would purchase them. Adding to the problem, was the fact that there wasn't sufficient oversight put in place by the government when they enacted this policy, to guard against it being exploited by Fannie and Freddie executives.

Banks are in the business of loaning money to people that can afford to pay it back... not loaning money and then having to foreclose on property. That is, unless your a lending institution thats backed by the government, then it's about playing the game, and getting what you can in the process.

The bottom line is, if the Clinton administration hadn't interfered (all in the name of "affirmative action") and forced the lowering of lending standards, and encouraged giants like Fannie and Freddie to buy up as many of these bad loans as possible, this crisis would have never happened in the first place.

That's what enabled this mess.

What's even more sad here, is the fact that the Bush administration warned congress starting in 2001, that if they didn't reel in Fannie and Freddie by imposing stronger oversight, that it could lead to an economic meltdown. House democrats responded each time this issue was brought up, by insisting that there was no problem with F&F, by accusing the Bush administration and house republicans of being racist and against poor people, and by killing every single measure that was ever proposed to avert this crisis.



The government caused this meltdown, and every single thing I've said, I've either backed up with links, or can back up if anyone doubts me.

.

Grim17

Of course they have to accept the blame for making a bad decision in the first place.

But the fact is, most of them would have never been offered a loan in the first place, if the government hadn't interfered and forced lenders to lower their standards.

You can blame a kid for playing with a gun and getting shot, but it would have never happened if the parents would have locked the gun up in the first place... Know what I mean?

Kernel Sanders

You -completely- missed the point of my post.