How did we get in this financial mess?

American · 09-22-08, 02:10 PM

Quote:

By Vincent Gioia

What is one of the effects of low interest rates? Putting on my rocket scientist hat I came up with the answer; more people borrow money. So why is it a surprise that banks, who make money by lending, issue more loans and lend money more easily and willingly, including to those who will not be able to pay the loan back? Couple that with a Clinton era policy to make housing more affordable to low income people under his diversity program and you have the financial fiasco we have today.
During the Clinton administration, multiculturalism was the slogan of choice. For real diversity and multiculturisn it was considered necessary to enable everyone to be able to buy a house, whether or not they could afford it. To further this idea the administration dictated to whom mortgage lenders could lend, and originally helped create the market for the high-risk sub prime loans. Even the densest among us should now be aware of the economic disaster spawned by the sub prime loan fiasco now bringing down one financial institution after another.
How did this happen? In its infinite wisdom congress established two organizations known as “Fannie Mae” and “Freddie Mac”, euphemisms for the Federal National Mortgage Association (Fannie Mae) and The Federal Home Loan Mortgage Corporation (Freddie Mac).
Fannie Mae is a publicly owned government sponsored enterprise (GSE) owned by stockholder and authorized to make loans and loan guarantees. Fannie Mae dominates the U.S. secondary mortgage market which provides liquidity to the primary mortgage market to ensure that mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies have enough funds to lend to home buyers.
Freddie Mac, is also a privately-owned and run government sponsored enterprise (GSE) of the United States federal government owned by stock holders and authorized to make loans and loan guarantees.

I told you this problem went back a long way, even to Carter. Ever heard of The Community Reinvestment Act?

Iriemon · 09-22-08, 03:47 PM

I figured it would not take long for our Republican friends to blame Clinton for the current economic woes.

Felicity · 09-22-08, 04:00 PM

God how I wish I didn't find economics so incredibly dull. The OP sounds logical to me, but....

Mach · 09-22-08, 05:43 PM

Holy ****. Carter and communists?

You have got to be kidding me. The wealthy in power routinely screw you up the ass, and they have people so brainwashed that they ignore that obvious, painful (to some) fact, and instead make up red herrings that in some ways are actually a threat to their power?

If you think for one minute it's communists and carter that benefited from the unregulated market boom, you're full of ****. Those in power made billions, and you're stuck on the sidelines cheering them on while you "earn" some crusty bread.

It's mind boggling.

-Mach

P/N · 09-22-08, 06:11 PM

Quote:

Originally Posted by Iriemon

I figured it would not take long for our Republican friends to blame Clinton for the current economic woes.

I've seen liberals blaming Reagan, but I bet you didn't feel the need to point that out now did you? How intellectually dishonest of you.

Iriemon · 09-22-08, 06:24 PM

Quote:

Originally Posted by P/N

I've seen liberals blaming Reagan, but I bet you didn't feel the need to point that out now did you? How intellectually dishonest of you.

Which liberals blamed Reagan for the current economic situation? I blame his policies for quadrupling the debt to $4 trillion, but not for the current economic situation.

jfuh · 09-22-08, 06:28 PM

Quote:

Originally Posted by P/N

I've seen liberals blaming Reagan, but I bet you didn't feel the need to point that out now did you? How intellectually dishonest of you.

Reagan, and all the republicans as well as the stand on the side democrats who allowed for the safe gaurds of the market to be taken apart by the likes of Sen. Gramm and McCain who arduously supported deregulation at every turn are the ones to blame.
I know of a time back in American history where the market was completely not regulated and "trickle down" economics was the way to go - the president of the time was Herbert Hoover and the deregulation coupled with trickle down policies resulted in the great depression.
Economics call the recent implosion of the financial sector the worst since the great depression, so yes, those who were in favor of deregulation of the market are to blame - no matter how you cut it those in greatest champion of and support of are indeed the Republicans.
Democrats have nothing to be gleeful about either since they are the ones that stood on the side and did nothing to prevent it.
Fortunately they are doing something now (better late then never) and insist on regulation and oversight so that there are no golden parachutes ect.

jfuh · 09-22-08, 06:29 PM

Quote:

Originally Posted by Iriemon

Which liberals blamed Reagan for the current economic situation? I blame his policies for quadrupling the debt to $4 trillion, but not for the current economic situation.

I blame Reagan and the whole lot of them, GOP and Democratic party.

SouthernDemocrat · 09-22-08, 06:32 PM

Since this has came up upteen times so far, I will just give the same response in this thread that I did in the last one that it came up in.

A basic rule of science, and economics is a science, is that while correlation does not prove causitation, a lack of correlation or flimsy correlation at best, disproves causitation.

It would seem that the right wing ideologues in their ever present struggle to not take responsibility for any of their failures are now trying to blame the current financial crisis on the Community Reinvestment Act of 1977.

Lets look at the facts:

Lets just look at the facts.

The CRA was enacted in 1977.

The CRA was reformed in 1995.

The Commodities Modernization Act was signed into law in 2000.

The vast majority of bad loans underlying the current financial crisis were written 2001 on. Moreover, the Bush Administration gutted CRA in 2004, yet huge numbers of toxic loans were still being written. Also its very questionable to equate subprime loans with inner city depressed areas. There are plenty of families earning a 100k a year buying 600k loans with a subprime mortgage or other creative financing, all of which is outside of CRA. Finally, CRA certainly is not responsible for the global housing bubble, that can only be made possible by instruments like Credit Swaps.

You have some ideologues desperately trying to pin this on CRA, but it just doesn't hold up under any sort of scrutiny.

The fact is, unregulated direvatives are to blame for this crisis. Nothing else makes it possible. No one would be writing toxic loans without a way of insuring their bet. (and that does not even get into how the Republicans gutted regulation of Appraisers)

SouthernDemocrat · 09-22-08, 06:43 PM

To carry this argument further.

What is the conservative ideological opposition to regulation of the financial markets?

Primarily, so the argument goes, market regulation curbs innovation, and absent regulation, the markets will self correct.

Now, what was this "innovation" that resulted from lightly regulated financial markets?

Well we had all kinds of "innovation" spring up:

Interest Only Loans

80/20 loans - No PMI

90/10 loans - NO PMI

Reverse Mortgages

Stated Income Loans - This one is where you just tell the mortgage broker what you make, no verification need. Don't worry, they will find an investor.

Credit Default Swaps

See thats the "market innovation" that we got when we deregulated. That is the "market innovation" that is completely to blame for the current crisis.