Who to blame: the lender or the borrower?

Cephus said:

Yet most of the things you list, we regulate. We control how fast people drive. We control safety devices on cars. We have food laws. We don't have to ban any of it, we just have to keep people from taking advantage of others.

Click to expand...

Loans are regulated as well. Part of the problem was a government that strong armed banks into giving loans to minorities that the banks didn't want to give (for financial reasons). So the banks did it, but to be fair they had to apply the same standards a crossed the board. So everyone was eligible for loans they couldn't pay back and they were dumb enough to take them. Deregulation, in this case, would have made home loans safer.

ksu_aviator said:

Loans are regulated as well. Part of the problem was a government that strong armed banks into giving loans to minorities that the banks didn't want to give (for financial reasons). So the banks did it, but to be fair they had to apply the same standards a crossed the board. So everyone was eligible for loans they couldn't pay back and they were dumb enough to take them. Deregulation, in this case, would have made home loans safer.

Click to expand...

Except that they deregulated the bank regulations that required banks not be involved in mortgages. The reason we ended up bailing them out, stupidly, is because the mortgage meltdown threatened the basic banking system in this country. Had they never deregulated it, had only mortgage companies been at risk of going under, we never would have thrown all that money at the banks. Further, had they regulated the industry in the first place, that the people who initially signed the loans were financially responsible for them forever thereafter, you wouldn't have had the fly-by-nights who were pushing bad paper in the first place.

Cephus said:

Except that they deregulated the bank regulations that required banks not be involved in mortgages. The reason we ended up bailing them out, stupidly, is because the mortgage meltdown threatened the basic banking system in this country. Had they never deregulated it, had only mortgage companies been at risk of going under, we never would have thrown all that money at the banks. Further, had they regulated the industry in the first place, that the people who initially signed the loans were financially responsible for them forever thereafter, you wouldn't have had the fly-by-nights who were pushing bad paper in the first place.

Click to expand...

To add an example to your very accurate post:
If you recall the Saving & Loan debacle during the Regan administration the root cause was deregulation by the Pres. Regan. I lived very close to the owner of one of the S & L’s in Paradise Valley AZ. It was big local news. The government regulators were doing their job and had discovered the bad loans years before it hit the news but were prevented from taking action. Free enterprise operates the best with moderate regulation. We keep getting lessons, but dogma gets in the way of rational actions.

OhIsee.Then said:

To add an example to your very accurate post:
If you recall the Saving & Loan debacle during the Regan administration the root cause was deregulation by the Pres. Regan. I lived very close to the owner of one of the S & L’s in Paradise Valley AZ. It was big local news. The government regulators were doing their job and had discovered the bad loans years before it hit the news but were prevented from taking action. Free enterprise operates the best with moderate regulation. We keep getting lessons, but dogma gets in the way of rational actions.

Click to expand...

Greed causes banks to NOT give loans to people who can't afford them. Are you sure that those bad loans were caused by a lack of regulation, rather than the regulations themselves?

Rhapsody1447 said:

If a person defaults on a loan, who deserves the blame the lender or the borrower? As credit eases and lending standards go down, more and more loans are made to people with riskier credit histories. A lot of times this can lead to predatory lending practices (e.g. adjustable rate mortgages that reset at a much higher interest rate, banks pushing loans on people who can't afford them), however sometimes it is necessary for the government to ease credit conditions in order to help spur economic growth (e.g. by making it easier for people to buy a house or start a new business).

So if I take out a loan and fail to repay it, is it my fault or the bank's?

Click to expand...

"Neither a borrower,
nor a lender be,
do not forget: keep out of debt.
Think twice, and take this good advice from me..." :lamo

mpg said:

Greed causes banks to NOT give loans to people who can't afford them. Are you sure that those bad loans were caused by a lack of regulation, rather than the regulations themselves?

Click to expand...

Keating Five - Wikipedia, the free encyclopedia
Sorry, but Banks sell their loan at near face value, actually thousands of loans packaged as one item, making their money or origination fees of many types, and then they have made money, especially with salary and bonuses.
I reviewed WIKI at Keating Five - Wikipedia, the free encyclopedia
Take a look. It doesn't have everything. I watched the testimony of the worker bee regulators before congress. Pres. Regan prevented them from tacking action. In fact the rules were that they had to keep their mouths shut.

Cephus said:

Except that they deregulated the bank regulations that required banks not be involved in mortgages. The reason we ended up bailing them out, stupidly, is because the mortgage meltdown threatened the basic banking system in this country. Had they never deregulated it, had only mortgage companies been at risk of going under, we never would have thrown all that money at the banks. Further, had they regulated the industry in the first place, that the people who initially signed the loans were financially responsible for them forever thereafter, you wouldn't have had the fly-by-nights who were pushing bad paper in the first place.

Click to expand...

Check your facts here. Local banks, national banks, and investment banks have been able to issue/buy mortgages and mortgage related securities going back to the 1980's. The repeal of Glass-Steagall didn't suddenly allow investment banks to buy MBS's and commercial banks to issue mortgages. You are quite vague in your definition of banks throughout your posts in this thread. Banks were often the originators of mortgages so to claim they were chopped up to a million pieces before they went on their books is false. If you are referring to investment banks (e.g. Goldman Sachs) than you are wrong again, as they were responsible for chopping up the mortgages in the first place. They purchased the mortgages and securitized the loans into one security, this is where the mortgages were initially bundled and chopped up. From there, purchasers of these new MBS's could potentially have "no idea what they were buying" but the ability to analyzing the underlying loans was still there. Take ABACUS for example, the security that Goldman Sachs was sued by the SEC for selling. Part of the SEC's case was that the mortgages were specifically selected by Paulson to fail. The portfolio loans were available for the buyer to analyze, the trouble Goldman got into was for failing to disclose that Paulson (the seller) had picked loans designed to fail. To think that only mortgage-specific companies are the ones with the authority to lend is false, leading up to 2008 there was a proliferation of these companies due to the incredible demand for mortgages at the time.

Cephus said:

Except that they deregulated the bank regulations that required banks not be involved in mortgages. The reason we ended up bailing them out, stupidly, is because the mortgage meltdown threatened the basic banking system in this country. Had they never deregulated it, had only mortgage companies been at risk of going under, we never would have thrown all that money at the banks. Further, had they regulated the industry in the first place, that the people who initially signed the loans were financially responsible for them forever thereafter, you wouldn't have had the fly-by-nights who were pushing bad paper in the first place.

Click to expand...

They actually did that so that banks could diversify. The idea was that if banks had more latitude they would be better suited to ride out ups and downs in markets. The problem came in when banks reduced lending requirements to meet these "feel good" government requirements and then poisoned their other assets trying to offset their known losses.