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Thread: 6 months in, GOP tax bill an utter flop

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by The Derp View Post
    I agree with all this except for the bit about monetary policy. That, I don't agree with as the cause or even as a major factor in the explosive growth of subprime lending that started in 2004.
    But why wouldn't it? Why wouldn't dropping rates to 1% encourage people to borrow? When you lower the cost of something, you're going to increase demand.

    Apologies for tying you to Bush and the Conservatives, no one should have that burden placed on them unfairly.
    Many thanks. I'm in no way beholden to banks or large corporations in any way.

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
    "To exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one's profit out of the need of another, is condemned by all laws, human and divine." - Pope Leo XIII

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by The Derp View Post
    The interest rates don't matter when you're lowering the standards for who (or what) can get a loan. If the interest rate was lowered, but standards were maintained, there would not have been a subprime bubble. If the interest rate stayed the same, but standards were lowered, then a bubble would have appeared just as much as; one appearing if the interest rate was lowered and if they reduced standards for subprime loans...which is exactly what happened.

    I'm contending that even if the Fed didn't lower the interest rate, there still would have been a surge in subprime lending because it wasn't the interest rate that was holding back the flood of subprime loans, it was the standards for underwriting those loans that were "held back" (in this case, lowered).
    There may have been a surge with lowered standards. What I'm saying is that lowering the cost of getting a loan is only going to serve to increase demand for loans. Take a look at what Paul Krugman was arguing in 2002:

    Quote Originally Posted by Paul Krugman
    The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
    https://www.nytimes.com/2002/08/02/o...0bubble&st=cse

    Note he said Greenspan. How does Greenspan create a bubble? Simple. By lowering interest rates.

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
    "To exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one's profit out of the need of another, is condemned by all laws, human and divine." - Pope Leo XIII

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by phattonez View Post
    No, I wanted to know what changed. Vern thankfully did finally provide documentation about what changed, and I thanked him for that.
    I just told you what changed:

    No income, no job, approved. (NINJA)

    Yeesh.

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by phattonez View Post
    But why wouldn't it? Why wouldn't dropping rates to 1% encourage people to borrow? When you lower the cost of something, you're going to increase demand.
    I think under ordinary circumstances, it would. But these were not ordinary circumstances. There was no great demand for consumer credit in 2003-4, that's why the regulators reduced the standards. It's like how in order to meet target numbers, the Border Patrol had to lower their standards in order to get new recruits. They did that because they couldn't find qualified candidates to fill those positions; and because of that, you ended up with a whole mess of corruption. Same thing happened in the US Army too; they had to lower their standards in order to recruit qualified soldiers. The banks likewise had to lower their standards in order to find qualified candidates to give loans to. And the standards were reduced so dramatically that they were giving out loans to people with no income and no jobs (NINJA).

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by phattonez View Post
    There may have been a surge with lowered standards. What I'm saying is that lowering the cost of getting a loan is only going to serve to increase demand for loans. Take a look at what Paul Krugman was arguing in 2002
    But the demand wasn't there. That's the thing. If the demand was there, then there wouldn't have been a need to reduce the standards. They had to reduce the standards in order to find "qualified" borrowers. The Fed Interest rate didn't have anything to do with that. And Krugman was 100% correct, and it's exactly what I've been saying this whole time; Bush and the Conservatives deliberately inflated a housing bubble to give the impression the economy was growing as a result of tax cuts, when it was really growing as a result of debt.



    Quote Originally Posted by phattonez View Post
    Note he said Greenspan. How does Greenspan create a bubble? Simple. By lowering interest rates.
    But lowering the interest rate on loans doesn't magically create demand for loans; if it did, then there was no need to reduce the standards. The demand would have been there which would have meant more qualified borrowers. But that's not what happened at all. Instead what happened was that even with a lowered fed rate, they still couldn't generate enough demand among qualified borrowers to fill the demand for the subprime-backed assets and products these loans were being used to create. So they simply reduced the standards in order to increase the volume.

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by The Derp View Post
    I just told you what changed:

    No income, no job, approved. (NINJA)

    Yeesh.
    I wanted to know what regulation changed. Vern explained it.

    Sent from my HTC6545LVW using Tapatalk

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
    "To exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one's profit out of the need of another, is condemned by all laws, human and divine." - Pope Leo XIII

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by The Derp View Post
    I think under ordinary circumstances, it would. But these were not ordinary circumstances. There was no great demand for consumer credit in 2003-4, that's why the regulators reduced the standards. It's like how in order to meet target numbers, the Border Patrol had to lower their standards in order to get new recruits. They did that because they couldn't find qualified candidates to fill those positions; and because of that, you ended up with a whole mess of corruption. Same thing happened in the US Army too; they had to lower their standards in order to recruit qualified soldiers. The banks likewise had to lower their standards in order to find qualified candidates to give loans to. And the standards were reduced so dramatically that they were giving out loans to people with no income and no jobs (NINJA).
    If there was no point to lowering rates, then why was it done?

    Sent from my HTC6545LVW using Tapatalk

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
    "To exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one's profit out of the need of another, is condemned by all laws, human and divine." - Pope Leo XIII

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by The Derp View Post
    But the demand wasn't there. That's the thing. If the demand was there, then there wouldn't have been a need to reduce the standards. They had to reduce the standards in order to find "qualified" borrowers. The Fed Interest rate didn't have anything to do with that. And Krugman was 100% correct, and it's exactly what I've been saying this whole time; Bush and the Conservatives deliberately inflated a housing bubble to give the impression the economy was growing as a result of tax cuts, when it was really growing as a result of debt.





    But lowering the interest rate on loans doesn't magically create demand for loans; if it did, then there was no need to reduce the standards. The demand would have been there which would have meant more qualified borrowers. But that's not what happened at all. Instead what happened was that even with a lowered fed rate, they still couldn't generate enough demand among qualified borrowers to fill the demand for the subprime-backed assets and products these loans were being used to create. So they simply reduced the standards in order to increase the volume.
    Why can't both be true? Why isn't it that they were both trying to increase demand?

    Sent from my HTC6545LVW using Tapatalk

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
    "To exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one's profit out of the need of another, is condemned by all laws, human and divine." - Pope Leo XIII

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    Re: 6 months in, GOP tax bill an utter flop

    We should be raising taxes, not cutting taxes with Any general warfare spending.

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    Re: 6 months in, GOP tax bill an utter flop

    Quote Originally Posted by phattonez View Post
    This isn't rhetoric. The ratio actually hovers around a multiple of 3 for all those years until 2000 outside of 1970 where prices were extraordinarily low. This new normal isn't good for family formation, and as the last economic downturn showed, it certainly isn't sustainable.
    Phat, you need to post something other than your opinion that anything over 3.52 is a bubble. You can post "highest ever" and "not sustainable" but that's just you posting it.

    I understand that there were very few defaults prior to 2004. Of course there were. Prices still had room to move upward and rates hadn't moved up yet. What I'm arguing is that even those supposedly good loans that were signed prior to 2004 defaulted in 2007 and 2008, and that much of the reason that they didn't default as much as that they weren't nearly as underwater as those loans signed in 2006. Price played a big role; it's not just lending standards. You're going to be more willing to walk away from a mortgage when you're 20% underwater vs. maybe 2%.
    Phat, just like your "3.52 proves a bubble", you have simply repeated rhetoric concerning interest rates. And your "rate" rhetoric requires you to ignore that I've proven beyond all doubt the massive increase in mortgage defaults starting 2005 had zero to do with "interest rates". You just don't get to ignore the Early Payment Default data proves it had nothing to do with rising interest rates. That many mortgages only default because they were so poorly underwritten. And that's exactly what Bush and the Fed said because that's exactly what the data said. Read this again

    Historically, mortgages that are underwritten well are unlikely to default in the first year of origination. Thus, the reports at the end of 2006 from lenders such as Ownit, New Century, and Novastar that an unusually high share of their loans were becoming delinquent almost immediately were a cause for alarm.

    And of course you can argue that " supposedly good loans that were signed prior to 2004 defaulted in 2007 and 2008" but nobody is arguing that. The bush Mortgage Bubble popped in late 2006. Even good loans with no interest resets defaulted in large numbers in 2007 and 2008 but "dramatically lower lending standards" caused the Bush Mortgage Bubble. Remember the part where loans were "becoming delinquent almost immediately were a cause for alarm".
    Last edited by Vern; 07-11-18 at 08:50 PM.
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