There are no doubt alot of moving parts to this, but CRA carry part of the blame as do fannie and freddie. And yes, our current economic situation was paved with good intentions. To say these parts carry little or no blame is just quite ridiculous.
There are no doubt alot of moving parts to this, but CRA carry part of the blame as do fannie and freddie. And yes, our current economic situation was paved with good intentions. To say these parts carry little or no blame is just quite ridiculous.
You keep saying, but you offer no proof. Even vic will admit that 25% of the subprime mortgage were handled completely by cra. And another 25% of the subprimes had some cra involvement. So that right there accounts for about 1/2 of the subprime mess.
And I have to wonder, how many of the subprimes freddie and fannie would have purchased if they were not backed by the government. I am also guessing they were involved in purchasing subprimes that were not handled by cra as well.
Repeating this idea doesn't make it true. Yes, the three mentioned players had a part, with F and F having a much larger part than CRA. The Rush Limbaughs of the world would blame it all on CRA if they could get away with that racist canard. But, as has been said many times, and as the author of the post opening this thread said in his Slate article, it's not the sub-prime loans, but the derivatives that are worthless. The SEC and Treasury did nothing to regulate what were essentially creative and new instruments that were cloaks for extreme risk. These derivatives were highly leveraged, and sold as 'The New Money Maker' by Wall Street. Furthermore, insurance by AIG has proven almost worthless. That's a huge part of this problem, which is why Treasury is pouring so much money into AIG. The money goes into AIG and then is paid out to investment banks, banks, and other investors here and abroad who hold these worthless derivatives.
The mistakes by F and F are probably on the order of 10% of this problem, CRA 1%, and Wall Street 89%!
You can fool yourself into believing whatever you want, but the problems are with Wall Street, mainly, not Main Street.
Read the article in Slate!
-Robert
Reading threads like this makes me realize the chances of us truely fixing this issue are 0%.
It is going to break down into partisan politics with everybody blaming everybody based on foolish ideology.
It is going to break down into partisan politics with everybody blaming everybody based on foolish ideology.
I lived in a Cleveland suburb (Mentor) for 5 years and there was definitely a dislike for non-whites when I was there. This was nearly 30 years ago so maybe things have changed for the better.
In the 'blame game' discussions those I've talked to blaming Fannie/Freddie pointed the finger at minorities. That said, there are racists on both sides of the aisle.
I sometimes think the foolish ideology is believing in a consumption driven economy that no longer makes anything and is based upon the extension of credit both in the private and public sector. It is doomed to fail.
We didn't learn from the S&L crisis. Value is perception. We didn't learn from the IT boom of the 1990's when Wall Street was pimping technology with one hand while shorting it with the other.
Welcome to the New Millennium. Wall Street Rinse-Repeat.
Pumping financial instruments of dubious quality and betting on their failure. Leveraged to the hilt dependent upon the cash flow of sheep and easy credit to finance their shenanigans.
It's no wonder the house of cards locked up ...
dphantom
Diamond Member
- Jan 14, 2005
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Let's see...I have very close associates who are ardent democrats who in a recent conversation abut this election spoke about how they have a problem with the "nig$%r". They will still vote dem, but maybe not in the presidential race.
So how about you can the racist accusations.
F and F were and are the trigger for this problem. The ability of F and F to buy up securitized mortgages ensured that places like Countrywide and others would make loans that should never have been booked. CW et al knew they had a market at F and F and with teh help of some very bad underwriting, these derivatives were graded way higher than they should have been.
There is lots of blame, but it started with CRA and the notion behind it that everyone should own a home. Good intentions don't substitute for bad policy.
People are not blaming it all on the CRA and Fannie and Freddie since the irresponsible lenders and borrowers are at fault as well but saying CRA and Fannie and Freddie only play a small part in this crisis is definitely wrong.
The only reason why the government own Fannie and Freddie is because they were failing and would have went under if not for government intervention.
The only reason why the government own Fannie and Freddie is because they were failing and would have went under if not for government intervention.
So, you fully understand the relative roles of derivatives compared to the roles of F and F and CRA in this crisis?
Where did you say you got your MBA in Finance?
-Robert
Vic
Elite Member
- Jun 12, 2001
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This is so wrong, it's not even funny. I've worked 15 years in the mortgage biz and I am just sick and tired of hearing this ridiculous talk radio lie.
Look, here's the truth of it. Long-term market conditions came together where home values had been steadily going up over 15 years with mortgage rates steadily coming down. This situation built upon itself. Everyone became convinced that you couldn't lose with real estate. Massive amounts of money was being made on every side, and no one wanted the party to end. And the closer we got to the end, the sillier people became trying to stave it off. But end it eventually did, as it had to. Welcome to the hangover.
In other words, this was a good ol' fashioned market bubble followed by a good ol' fashioned banking crisis, something as historic in economics as tulip bulbs.
Now, if you don't mind, it's pretty disrespectful of some talking head morons, who couldn't read loan documents if their lives depending on it, much less understand derivatives, to come in and tell the rest of us how it happened, especially when their "how it happened" is nothing more than transparent partisan hackery.
dphantom
Diamond Member
- Jan 14, 2005
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What I will grant is the change in separating investment banks from other types of banks also played a role. A repub congress encourgaed by a dem president pushed trhough these changes to regulations. Deregulation had nothing to do with todays problem. It was the above and the expansion of the CRA plus active backing of loans to unqualified borrowers AND those who borrowed with no down just to flip a house a few weeks later that brought us to where we are.
Banks and places like CW no doubt had a role as they were making loans expecting house valuses to rise quickly. But they could make those loans knowing they had a market to sell the mortgages to. And that was backed by F and F and others. If F and F would back it - a GSE that would not be allowed to fail, then you bet everyone had a great incentive to borrow as much as possible to make as much as they could because they thought they were safe.
Banks and places like CW no doubt had a role as they were making loans expecting house valuses to rise quickly. But they could make those loans knowing they had a market to sell the mortgages to. And that was backed by F and F and others. If F and F would back it - a GSE that would not be allowed to fail, then you bet everyone had a great incentive to borrow as much as possible to make as much as they could because they thought they were safe.
Vic
Elite Member
- Jun 12, 2001
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Well duh... I was one of them even.
Fannie and Freddie weren't the only places to sell mortgages on the secondary market. Far from it. And F and F weren't ever buying the toxic subprime deal either. That was Bear Stearns, Lehman, DB, etc. who were buying up those no matter how ugly the loan pool was.
Turn off the Rush Limbaugh.
You can always find contrarians, the issue is to whom does one listen?
Contrarians are telling people that now is the time to buy stocks. The market has a lot of value in many stocks, or so the story goes. Who are you going to believe?
Vic's comment about people having an opinion about options trades and derivatives is spot on. Most people do not understand options or derivatives. What we probably need is a thread which is a primer on Options Trading and Derivatives 101. After about 5 hours of absorbing the relative intracies of options trading, some of these folks might realize that this is a complex topic and the investment vehicles which caused this meltdown are sophisticated instruments. Unless you are an options trader, or have an MBA in Finance, or have traded options personally for awhile, you aren't going to understand all of this. The simplistic answer is to blame CRA and F and F. That's why Limbaugh feeds it to the masses. Limbaugh wouldn't know an option contract from an onion contract, yet he's blaming this on CRA? Give me a break....
Here's one site. Read it just before you go to bed. You'll sleep soundly.
http://www.finpipe.com/derivatives2.htm-Robert
Originally posted by: chess9
The simplistic answer is to blame CRA and F and F. That's why Limbaugh feeds it to the masses. Limbaugh wouldn't know an option contract from an onion contract, yet he's blaming this on CRA? Give me a break....
Here's one site. Read it just before you go to bed. You'll sleep soundly.
-Robert
That well sums up the mass politics of 'free market ideology', IMO. It's an ideology that serves the wealthy very well, and is politically consumable by and appealing to the masses.
Indeed, what's brilliant about it as well is how it takes the masses' innate desire to blame something big away from targetting the wealthy, to target the government itself instead.
So the one institution designed to give the people the power to stand up to the powerful is undermined by making the people oppose it, all the while ignoring the actually powerful.
Originally posted by: Craig234
Originally posted by: chess9
The simplistic answer is to blame CRA and F and F. That's why Limbaugh feeds it to the masses. Limbaugh wouldn't know an option contract from an onion contract, yet he's blaming this on CRA? Give me a break....
Here's one site. Read it just before you go to bed. You'll sleep soundly.
-Robert
That well sums up the mass politics of 'free market ideology', IMO. It's an ideology that serves the wealthy very well, and is politically consumable by and appealing to the masses.
Indeed, what's brilliant about it as well is how it takes the masses' innate desire to blame something big away from targetting the wealthy, to target the government itself instead.
So the one institution designed to give the people the power to stand up to the powerful is undermined by making the people oppose it, all the while ignoring the actually powerful.
I never thought of this problem that way, but your insight is stunning. Thanks for that.
-Robert
The only people dumber than the people who are saying that the only cause of our current financial crisi is F and F and CRA are the ones screaming racist.
This is just so flat out stupidly wrong I don't know where to begin.
1. F&F only recently bought up the mortgages, even then, they bought up a pretty small portion of the mortgages, about 5% of them.
2. Banks were never *forced* to underwrite poor credits, nor to game the system with the plethora of exotic mortgages in their arsenal. If anything, CRA and GSE mortgages have both proven to be very credit worthy. CRA mortgages have a static pool default rate similar to many prime pools.
3. Deregulation was absolutely the reason behind this problem. Banks who lent, the ones with subprime and near-prime mortgage businesses (LEH, BSC..etc), were also the ones securitizing the mortgages through the investment banks. Since commercial banks could also be mortgages banks AND investment banks, through the elimination of Glass-Steagall, the conflict of interest increased (Deregulation in 1999 forced by the Republicans). You had some banks (GS for example) push out CDO paper, on one side of the bank, only to be shorting it using derivatives on another side. The conflict of interest is very clear, exactly what the regulation known as Glass-Steagall was supposed to prevent.
Through the process they had to hold the equity pieces of the securitizations, their way around that was to concentrate those into pools, CDOs. As the leverage got higher and higher, using CDO, CDO^2, and CDO^3...etc, the remaining pieces became more risky.
As a result of 2004 deregulation, banks were able to take on more and more of these assets through the issuance of debt, both short-term and long-term. The main driver behind the debt were SIVs (structured investment vehicles), which allowed the banks to push off the debt into off-balance sheet structures (another failed regulatory issue). SIVs issued short-term liabilities (asset backed commercial paper), with maturities of ~270 days, to fund assets of a weighted-average-life of 5+ years.
Obviously this is a big problem, especially if those assets start to take a dump. The ABCP market is finnicky, one problem sends investors running, nobody wants to take a loss. SIVs had no backup financing, which most banks offer for normal ABCP programs (letters of credit and liquidity). To make matters worse is that lines between traditional ABCP conduits and SIVs were blurred, hybrid conduits, or normal conduits with CDO debt, were allowed to blend, causing more confusion. Investors were scared about what could be next, this froze the CP markets.
After SIVs blew up, banks brought them on balance sheet, along with their other assets, which showed their leverage ratios to be 40:1, or worse. Normal leverage might be 10:1, or 5:1 for a well-run company.
Securitization structures had their own leverage (subordination). The rating agencies (not regulated), were able to poorly rate the transactions and allowed even more leverage than should have been possible. This is why the CDOs are now blowing up, because when the banks should have been able to get .70 out of a shitty mortgage for every $1 of face value, in a conservative structure, they got .85. That extra .15 should have been their equity in the transaction, reducing risk for the senior tranches of the bond.
Then, when they tried to put that .15 into a CDO, the rating agencies weren't diligent enough, nor regulated enough, to reduce the leverage and protect investors. Thus, the bonds (equity tranches and mezz tranches) were repacked at greater leverage than they should have been.
Naturally, as a wealth manager, you cannot dig through every investment possible, since all are complex, so you depend on the rating. Since the rating agencies were debautched, not regulated, and greedy, the ratings sucked. The RAs should have pushed back against the bankers, but they didn't. Regulations didn't force them to, so we all lose.
Add to that the lack of regulation for hedge funds, who can be levered 50:1, as well as the complex and almost completely unregulated derivatives market (CDS), you get a mix of deregulation and underregulation, that caused this whole problem.
One of the biggest fuckups was FAS140, which allowed lenders to securitize completely off balance sheet, while recognizing huge amounts of revenue up-front. Huge mistake.
You see, this problem is a massive circle-jerk of de/un-regulation. CRA was nothing more than a good-intentioned tool, same with the GSEs. It was really the banks and fund managers who were not watched over, that fucked it all up.
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