Info Have we learned nothing from the 2007 meltdown?

[hal2kilo]

Federal government has dramatically expanded exposure to risky mortgages

Looks like the pols and the banks get their way no matter the risk.

 

[trenchfoot]

Yer typical Repub reaction to an economy brought back to life under the watch of a Democrat president. The Repubs will fvck it up by giving things to the wealthy they simply don't need, by providing even more corporate welfare to the megacorps, by deregulating businesses so much as to allow them to loot and scoot and watch as the economy crashes again, all the while chanting FYGM! FYGM! FYGM! haha suckers.

And the Repub base is like "yeah so what? At least OUR party did it to ourselves and not yours".

 

[OccamsToothbrush]

If we were capable of learning anything from past mistakes Washington DC, Wall Street and the Vatican would be empty craters.

 

[UNCjigga]

The problem isn’t so much the lending industry in general, but the revolving door between government and the lending industry, and the thorough dismantling of the CFPB.

It seems all we did differently between 2007 and now is increase the share of blame of for government/Fannie Mae/Freddie Mac vs. that of the banks. So when (not if) the system fails again, Republicans will blame Obama and government regulation and people will listen.

 

[FelixDeCat]

The biggest causes of the 07-08 mortgage bubble burst and ensuing nationwide foreclosure crises / housing crash that lasted until 2013 were:

Over-leveraged banks, mortgage companies and other entities some of which were buying or financing mortgage debt at 10 to 1, 20 to 1 or in Lehmans case .... 44 TO 1 ($1 put up for every $44 in purchased debt). Buy $4.4 BILLION in 5% mortgages for only $100 millon in cash and you get an astronomical rate of return. But as soon as the subprimes started going bad these idiots got margin calls on those leveraged bets they could not meet.

In normal times you simply sell collateral to raise cash and meet a margin call. But when that collateral is mortgages nobody wants or only want at a steep discount, you are DOOMED and go bankrupt overnight.

The government had to finally step in to prevent a complete collapse of the banking / housing finance system and be the buyer of last resort for mortgage bonds and related debt. Thus the "Troubled Asset Relief Program" was born. It also partially nationalized all banks by forcing them to issue preferred stock to the United States in exchange for additional liquidity and guaranty of debts to encourage new lending and restart the credit markets.

The bailout cost $500 BILLION. Ironically the government made a profit when all was said and done: https://money.cnn.com/2014/12/19/news/companies/government-bailouts-end/


Lax lending standards to people with bad credit (sub prime). To make mortgages to those who should not otherwise have them due to poor money management and with teaser rate ARM loans that were only good for a short period of time.


Income not property documented (liar loans). Not independently verifying documentation provided in order to meet loan quotas.


Rampant mortgage fraud where anyone with a pulse (even ex cons) could make a mortgage to anyone with a pulse.

Then there were idiotic government regulations championed by democrats that undermined the safety and soundness of the housing finance system. Throw in poor leadership at Fannie and Freddie, and publicly traded banks and finance companies that had to get more and more leveraged to meet quarterly earnings growth and you had a recipe for a global credit crises that led to The Great Recession.

 

[Jhhnn]

Then there were idiotic government regulations championed by democrats that undermined the safety and soundness of the housing finance system.

Like what, exactly?

 

[TheVrolok]

Surely with all those who were punished for fraud and abuse, lessons were learned, amirite?

 

[zinfamous]

Like what, exactly?

He's referring to the Republican Congress written-and-passed repeal of Glass-Seagal (which prevented personal banks from becoming investment houses), that B Clinton signed. Which, I agree, was just a a universally horrible bill that he never should have signed, but that was Bill being Bill--the conservative/liberal president that just wanted to make Republicans happy. And yes--Billy had a lot of personal friends that he made very happy by signing that.

lol: time and time again, at the behest for "bipartisanship" we end up with Conservative administrations that pass 100% terrible policies, or Democratic administrations that allow 30% of Conservative legislation to pass, as a friendly gesture, and in-so-doing, pass 30% of absolutely terrible policies. It's always the same.

 

[Exterous]

Surely with all those who were punished for fraud and abuse, lessons were learned, amirite?

Even better, many of the tools used to fight the crisis were dismantled by a bi-partisan congressional effort

 

[Jhhnn]

Even better, many of the tools used to fight the crisis were dismantled by a bi-partisan congressional effort

Nicely vague.

 

[cytg111]

Gold and cash here just waiting for you guys to panic .

 

[FelixDeCat]

Surely with all those who were punished for fraud and abuse, lessons were learned, amirite?

You mean a perp walk? HA!!! Sure we "punished" all the big banks with billions of dollars in fines and penalties, but NO there were no perp walks.....even though millions of people lost enormous amounts of money as of the result of the fiasco.

 

[FelixDeCat]

Even better, many of the tools used to fight the crisis were dismantled by a bi-partisan congressional effort

Even worse, one of the biggest problems of the crises were dark money pools (unregulated bets for or against corporate and mortgage debt) such as Collateralized Debt Obligations, Credit Default Swaps and so forth remain unregulated.

 

[glenn1]

The "risky mortgages" in question are risky because they're often to the poors that Dems harp on banks not loaning money to. You guys should be consistent if you want more mortgage lending to poors/people of color that make the FHA loan portfolio "more risky" or you want the government to take less risk and those folks don't get loans and stay in rentals forever. The banks aren't going to make the loans if the Feds don't backstop them so it's a binary choice for you to make unless you simply legislate the banks MUST make the loans in which case you're just pushing the risk down to the banks and simply moving the failure risk down to the more local levels of the finance sector.

 

[FelixDeCat]

Gold and cash here just waiting for you guys to panic .

And that is why I have leveraged bets on gold and 3 oz of physical gold bullion financed at 0%.

 

[IronWing]

The "risky mortgages" in question are risky because they're often to the poors that Dems harp on banks not loaning money to. You guys should be consistent if you want more mortgage lending to poors/people of color that make the FHA loan portfolio "more risky" or you want the government to take less risk and those folks don't get loans and stay in rentals forever. The banks aren't going to make the loans if the Feds don't backstop them so it's a binary choice for you to make unless you simply legislate the banks MUST make the loans in which case you're just pushing the risk down to the banks and simply moving the failure risk down to the more local levels of the finance sector.

Your monthly straw bill must be horrendous.

 

[Exterous]

Nicely vague.

The FDIC’s broad guarantee authority, so effective during the crisis, was eliminated, as was the ability of the Fed to lend to individual nonbank financial firms. Congress limited the Fed’s discretion to judge when its loans are secured to its satisfaction, making it harder for the central bank to accept risky collateral in a future emergency. It also imposed disclosure requirements that could well make the Fed’s discount window, in principle the primary tool for making liquidity available to banks, useless in a future crisis.

Congress took away the Treasury’s power to issue guarantees, even though that power protected the savings of ordinary Americans and vital short-term funding for much of corporate America when money market funds were melting down. Congress also curtailed the executive branch’s ability to take credit risk alongside the Fed, as it had done to backstop consumer credit markets.

Will we survive the next financial crisis?

Three officials who rescued the economy in 2008 warn it might be harder to stop the next panic.

www.politico.com

If you read the books about the crisis, particularly those from Ben Bernake and Timothy Geithner, they show the Fed, FDIC and Treasury frequently making true last minute efforts to save the economy (like 2am Monday to prevent insolvency when the markets opened) while Congress spent time in bi-partisan dithering and stonewalling (Ben was more circumspect but Tim was, unsurprisingly, direct). It's also clear that Congress, including names like Warren, took issue with those actions because they didn't think someone other than Congress should be able to do that. So both sides got together and removed several abilities for independent action, even though those very tools are what staved off a worse situation when Congress failed to act. So, in the future, we'll need to depend on quick, decisive and economically smart decisions from Congress. Which I think will end well....

 

[brycejones]

Your monthly straw bill must be horrendous.

Semi-truck loads.

 

[Jhhnn]

The "risky mortgages" in question are risky because they're often to the poors that Dems harp on banks not loaning money to. You guys should be consistent if you want more mortgage lending to poors/people of color that make the FHA loan portfolio "more risky" or you want the government to take less risk and those folks don't get loans and stay in rentals forever. The banks aren't going to make the loans if the Feds don't backstop them so it's a binary choice for you to make unless you simply legislate the banks MUST make the loans in which case you're just pushing the risk down to the banks and simply moving the failure risk down to the more local levels of the finance sector.

That's highly inaccurate. Lenders deliberately lowered their standards & steered lower income & lesser educated borrowers into adjustable rate mortgages because commissions were higher. People who took fixed 30 year notes & kept their jobs generally did fine regardless of income level. Those who got caught in the squeeze when their mortgages reset or recast got screwed. The Bush admin pushed Fannie & Freddie into riskier loans to meet quotas they established & regulators let the banks get enormously over-leveraged. They drove it like they stole it.

 

[Jhhnn]

Will we survive the next financial crisis?

Three officials who rescued the economy in 2008 warn it might be harder to stop the next panic.

www.politico.com

If you read the books about the crisis, particularly those from Ben Bernake and Timothy Geithner, they show the Fed, FDIC and Treasury frequently making true last minute efforts to save the economy (like 2am Monday to prevent insolvency when the markets opened) while Congress spent time in bi-partisan dithering and stonewalling (Ben was more circumspect but Tim was, unsurprisingly, direct). It's also clear that Congress, including names like Warren, took issue with those actions because they didn't think someone other than Congress should be able to do that. So both sides got together and removed several abilities for independent action, even though those very tools are what staved off a worse situation when Congress failed to act. So, in the future, we'll need to depend on quick, decisive and economically smart decisions from Congress. Which I think will end well....

None of which affected the crisis as it unfolded in 2008.

 

[Exterous]

None of which affected the crisis as it unfolded in 2008.

None of what affected the crisis?

 

[glenn1]

Your monthly straw bill must be horrendous.

Yeah, it must be all those rich Republicans taking out those subprime loans that OP is complaining about the feds backstopping. Makes sense.

Honestly I think what you guys should do is propose a law prohibiting any government backstopping of subprime loans. I'd enthusiastically support you in that.

 

[s0me0nesmind1]

The problem isn’t so much the lending industry in general, but the revolving door between government and the lending industry, and the thorough dismantling of the CFPB.

It seems all we did differently between 2007 and now is increase the share of blame of for government/Fannie Mae/Freddie Mac vs. that of the banks. So when (not if) the system fails again, Republicans will blame Obama and government regulation and people will listen.

Sorry but what exactly does the CFPB have to do with insecure loans?

I understand the CFPB would apply for things like... the corruption at Wells Fargo... But what does that have to do with with banks giving loans for shit homes to people with shit credit?

 

[Jhhnn]

None of what affected the crisis?

Bernanke referenced the things that were done to alter the system since the crisis & what he doesn't like about it. He may be right for all I know. OTOH, preventing over leverage should help protect banking institutions from the greed of those running them. The sad truth is that regulations aren't any better than the way they're enforced & the Bush admin did their best to let bankers do whatever they wanted. They looked the other way & actively hobbled State regulators at the same time.

 

[glenn1]

Sorry but what exactly does the CFPB have to do with insecure loans?

I understand the CFPB would apply for things like... the corruption at Wells Fargo... But what does that have to do with with banks giving loans for shit homes to people with shit credit?

CFPB would make the borrowers sign like 50 more pages of disclosures they still wouldn't read to go along with the 50 they already sign and don't read.