Riskiest Lenders Were Also Fiercest Lobbyists

[StageLeft]

http://www.cnbc.com/id/34628798

In the report "A Fistful of Dollars: Lobbying and the Financial Crisis," the economists said their studies showed that lenders taking on the most risk were also the most active in lobbying against laws and regulations related to mortgage lending.

This gets to the heart of what I think is possibly the greatest problem with the US political system, namely the excessive lobbying of corporate interests that consistently supersede the interests of citizens who actually vote. I think the system is setup such that if a person actually wanted to be "pure" they would simply not make it far. It is an inherently corrupting system and corporations have the money to play the game. Corporate money-throwing is a key reason behind repeal of Glass-Steagall and other important measures intended to prevent what has occurred. It also has an unholy influence on any meaningful legislation including recent health care reform.

And it's getting worse every year.

 

[Zebo]

Were? You mean are. Shit still goes down just different now. They're into Gov't cash now, rolling 2006 values into fannie freddies portfolio for cash, stock pumps and so on....all can be seen in real time @ market-ticker.

 

[rudder]

Freddie and Fannie were there to buy everything up at the risk of the taxpayer. Prior to 2005 sub prime mortgages were performing within expectations. With the lenders seeing that Freddie and Fannie were scooping these subprime mortgages up... the subprime market exploded and there was little need to monitor the quality of the underwriting. Everyone could get fat loans. The lenders were rolling in the $$$.

Buy off some senators and congressman so no one touches your cash cow.

But yeh corporate lobbying is a problem. Stores have to pay 3% or whatever to visa/mastercard for each transaction and they cannot advertise cash discounts. Credit card lobbying.

Unfortunately for the common Joe, owning a senator is an expensive proposition

 

[halik]

http://www.cnbc.com/id/34628798



This gets to the heart of what I think is possibly the greatest problem with the US political system, namely the excessive lobbying of corporate interests that consistently supersede the interests of citizens who actually vote. I think the system is setup such that if a person actually wanted to be "pure" they would simply not make it far. It is an inherently corrupting system and corporations have the money to play the game. Corporate money-throwing is a key reason behind repeal of Glass-Steagall and other important measures intended to prevent what has occurred. It also has an unholy influence on any meaningful legislation including recent health care reform.

And it's getting worse every year.

Well in all honesty, all the legislators were equally incentivised to allow loose lending standard at that time. Cheap and easy credit and houses was something that public wanted and doing what public wants = votes.

 

[piasabird]

Take a look at where the the worst offenders (borrowers and lenders) lived.

You will find that the majority of America is suffering because of just a few of these areas. Meanwhile, the people with common sense are suffering because of idiots in liberal states. Why is it so bad in California and not so bad in other areas where people have better business sense?

 

[Ausm]

It doesn't look like it's going to get any better.

http://www.businessweek.com/news/20...lion-gift-from-barney-frank-david-reilly.html

 

[MotF Bane]

it doesn't look like it's going to get any better.

http://www.businessweek.com/news/20...lion-gift-from-barney-frank-david-reilly.html

404.

 

[BoberFett]

It doesn't look like it's going to get any better.

http://www.businessweek.com/news/20...lion-gift-from-barney-frank-david-reilly.html

Goddamn Republicans!


Edit: Oh, and your link doesn't work. http://www.bloomberg.com/apps/news?pid=20601039&sid=a48c8UpUMxKQ

 

[Genx87]

http://www.cnbc.com/id/34628798



This gets to the heart of what I think is possibly the greatest problem with the US political system, namely the excessive lobbying of corporate interests that consistently supersede the interests of citizens who actually vote. I think the system is setup such that if a person actually wanted to be "pure" they would simply not make it far. It is an inherently corrupting system and corporations have the money to play the game. Corporate money-throwing is a key reason behind repeal of Glass-Steagall and other important measures intended to prevent what has occurred. It also has an unholy influence on any meaningful legislation including recent health care reform.

And it's getting worse every year.

I wouldnt say avg citizen joe was completely clean in all of this. 5 years ago can you imagine the uproar from avg citizens if they started clamping down on the banking industry to head off the impending disaster? Overnight all home owners would see their appreciation halt or start falling as demand fell out of the market. And the next election cycle the people who enacted that legislation would be gone.

I am reading this book called "After the fall: Saving Capitalism from Wall Street and Washington". Utterly fascinating book that delves into the similarites between the 20s and the 80s and 90s that lead us to where we are today. If we got back to banking like we had from the 30-70s our housing market would have collapsed earlier, though probably not as bad. But the politicians would be out as we screamed bloody murder.

 

[heyheybooboo]

Since late 2006 374 major U.S. lending operations have "imploded"

I imagine a much more significant number of smaller ""Mortgage Loan & Refi"" operations closed their doors.

Though the Big Boys deserve a lot of blame the smaller 'mortgage mills' were most definitely pumping the system with rotten loans --- simply to drive up their fee revenue (and that of their scumbag appraisers, home inspectors, closing attorneys, etc)




--

 

[fskimospy]

Take a look at where the the worst offenders (borrowers and lenders) lived.

You will find that the majority of America is suffering because of just a few of these areas. Meanwhile, the people with common sense are suffering because of idiots in liberal states. Why is it so bad in California and not so bad in other areas where people have better business sense?

/facepalm

The worst hit places were those with the most desirable real estate markets. Florida is not a liberal state and it was one of the hardest hit. Furthermore bankers tend to be considerably more conservative than average, and they were the ones doing the lending.

Does everything really need to turn into partisan bullshit? You would think that this is the one crisis that had fingerprints on it from people of every ideology and every political party, the one thing where we could all agree 'man, we fucked up'. But nope!

 

[Craig234]

I wouldnt say avg citizen joe was completely clean in all of this. 5 years ago can you imagine the uproar from avg citizens if they started clamping down on the banking industry to head off the impending disaster? Overnight all home owners would see their appreciation halt or start falling as demand fell out of the market. And the next election cycle the people who enacted that legislation would be gone.

I am reading this book called "After the fall: Saving Capitalism from Wall Street and Washington". Utterly fascinating book that delves into the similarites between the 20s and the 80s and 90s that lead us to where we are today. If we got back to banking like we had from the 30-70s our housing market would have collapsed earlier, though probably not as bad. But the politicians would be out as we screamed bloody murder.

Good post. As you imply, unfortunately when the policies are 'good', political opportunists - mostly Republicans did this since Reagan - can get elected by offering riches with shortcuts.

Good to see the reading - I'd recommend "Bad Money" by Kevin Phillips as a next book.

One of the shortcomings in our political system is how the quick buck spends more to get elected than the public interest, which has few donors, which has a corrupting effect on both parties.

 

[Vic]

I wouldnt say avg citizen joe was completely clean in all of this. 5 years ago can you imagine the uproar from avg citizens if they started clamping down on the banking industry to head off the impending disaster? Overnight all home owners would see their appreciation halt or start falling as demand fell out of the market. And the next election cycle the people who enacted that legislation would be gone.

I am reading this book called "After the fall: Saving Capitalism from Wall Street and Washington". Utterly fascinating book that delves into the similarites between the 20s and the 80s and 90s that lead us to where we are today. If we got back to banking like we had from the 30-70s our housing market would have collapsed earlier, though probably not as bad. But the politicians would be out as we screamed bloody murder.

You don't have to tell me, I lived this. All of this whining about borrowers who got screwed into loans they couldn't afford ignores the fact that those borrowers shopped from lender to lender to lender until they found the one who would give them the loan they couldn't afford.

 

[halik]

I wouldnt say avg citizen joe was completely clean in all of this. 5 years ago can you imagine the uproar from avg citizens if they started clamping down on the banking industry to head off the impending disaster? Overnight all home owners would see their appreciation halt or start falling as demand fell out of the market. And the next election cycle the people who enacted that legislation would be gone.

I am reading this book called "After the fall: Saving Capitalism from Wall Street and Washington". Utterly fascinating book that delves into the similarites between the 20s and the 80s and 90s that lead us to where we are today. If we got back to banking like we had from the 30-70s our housing market would have collapsed earlier, though probably not as bad. But the politicians would be out as we screamed bloody murder.

Read this

http://www.amazon.com/Manias-Panics-.../dp/0471389455

It raises the same point - nothing can stop these speculative bubbles when they're growing, just because there are many, many more people benefiting from them compared to handful of regulators. The only think you can do is be properly hedged.

This has been going on far earlier than the 1920s - tulip mania is the first recorded one and it these sort of crisis happened every 15-20 years and once the Fed was established the period extends every 30-40 years.

 

[Zebo]

You don't have to tell me, I lived this. All of this whining about borrowers who got screwed into loans they couldn't afford ignores the fact that those borrowers shopped from lender to lender to lender until they found the one who would give them the loan they couldn't afford.

No ones clean but man who controls cash should not have loaned a million bucks to a hairdresser, slapped AAA on it and then bet against her paying.

Premeditated fraud.

 

[Vic]

No ones clean but man who controls cash should not have loaned a million bucks to a hairdresser, slapped AAA on it and then bet against her paying.

Premeditated fraud.

I'm sorry, when have I ever defended the securities traders?

 

[Jhhnn]

nothing can stop these speculative bubbles when they're growing, just because there are many, many more people benefiting from them compared to handful of regulators. The only think you can do is be properly hedged.

The time to stop asset bubbles is before they start, before the necessary measures can be represented as a clampdown. That was the whole point of the now largely dismantled New Deal banking and securities regulations.

Proper hedging? Get Real. It was hedging that enabled this real estate asset bubble, obfuscated risk, made it systemic. All the big players were hedging each other with utterly inadequate reserves. It never externalized risk at all.

 

[Darwin333]

http://www.cnbc.com/id/34628798



This gets to the heart of what I think is possibly the greatest problem with the US political system, namely the excessive lobbying of corporate interests that consistently supersede the interests of citizens who actually vote. I think the system is setup such that if a person actually wanted to be "pure" they would simply not make it far. It is an inherently corrupting system and corporations have the money to play the game. Corporate money-throwing is a key reason behind repeal of Glass-Steagall and other important measures intended to prevent what has occurred. It also has an unholy influence on any meaningful legislation including recent health care reform.

And it's getting worse every year.

I agree, it is the entire "system" that breeds corruption. While I don't think it possible to ever get rid of it entirely, it has gone way to far.

In order to get elected you need a crap ton of money. Very few people have a crapton of money to give you so that you can get elected. You must bow to the wishes of these people or you will likely lose your campaign funding or worse, they give the funding to asshole #2 that will bow to them.

Throw in the fact that the main goal of almost every politician is to get reelected. This has led us to a point that the lobbyists are now writing the laws that the politicians don't even bother reading before they pass.

However, we share in the blame as well. We continually reelect people who do not care about our interests. We continually fall for the flashy campaigns built upon the money that is the very reason we are ignored. We are willing to vote in a person that has demonstrated time and time again that they are for sale simply so that our side "wins".

 

[halik]

The time to stop asset bubbles is before they start, before the necessary measures can be represented as a clampdown. That was the whole point of the now largely dismantled New Deal banking and securities regulations.

Proper hedging? Get Real. It was hedging that enabled this real estate asset bubble, obfuscated risk, made it systemic. All the big players were hedging each other with utterly inadequate reserves. It never externalized risk at all.

99.9999% of households had direct exposure to residential real estate with no hedging. Robert Shiller was yelling about that since the late 90s - anyone that owns a house has essentially ~100K exposure to their local RE market.

There's no doubt that shitty lending standards and lax regulation increased the system risk driver in the asset backed market, but had the residents been property hedged on the downside, there wouldn't be the sort of reflexive RE devaluation and the consumer wouldn't been killed off.

Think about it - if I can buy a put option on my house, I would be far less inclined to walk away in a down cycle. The option limits my loss to whatever the strike is, so there's only so much upside-down I can be.


Just a side note, there's no way to hedge systematic risk - it is the reason why you're getting paid a return.

 

[halik]

No ones clean but man who controls cash should not have loaned a million bucks to a hairdresser, slapped AAA on it and then bet against her paying.

Premeditated fraud.

My boss has an interesting view on the rating business - the ratings aren't wrong, it's the application of them that is wrong. Ratings are essentially an ordinal measure, rather than a cardinal measure - they don't incorporate the amount of systematic risk into it, which can bite you in the ass.

AA default is something like 3 in 10,000 per year. Naively you look at it and think the prob default for any AA issue is 0.03% any given year... but when you look at the methodology there's a huge fuckup:

You can't take the number of AA companies that defaulted in last 50 years and divide it by number of AA companies in the last 50 years and then by 50 to get the default rate per year. Those events are not independent!

 

[Darwin333]

I wouldnt say avg citizen joe was completely clean in all of this. 5 years ago can you imagine the uproar from avg citizens if they started clamping down on the banking industry to head off the impending disaster? Overnight all home owners would see their appreciation halt or start falling as demand fell out of the market. And the next election cycle the people who enacted that legislation would be gone.

I am reading this book called "After the fall: Saving Capitalism from Wall Street and Washington". Utterly fascinating book that delves into the similarites between the 20s and the 80s and 90s that lead us to where we are today. If we got back to banking like we had from the 30-70s our housing market would have collapsed earlier, though probably not as bad. But the politicians would be out as we screamed bloody murder.

Naw, we have short memories and we are much more concerned about our team winning. How many of them got reelected after everyones home values went through the floor AND they passed TARP despite the public largely being against it. We might have thrown a few of the bums out but for the most part we reelected or will reelect all of the key players.

 

[StageLeft]

No ones clean but man who controls cash should not have loaned a million bucks to a hairdresser, slapped AAA on it and then bet against her paying.

Premeditated fraud.

Isn't that what groups like GS did? They sold these sh*t loans and then bet against the fact they'd even work, since you could bet against basically anything regardless of your personal exposure to any risk. So they made the money selling and then made more when the rotten crap they sold imploded.

 

[Jhhnn]

You assume, Halik, that there's no counterparty risk wrt your put option scenario, precisely the assumption that locked up the financial markets. What good would such an option do you if the counterparty couldn't pay up when required?

Derivatives are the finaglers' dreams come true. They don't need actual reserves, they just need to be "properly hedged" so as to look good on paper, and need to tuck their true risk away in "Special Purpose Vehicles" and other such ploys. Playing the hedge game in both directions benefits them, as well. A hedges B, who hedges C who hedges D and so forth, until it comes back around with Z hedging A... All of which is hidden from view, even to the players, because of the nature of OTC derivatives.

All I need to do to collect money on your proposed hedge, Halik, is claim to be able to pay off when and if the time comes. When I don't, my company goes broke but I stay rich, having chumped you and others into paying me for fantasy "insurance". Perfectly legal, too...

 

[halik]

Isn't that what groups like GS did? They sold these sh*t loans and then bet against the fact they'd even work, since you could bet against basically anything regardless of your personal exposure to any risk. So they made the money selling and then made more when the rotten crap they sold imploded.

Goldman was winding down the residential secularization by the time they went short on it in 2008.

Either way I don't see anything legally or ethically wrong with it if you publicly disclose it and your research dept says the same thing. If you clients still want those thing, then why not make them?

It's not the same thing like the whole Investment Research scandal of early 2000s (banks were secretly taking positions opposite of what their investment analysts were saying publicly)

 

[Jhhnn]

You just endorsed fraud, Halik.