Capitalism Guarantees Rising Inequality

[RKMBrown]

You keep presenting incorrect facts and I keep correcting them. F&F are not ratings agencies. I am in no way denying that F&F thought that the MBS were AAA when they were not.

The practice was to create AAA rated MBS by mixing different types of loans together. They(Financial Institutions, F&F, and ratings agencies) used a formula(85:15 ratio) to justify this rating. In addition the ratings of the underlying mortgages was incorrect. The regulation of the creation of these mortgages and the creation of these MBS decreased during this time as well.

There were a lot of problems that contributed to the incorrect ratings of both the mortgages and the MBS but the biggest one was the fact that they were not taking into account the bubble that was created by the Federal Reserve lowering interest rates. This failure only lead to the bubble growing bigger as capital flowed to these MBS.

During this time there was a growth in sub-prime loans other than CRA loans in large part due to the fact that the financial institutions were making billions off of the market and were chasing the profit levels they had at the start of the bubble.

These financial institutions make a lot of money off of these MBS so I have to wonder if you live in a world where they are not responsible for making decisions then why are they making money in the first place?

Again you blame the bubble on lower interest rates, while completely ignoring the NEW PEOPLE BROUGHT INTO THE MARKET based on reduced qualifications ordered by law. The new people given loans that would not have been approved at all prior to CRA laws are a big part of the problem. When you are in a bubble and you add more buyers into the bubble that makes the bubble even larger. Why? Because the market at the time was a sellers market in which buyers were bidding up the prices of the homes to astronomical levels that had no support prior to the CRA enactment.

For example, if there's only one home available in a neighborhood and 10 people are trying to out bid each other to buy it, the mere fact that there are a thousand homes in the neighborhood that are NOT for sale is a moot point. The new buyers fighting for their piece of the bubble are the ones that typically inflate the bubble with rash decisions.

The bubble was a direct result of the change in interest rates because people buy their home based on the monthly payment and can afford a mortgage based on the monthly payment.

I have not denied that there was an increase in sub-prime loans. Not all of those loans were CRA loans though. The fact that the market was taking on more risk free of the government doesn’t really help your point that the market was avoiding risk and had it forced upon them by government.

The idea that the CRA increased the prices by increasing demand may very well be true but that increase doesn’t even come close to mathematically justifying the size of the bubble or the massive capital inflows into the market that fueled that bubble. It doesn’t justify the increases in home prices for all homes. The majority of which are not impacted by the CRA.

Yes, the bubble was, in part, a direct result of the change in interest rates. Because people refinance freeing up capital to buy a second home, move up to a larger home, and become first home buyers based on the lower costs vs. renting etc.

I have not made the point "that all of the market was avoiding risk."

My point was quite the opposite, the government forced the lenders to take risks that the lenders used to not be allowed to take by banking standards, and some of the banks decided to call govco's bluff and cash in on the fast cash business of buying and selling property in a bubble and making cash hand over fist.

Nothing justified the bubbles (dot com first) then the real-estate market in succession. That's why they popped.

Again... you don't have to be a large part of a market to cause a bubble. The buyers and sellers in any one year are always a very small percentage of the owners. Most of the new loans were refinances due to the march of the interest rates to the floor. Nothing harm or foul was caused by home owners refinancing their home loans, until this bastard of a man took office and started paying people to refinance with tax dollars.

 

[RKMBrown]

[/SIZE][/B]

I'm an ardent advocate of free markets, but this point of view never sets well with me. Economic success is a very narrow measure of a person, and its foolish to say that people who achieve it are 'better' than others. They're just better at economics, and perhaps more industrious. But those aren't the only virtues, not even the most important ones in my view.

As a taxpayer and a producer those are the characteristics that matter to me.

The welfare/warfare police state will have no qualms about crushing me if I fail or refuse to financially support the parasites.

.

Economic success can be measured different ways. Most in debt? Least in debt? Biggest home? Most number of toys? Biggest monthly expenses? Most assets? Most income?

Me, I'll take my hot wife, fantastic kids, decent home and just enough toys to the bank all day long. I could make ten times what I make now and not see a single difference to how I live. Nope.. what would happen is govco would take half of it, I'd give some other folks that didn't earn it some money and the rest I'd blow on stuff I don't need or want. Govco would just waste my money, the people I give money to would likely become dependent. I'd rather have my time back than spend time earning money I don't need. You can't buy your time back.

 

[gnarlylove]

To think the right or left differs in mistaken.
The left certainly supports a larger welfare base but the right typically does not say we should eradicate all public assistance programs.

I imagine most people get their information from major media outlets (virtually all TV news channels and their associated websites) and if one does not seek alternative sources then one is likely to believe in the hype that is broadcast. However, common political views (either red or blue) differ in a matter of degree, not in kind. Even our so-called socialist economies in Europe are integrated with foundational capitalist principles. The main difference comes by virtue of those nations willing to be taxed at much higher rates than American's could ever conceive. But taxation isn't all bad since it results in their public education and healthcare being mostly universal among citizens.

This is state sponsered socialism at best, more like regulated capitalism. Again, this is not a difference in kind, just a difference in degree (of taxes etc.).

Anyone who listens to mainstream media, whether left of right or "centrist" will portray Marxist socialism and especially communism as vile or the most despicable human invention ever. Capitalism relies on competition and sets no limits on how wealthy one can become. We distribute wealth based on labor contributions (or more accurately, economic class since where you are born is statistically where you die). To a person who accepts either Rep. or Dem. views, to change this system is essentially unthinkable. He derives his well being from capitalism and so the positions are not separate from his central identity. Thus, to distribute wealth/goods/food/shelter based on human need rather than labor contributions is insane, to the capitalist who is doing OK. It totally erodes, so they claim, the ideal of earning one's way and incentives. Unfortunately there are many competing incentives other than money but we have decided that money is the main incentive in life. However, this is not necessary to human existence and often erodes any spiritual or empathetic outlook since they lessen or at least fail to contribute to one's wealth. The logic is very circular but one does not see this if they are playing the game.

This sets opposing views at impossible odds, even if alternatives to capitalism made more sense to a lot of people. That's because capitalism has concentrated power and wealth by the social and political elite and they have a good grip on what information gets out and what doesn't (on mainstream channels/websites). So any normal citizen tends to accept what they hear and move on so they can keep making money.

In order for capitalists to even consider socialism or simply the removal of capitalism they say it requires a detailed system laid out step by step to replace it. However, capitalism did not develop via such meticulous methods beforehand, it just tended to happen and worked. As time went along we saw we needed to institute laws to protect civil rights and so we did. So it was a work in progress (and still is), just like any social/economic system is.

But the problem to the alternatives to capitalism is that few understand them with any degree of clarity or fairness. Of course understanding socialism through a biased lens of capitalism will produce desired result: socialism stinks and capitalism rules. They hear it described by capitalists and take their outlook as the word of the lord. This propagates misinformation about the principles of socialism etc. It also shields us from the glaring problems in capitalism that many are incapable of seeing since they rarely if ever think about them.

It would require lazy Americans to do their own homework since mainstream media/powerful elites spout half-truths about alternatives to capitalism. Rep. or Dem are trained to exaggerate differences and capitalize on misfortune of others. So those people are not going to remain calm when confronted with opposing views like reading about communism.

So until we can realize we are all in this together moving beyond our selfish inclinations and realize all of humanity deserves basic food, shelter and love we will continue to trample underfoot their needs because we are serving our "needs" and desires.

Socialism will always be demonized as its a threat to the social and political elite. It takes their wealth and says, share it with us all. The means of production should be owned by the workers, not a private few who make millions and refuse to pay livable wages causing citizens to turn to welfare just to survive despite having a job. We all should have the right to quality food and shelter. Everyone is inherently human and differences are minimal yet they get exaggerated like certain groups of people "lack the will to earn."

This is a misgiving on the part of people who've never been there, guaranteed. To understand socialism requires one to set aside their present assumption of how the world should work and reconsider it from the ground up--unfortunately this is far too much work for the lazy middle class America who works. He sees capitalism as helping him more than hurting him (a mis-perception) so there's no reason to consider an alternative. Tell that to the 3.5 billion people who lack essential needs on a daily basis. That's right, 85 social and political elite own as much wealth as 3.5 billion people. That is fucking gross and will continue to get worse as capitalism devours our planet. No one needs 4 cars but by god we want it so we should have it, regardless of how it impacts others and the globe. That is the fundamental difference in a capitalist brain and an empathetic brain. ramble ramble shut me up!

 

[Toddsterpatriot]

You keep presenting incorrect facts and I keep correcting them. F&F are not ratings agencies. I am in no way denying that F&F thought that the MBS were AAA when they were not.

The practice was to create AAA rated MBS by mixing different types of loans together. They(Financial Institutions, F&F, and ratings agencies) used a formula(85:15 ratio) to justify this rating. In addition the ratings of the underlying mortgages was incorrect. The regulation of the creation of these mortgages and the creation of these MBS decreased during this time as well.

There were a lot of problems that contributed to the incorrect ratings of both the mortgages and the MBS but the biggest one was the fact that they were not taking into account the bubble that was created by the Federal Reserve lowering interest rates. This failure only lead to the bubble growing bigger as capital flowed to these MBS.

During this time there was a growth in sub-prime loans other than CRA loans in large part due to the fact that the financial institutions were making billions off of the market and were chasing the profit levels they had at the start of the bubble.

These financial institutions make a lot of money off of these MBS so I have to wonder if you live in a world where they are not responsible for making decisions then why are they making money in the first place?

Again you blame the bubble on lower interest rates, while completely ignoring the NEW PEOPLE BROUGHT INTO THE MARKET based on reduced qualifications ordered by law. The new people given loans that would not have been approved at all prior to CRA laws are a big part of the problem. When you are in a bubble and you add more buyers into the bubble that makes the bubble even larger. Why? Because the market at the time was a sellers market in which buyers were bidding up the prices of the homes to astronomical levels that had no support prior to the CRA enactment.

For example, if there's only one home available in a neighborhood and 10 people are trying to out bid each other to buy it, the mere fact that there are a thousand homes in the neighborhood that are NOT for sale is a moot point. The new buyers fighting for their piece of the bubble are the ones that typically inflate the bubble with rash decisions.

Find me documentation where the lending standards were lowered.

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.


Did the CRA Lead to Risky Lending? | The Volokh ConspiracyThe Volokh Conspiracy

 

[Andylusion]

The GSEs don't rate loans. Freddie and Fannie don't give AAA ratings, or any ratings, to any pool of bonds. The federal government doesn't rate bonds.

It is even more sorry (and telling) that you can't provide any evidence of Fannie or Freddy or any other federal governmental agency rating bonds, isn't it?

Why do I regularly post lies, distortions, and disinformation?

Guys, I'm open to the idea. By all means provide some evidence, or any evidence to support the idea that the rating agencies just randomly started giving sub-prime mortgages, a AAA rating.

If you can find evidence that they did, then my whole argument is questionable. I will freely admit straight up, that if they were giving Sub-prime mortgages AAA ratings in the 80s, or 90, 91,92,93,94,95,96, then that makes my argument hard to support.

In fact, if the first sub-prime mortgage to get a AAA rating was in 2000, or 2001, 02,03,04,05,06.... that would make the argument hard to support.

But as near as I can tell the very first sub-prime mortgage, given a AAA rating, happened in 1997. And that happens to fit perfectly with the drastic increase in sub-prime loans. Without that AAA rating, sub-prime loans remained a niche high risk market.

That leaves us with a question.... why did they give a sub-prime mortgage backed security, a AAA rating? Why did that start in 1997? What happened in 1997 to cause this?

Again, if you have other evidence, by all means, give it. But simply pointing fingers and saying "their fault!" is not in an of itself, and argument.

Near as I can tell, the only thing I can find is:

First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. have priced a $384.6 million offering of securities backed by Community Reinvestment Act (CRA) loans - marking the industry's first public securitization of CRA loans.
The affordable mortgages were originated or acquired by First Union Corporation and subsidiaries. Customers will experience no impact - they will continue to make payments to and be serviced by First Union Mortgage Corp. CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977.
"The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals," said Jane Henderson, managing director of First Union's Community Reinvestment and Fair Lending Programs.
"First Union is committed to promoting home ownership in traditionally underserved markets through a comprehensive line of competitive and flexible affordable mortgage products. This transaction enables us to continue to aggressively serve those markets."
The $384.6 million in senior certificates are guaranteed by Freddie Mac and have an implied "AAA" rating.​

This press release in 1997, is the best evidence I can find, to suggest why after decades of Sub-prime loans being a tiny niche market, they suddenly shot off.

If you have other evidence... by all means give it. I'll consider what you have to say.

But other wise, you are simply looking at all the evidence, providing no support whatsoever, and saying "that can't be right". Sorry, but I need more support for your position than that. That's a weak argument.

 

[Toddsterpatriot]

To think the right or left differs in mistaken.
The left certainly supports a larger welfare base but the right typically does not say we should eradicate all public assistance programs.

I imagine most people get their information from major media outlets (virtually all TV news channels and their associated websites) and if one does not seek alternative sources then one is likely to believe in the hype that is broadcast. However, common political views (either red or blue) differ in a matter of degree, not in kind. Even our so-called socialist economies in Europe are integrated with foundational capitalist principles. The main difference comes by virtue of those nations willing to be taxed at much higher rates than American's could ever conceive. But taxation isn't all bad since it results in their public education and healthcare being mostly universal among citizens.

This is state sponsered socialism at best, more like regulated capitalism. Again, this is not a difference in kind, just a difference in degree (of taxes etc.).

Anyone who listens to mainstream media, whether left of right or "centrist" will portray Marxist socialism and especially communism as vile or the most despicable human invention ever. Capitalism relies on competition and sets no limits on how wealthy one can become. We distribute wealth based on labor contributions (or more accurately, economic class since where you are born is statistically where you die). To a person who accepts either Rep. or Dem. views, to change this system is essentially unthinkable. He derives his well being from capitalism and so the positions are not separate from his central identity. Thus, to distribute wealth/goods/food/shelter based on human need rather than labor contributions is insane, to the capitalist who is doing OK. It totally erodes, so they claim, the ideal of earning one's way and incentives. Unfortunately there are many competing incentives other than money but we have decided that money is the main incentive in life. However, this is not necessary to human existence and often erodes any spiritual or empathetic outlook since they lessen or at least fail to contribute to one's wealth. The logic is very circular but one does not see this if they are playing the game.

This sets opposing views at impossible odds, even if alternatives to capitalism made more sense to a lot of people. That's because capitalism has concentrated power and wealth by the social and political elite and they have a good grip on what information gets out and what doesn't (on mainstream channels/websites). So any normal citizen tends to accept what they hear and move on so they can keep making money.

In order for capitalists to even consider socialism or simply the removal of capitalism they say it requires a detailed system laid out step by step to replace it. However, capitalism did not develop via such meticulous methods beforehand, it just tended to happen and worked. As time went along we saw we needed to institute laws to protect civil rights and so we did. So it was a work in progress (and still is), just like any social/economic system is.

But the problem to the alternatives to capitalism is that few understand them with any degree of clarity or fairness. Of course understanding socialism through a biased lens of capitalism will produce desired result: socialism stinks and capitalism rules. They hear it described by capitalists and take their outlook as the word of the lord. This propagates misinformation about the principles of socialism etc. It also shields us from the glaring problems in capitalism that many are incapable of seeing since they rarely if ever think about them.

It would require lazy Americans to do their own homework since mainstream media/powerful elites spout half-truths about alternatives to capitalism. Rep. or Dem are trained to exaggerate differences and capitalize on misfortune of others. So those people are not going to remain calm when confronted with opposing views like reading about communism.

So until we can realize we are all in this together moving beyond our selfish inclinations and realize all of humanity deserves basic food, shelter and love we will continue to trample underfoot their needs because we are serving our "needs" and desires.

Socialism will always be demonized as its a threat to the social and political elite. It takes their wealth and says, share it with us all. The means of production should be owned by the workers, not a private few who make millions and refuse to pay livable wages causing citizens to turn to welfare just to survive despite having a job. We all should have the right to quality food and shelter. Everyone is inherently human and differences are minimal yet they get exaggerated like certain groups of people "lack the will to earn."

This is a misgiving on the part of people who've never been there, guaranteed. To understand socialism requires one to set aside their present assumption of how the world should work and reconsider it from the ground up--unfortunately this is far too much work for the lazy middle class America who works. He sees capitalism as helping him more than hurting him (a mis-perception) so there's no reason to consider an alternative. Tell that to the 3.5 billion people who lack essential needs on a daily basis. That's right, 85 social and political elite own as much wealth as 3.5 billion people. That is fucking gross and will continue to get worse as capitalism devours our planet. No one needs 4 cars but by god we want it so we should have it, regardless of how it impacts others and the globe. That is the fundamental difference in a capitalist brain and an empathetic brain. ramble ramble shut me up!

Anyone who listens to mainstream media, whether left of right or "centrist" will portray Marxist socialism and especially communism as vile or the most despicable human invention ever.

Tens of millions dead last century tend to support that claim.

where you are born is statistically where you die

Liar liar!

That's right, 85 social and political elite own as much wealth as 3.5 billion people. That is fucking gross

Unproductive people aren't very productive.

 

[Iceweasel]

Socialism will always be demonized as its a threat to the social and political elite. It takes their wealth and says, share it with us all. The means of production should be owned by the workers, not a private few who make millions and refuse to pay livable wages causing citizens to turn to welfare just to survive despite having a job. We all should have the right to quality food and shelter. Everyone is inherently human and differences are minimal yet they get exaggerated like certain groups of people "lack the will to earn."

What a bunch of mindless drivel. The irony is that you misrepresent and demonize capitalism while polishing up socialism, WHILE you pretend to be above the fray.

You honestly don't live in the real world. You have never driven around America and seen the homes, cars, boats and lifestyles. Those are the few top percenters capitalizing off the poor downtrodden worker drone.

Workers do have the right to own production IF they buy the goddamn company. You do not have the right to demand someone else fron the capital, assume the risk and give you a job. You do not have the right to a house, food or sex. It isn't in the Constitution.

We didn't get to be the nation we are by listening to self absorbed entitled malcontents. And it's high time we put our foot down. On their necks if need be.

 

[Indeependent]

Again you blame the bubble on lower interest rates, while completely ignoring the NEW PEOPLE BROUGHT INTO THE MARKET based on reduced qualifications ordered by law. The new people given loans that would not have been approved at all prior to CRA laws are a big part of the problem. When you are in a bubble and you add more buyers into the bubble that makes the bubble even larger. Why? Because the market at the time was a sellers market in which buyers were bidding up the prices of the homes to astronomical levels that had no support prior to the CRA enactment.

For example, if there's only one home available in a neighborhood and 10 people are trying to out bid each other to buy it, the mere fact that there are a thousand homes in the neighborhood that are NOT for sale is a moot point. The new buyers fighting for their piece of the bubble are the ones that typically inflate the bubble with rash decisions.

Find me documentation where the lending standards were lowered.

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.


Did the CRA Lead to Risky Lending? | The Volokh ConspiracyThe Volokh Conspiracy

Once again, find me documentation where the lending standards were lowered.

Mortgage Brokers and Bankers had automated systems which denied loans; they then had to whip out PAPER to bypass the standards.

So once again, find me documentation where the lending standards were lowered.

 

[RKMBrown]

Find me documentation where the lending standards were lowered.

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.


Did the CRA Lead to Risky Lending? | The Volokh ConspiracyThe Volokh Conspiracy

Once again, find me documentation where the lending standards were lowered.

Mortgage Brokers and Bankers had automated systems which denied loans; they then had to whip out PAPER to bypass the standards.

So once again, find me documentation where the lending standards were lowered.

[ame=http://www.youtube.com/watch?v=93sEBKumfyg]Hogan's Heroes: Stop Digging - YouTube[/ame]

 

[Bombur]

My point was quite the opposite, the government forced the lenders to take risks that the lenders used to not be allowed to take by banking standards, and some of the banks decided to call govco's bluff and cash in on the fast cash business of buying and selling property in a bubble and making cash hand over fist.

So not only is the government responsible for the CRA loans but all sub prime loans cause.... you said so or something?

Is there any decision in this whole mess that wasn't the fault of the government in your mind?

 

[Andylusion]

You keep presenting incorrect facts and I keep correcting them. F&F are not ratings agencies. I am in no way denying that F&F thought that the MBS were AAA when they were not.

The practice was to create AAA rated MBS by mixing different types of loans together. They(Financial Institutions, F&F, and ratings agencies) used a formula(85:15 ratio) to justify this rating. In addition the ratings of the underlying mortgages was incorrect. The regulation of the creation of these mortgages and the creation of these MBS decreased during this time as well.

There were a lot of problems that contributed to the incorrect ratings of both the mortgages and the MBS but the biggest one was the fact that they were not taking into account the bubble that was created by the Federal Reserve lowering interest rates. This failure only lead to the bubble growing bigger as capital flowed to these MBS.

During this time there was a growth in sub-prime loans other than CRA loans in large part due to the fact that the financial institutions were making billions off of the market and were chasing the profit levels they had at the start of the bubble.

These financial institutions make a lot of money off of these MBS so I have to wonder if you live in a world where they are not responsible for making decisions then why are they making money in the first place?

First, back to interest rates. The housing price bubble started in 1997. The interest rate in 1997 was 7.6%. Is that really too low? Because the interest rate in 1993, was 7.3%, and the bubble didn't start for another 4 years.
Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac

Again, if you have real evidence to support your claims, by all means post it. I'll be more than interested to see your evidence, because I'm not seeing that in the data. I used to believe your view on this, but I can't justify that position anymore.

Now to the "financial institutions make a lot of money" argument.

I'm not denying any of that. Yes, once a bubble starts, people start jumping on the speculation. People were buying homes, and selling them a month later for $100K more. Banks were making crazy loans, knowing that if the guy defaulted, they would get a house back that was worth more than the original loan.

I agree with ALL OF THIS. 100% correct! No question about it!

Here's the problem.... what started it? Yes, once the bubble got going, all that stuff you mentioned is going to happen.

WHAT WAS THE CAUSE?

That's where my issue comes in. Because if you say the cause was "greed", then you have to believe in black magic. Human nature hasn't changed in 6,000 years.

If "greed" was the cause, why didn't the sub-prime bubble start in the 1980s? Why not 1990? Why not 91, 92, 93, 94, 95, 96? Why not any of those years? Why didn't it wait until 1999? Or 2000? Or 01, 02, 03, 04, 05, 06?

Again, you can't tell me it was interest rates, because interest rates were lower in 1993, than in 1997. Why didn't it start in 1993? Besides, is one quarter of a point, that different? 7.8% is good, but 7.6% is bad? Not a logical argument.

So we're still left with the question.... why 1997? Did aliens come and zap all the bankers with greed guns?

Still not a logical argument. Something fundamental in the mortgage industry had to change, and until you can provide something.... anything... to support your position, my bet still remains on that deal with Freddie Mac, guaranteeing sub-prime loans, with an implied AAA rating.

If you have something else to suggest, by all means. Post your evidence. I'll consider it.

 

[Bombur]

The GSEs don't rate loans. Freddie and Fannie don't give AAA ratings, or any ratings, to any pool of bonds. The federal government doesn't rate bonds.

It is even more sorry (and telling) that you can't provide any evidence of Fannie or Freddy or any other federal governmental agency rating bonds, isn't it?

Why do I regularly post lies, distortions, and disinformation?

Guys, I'm open to the idea. By all means provide some evidence, or any evidence to support the idea that the rating agencies just randomly started giving sub-prime mortgages, a AAA rating.

Sub-prime mortgages don't have a AAA rating by definition. Care to clarify?

 

[RKMBrown]

My point was quite the opposite, the government forced the lenders to take risks that the lenders used to not be allowed to take by banking standards, and some of the banks decided to call govco's bluff and cash in on the fast cash business of buying and selling property in a bubble and making cash hand over fist.

So not only is the government responsible for the CRA loans but all sub prime loans cause.... you said so or something?

Is there any decision in this whole mess that wasn't the fault of the government in your mind?

>>> So not only is the government responsible for the CRA loans but all sub prime loans cause.... you said so or something?

Irregardless of my opinion, it's govco's job to regulate this particular industry

>>> Is there any decision in this whole mess that wasn't the fault of the government in your mind?

No, not in my opinion. Failure on compound failure all attributable to govco actions and more importantly, in-actions, resulting in epic failure, followed by even worse behavior by our government.

 

[Andylusion]

You keep presenting incorrect facts and I keep correcting them. F&F are not ratings agencies. I am in no way denying that F&F thought that the MBS were AAA when they were not.

The practice was to create AAA rated MBS by mixing different types of loans together. They(Financial Institutions, F&F, and ratings agencies) used a formula(85:15 ratio) to justify this rating. In addition the ratings of the underlying mortgages was incorrect. The regulation of the creation of these mortgages and the creation of these MBS decreased during this time as well.

There were a lot of problems that contributed to the incorrect ratings of both the mortgages and the MBS but the biggest one was the fact that they were not taking into account the bubble that was created by the Federal Reserve lowering interest rates. This failure only lead to the bubble growing bigger as capital flowed to these MBS.

During this time there was a growth in sub-prime loans other than CRA loans in large part due to the fact that the financial institutions were making billions off of the market and were chasing the profit levels they had at the start of the bubble.

These financial institutions make a lot of money off of these MBS so I have to wonder if you live in a world where they are not responsible for making decisions then why are they making money in the first place?

Again you blame the bubble on lower interest rates, while completely ignoring the NEW PEOPLE BROUGHT INTO THE MARKET based on reduced qualifications ordered by law. The new people given loans that would not have been approved at all prior to CRA laws are a big part of the problem. When you are in a bubble and you add more buyers into the bubble that makes the bubble even larger. Why? Because the market at the time was a sellers market in which buyers were bidding up the prices of the homes to astronomical levels that had no support prior to the CRA enactment.

For example, if there's only one home available in a neighborhood and 10 people are trying to out bid each other to buy it, the mere fact that there are a thousand homes in the neighborhood that are NOT for sale is a moot point. The new buyers fighting for their piece of the bubble are the ones that typically inflate the bubble with rash decisions.

Find me documentation where the lending standards were lowered.

First Union Capital Markets Corp., Bear, Stearns & Co. Price Securities Offering... -- re> CHARLOTTE, N.C., Oct. 20 /PRNewswire/ --

First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. have priced a $384.6 million offering of securities backed by Community Reinvestment Act (CRA) loans - marking the industry's first public securitization of CRA loans.
The affordable mortgages were originated or acquired by First Union Corporation and subsidiaries. Customers will experience no impact - they will continue to make payments to and be serviced by First Union Mortgage Corp. CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977.
"The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals," said Jane Henderson, managing director of First Union's Community Reinvestment and Fair Lending Programs.
"First Union is committed to promoting home ownership in traditionally underserved markets through a comprehensive line of competitive and flexible affordable mortgage products. This transaction enables us to continue to aggressively serve those markets."
The $384.6 million in senior certificates are guaranteed by Freddie Mac and have an implied "AAA" rating.​

Direct conclusive evidence that lending standards were lowered. Those loans under the original Prime Rate lending standards, would never be guaranteed by Freddie Mac.

 

[Indeependent]

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.


Did the CRA Lead to Risky Lending? | The Volokh ConspiracyThe Volokh Conspiracy

Once again, find me documentation where the lending standards were lowered.

Mortgage Brokers and Bankers had automated systems which denied loans; they then had to whip out PAPER to bypass the standards.

So once again, find me documentation where the lending standards were lowered.

[ame=http://www.youtube.com/watch?v=93sEBKumfyg]Hogan's Heroes: Stop Digging - YouTube[/ame]

Sorry, but I have lots of people in my community who work(ed) as mortgage brokers and bankers; the standards were never lowered.
I know people who WOULDN'T override the standards due to religious reasons.
Some of them fell on hard times.

It's amazing how people can pull up the most archaic documents from SOMEWHERE in this great Internet age but still can't manage to find ONE civil published document top prove the standards were lowered.

 

[RKMBrown]

The GSEs don't rate loans. Freddie and Fannie don't give AAA ratings, or any ratings, to any pool of bonds. The federal government doesn't rate bonds.

It is even more sorry (and telling) that you can't provide any evidence of Fannie or Freddy or any other federal governmental agency rating bonds, isn't it?

Why do I regularly post lies, distortions, and disinformation?

Guys, I'm open to the idea. By all means provide some evidence, or any evidence to support the idea that the rating agencies just randomly started giving sub-prime mortgages, a AAA rating.

Sub-prime mortgages don't have a AAA rating by definition. Care to clarify?

He's conflating the combining of AAA rated loans with Sub-prime mortgage loans that occurred due to deregulation, and was supported by govco failures to correctly audit, by asking how Sub-prime mortgage loans became AAA rated loans. IOW he's talking out his ass. The real problem with the Sub-primes was the bubble making them all successful whether or not the owner could pay in the sellers market. Thus hiding the ensuing crash when the market stopped going up exponentially. There's not a whole lot of risk in realestate when all homes are going up in value.

 

[RKMBrown]

Once again, find me documentation where the lending standards were lowered.

Mortgage Brokers and Bankers had automated systems which denied loans; they then had to whip out PAPER to bypass the standards.

So once again, find me documentation where the lending standards were lowered.

[ame=http://www.youtube.com/watch?v=93sEBKumfyg]Hogan's Heroes: Stop Digging - YouTube[/ame]

Sorry, but I have lots of people in my community who work(ed) as mortgage brokers and bankers; the standards were never lowered.
I know people who WOULDN'T override the standards due to religious reasons.
Some of them fell on hard times.

It's amazing how people can pull up the most archaic documents from SOMEWHERE in this great Internet age but still can't manage to find ONE civil published document top prove the standards were lowered.

That would be because the standards were not lowered by "everyone."

 

[Andylusion]

My point was quite the opposite, the government forced the lenders to take risks that the lenders used to not be allowed to take by banking standards, and some of the banks decided to call govco's bluff and cash in on the fast cash business of buying and selling property in a bubble and making cash hand over fist.

So not only is the government responsible for the CRA loans but all sub prime loans cause.... you said so or something?

Is there any decision in this whole mess that wasn't the fault of the government in your mind?

In my opinion no. Not on this particular topic.

The way I come to that conclusion, is because I understand human nature. I can even put myself in the position, and determine what I would do myself.

Say that there was a massive Coke-Kola shortage. What would happen? People would be stocking up massive stock piles of coke, and selling them for $20 a can.

When there was an ammo shortage, and prices for rounds was doing through the roof, people were on craigslist selling a box of 9mm rounds, normally $10, for $50.

In New York, after the hurricane, people were stock piling gasoline, and selling fuel for $10 a gallon.

This is human nature. People always speculate when there is a price bubble. To blame humans for being humans, is ridiculous, and unproductive.

You can blame banks until the end of time, BUT if you encourage the actions that led to the bubble, you will end up with the same result again and again, and again.

The actions the led to the Bubble, was Freddie Mac securitizing sub-prime loans, and giving them an implied AAA rating in 1997.

You can say "everyone else should have known better", but I promise you right now, that if we have another housing price bubble, caused by government encouraging bad loans to unqualified buyers, you are going to end up with the exact same results all over again.

All this other stuff you are complaining about, are effects. The cause of the effect is what you should focus on. The cause, is government.

 

[Indeependent]

Hogan's Heroes: Stop Digging - YouTube

Sorry, but I have lots of people in my community who work(ed) as mortgage brokers and bankers; the standards were never lowered.
I know people who WOULDN'T override the standards due to religious reasons.
Some of them fell on hard times.

It's amazing how people can pull up the most archaic documents from SOMEWHERE in this great Internet age but still can't manage to find ONE civil published document top prove the standards were lowered.

That would be because the standards were not lowered by "everyone."

Since 1981, when I started as a programmer working in banking, I have experienced banks, investment and brokerage firms always allowing the rules to be bypassed.
The bypass was accomplished by the system requiring an explanation or by bypassing the system altogether.
It is sad that loans were being approved on paper willy nilly and everyone "knew" they would "never" be audited because "the sky was the limit".

 

[Andylusion]

The GSEs don't rate loans. Freddie and Fannie don't give AAA ratings, or any ratings, to any pool of bonds. The federal government doesn't rate bonds.

It is even more sorry (and telling) that you can't provide any evidence of Fannie or Freddy or any other federal governmental agency rating bonds, isn't it?

Why do I regularly post lies, distortions, and disinformation?

Guys, I'm open to the idea. By all means provide some evidence, or any evidence to support the idea that the rating agencies just randomly started giving sub-prime mortgages, a AAA rating.

Sub-prime mortgages don't have a AAA rating by definition. Care to clarify?

No, you are making *MY* point. There was no way that a sub-prime loan could get a AAA rating.... until Freddie Mac made it happen. When the government of the US, says through it's mortgage lending arm called Freddie Mac, that these loans have an "implied AAA rating", that the only way a sub-prime loan could end up being given a AAA rating.

What's why until 1997, there were no sub-prime mortgage backed securities. That's why before 1997, sub-prime mortgages were a niche market.

Look at the growth in sub-prime loans before that 1997 Freddie Mac deal..... looks flat..... because it is flat.... because sub-prime was a risky niche market.

What happened after 1997 and the Freddie Mac deal? Massive spike in sub-prime loans.