Should the Glass Steagall Act be brought back?

[Dad2three]

WUT?

That has been against the law since the Carter administration.

"banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as "subprime" loans."

.





.

CRA is not to Blame for the Mortgage Meltdown


It's time to stop the scapegoating: According to a study by the Federal Reserve, 94% of high-cost loans originated during the housing boom had nothing to do with Community Reinvestment Act goals. Lending to poor didn't spur crisis -Fed's Kroszner -


The Comptroller of the Currency. John C. Dugan, agrees: "CRA [the Community Reinvestment Act] is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA. A recent study of 2006 Home Mortgage Disclosure Act data showed that banks subject to CRA and their affiliates originated or purchased only six percent of the reported high cost loans made to lower-income borrowers within their CRA assessment areas."**

CRA was effective long before the subprime market existed



Most subprime lenders weren’t covered under CRA



Wall Street created the demand for riskier loans


Regulatory oversight and accountability was missing


The majority of subprime loans went to white borrowers

CRA is not to Blame for the Mortgage Meltdown




Community Reinvestment Act, which was enacted more than 30 years ago, suddenly caused an explosion in bad subprime loans from 2002 to 2007. During the 1990s, enforcement under the reinvestment act was strong, prime lending to low-income communities increased and it was done safely. In 2000, a Federal Reserve report found that lending under the act was generally profitable and not overly risky.

By contrast, in the 2002 to 2007 period, the act’s enforcement was weak and its advocates had little influence with Congress. In 2003, President Bush’s chief thrift regulator — holding a chainsaw in his hands as a prop — boasted of his plans to cut banking regulations, including the scope of the reinvestment act and his enforcement staff, which he carried out over the next two years.



Instead, the bad subprime loans were predominantly made by financial firms not covered by the act


http://www.nytimes.com/2008/10/18/opinion/18barr.html


There was no requirement in the Community Reinvestment Act that required banks to lend to marginal borrowers, just encouragement to try to lend to weaker borrowers in areas where the banks opened branches.



Given CEOs' proclivity for government bashing, any lenders being driven to write bad loans by the CRA would have been on CNBC screaming at the top of their lungs.

But that dog that didn't bark.



First, with respect to the CRA, the main culprits in the crisis were private sector financial institutions that were not subject to the requirements of the CRA. In the story being pushed by free market advocates, the CRA forced banks to make loans to unqualified, low-income households. When those loans blew up, it caused the financial crisis. But the largest players in the subprime market were private sector firms that were not subject to the CRA's rules and regulations. For example, "Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics." The largest losses had nothing to do with banks covered by the CRA.



Second, even if the banks themselves were subject to the CRA, not all loans that they made were covered by these rules. Even in banks where the CRA applied, most of the problems were in loans that did not fall under the CRA's jurisdiction.

Third, the CRA has been in existence since 1977. If the CRA was responsible, why didn't the crisis occur sooner? The timing simply doesn't match up.

Fourth, the CRA only applies to domestic firms, but the crisis occurred in many countries. If the CRA is the problem, why did countries that had nothing like the CRA experience similar problems?

Fannie, Freddie, and the CRA are Not Responsible for the Financial Crisis - CBS News



CRA does not either encourage or condone bad lending. Bank regulators were decrying bad subprime lending before the turn of the millennium (see Interagency Guidance on Subprime Lending), and warning the CRA-covered institutions we regulated that badly underwritten subprime products that ignored consumer protections were not acceptable. Lenders not subject to CRA did not receive similar warnings.And we also explained to those we regulated how to serve lower income communities and borrowers in a manner that was good for the borrower, good for the bank, and earned CRA credit.


It's Still Not CRA | New America Blogs

The CRA is directly connected to the Mortgage Meltdown...

The problem didn't happen overnight, it took years to foster...

Clinton revised Carter's CRA in '96 and subsequently gave birth to FHA DPA, Zero Down, Zero risk mortgages...

Oh and BTW housing was taking off in '97...

This spawned the beginning of the Housing Bubble...

Sub Prime loans were born in '93, but they were not zero down loans with 560 FICO's, no they were 75% to 80% LTV's with rates 4% above par...

Glass-Steagall let the commercial banks into the picture and that's were Sub Prime Zero Down 560 FICO's started...

It was and still is very clear that none of the Zero Risk loans would have appeared if it wasn't for the Community Reinvestment Act (CRA), you tell yourself what ever makes you happy. You will have a very tough time finding anyone credible within the industry telling you anything different...

But then you probably believe Krugman was correct...

RealClearMarkets - How Did Paul Krugman Get It So Wrong?

ED PINTO HUH? lol, Couldn't find the other stooge for AEI, Peter Wallison? OK PINTO IT IS


The paper which introduces SRISK is "Volatility, Correlation and Tails" by Brownlees and Engle (2010) and is mentioned, along with Acharya et al. at the main page:

V-Lab: Systemic Risk Analysis Welcome Page

James Hamilton did an independent assessment of the NYU Stern Volatility Laboratory here:

Measuring systemic financial risk | Econbrowser

and concludes by saying:

"I view these measures as a supplement to, rather than replacement for, other analyses based on direct linkages and derivative exposure. CDS could offer another useful market indicator. But the advantage of the NYU Stern approach is it can immediately draw out some of the implications of the latest stock market valuations and comovements for real-time use by regulators, investors, and business planners."

It should be pointed out that in the interest of skepticism, that NYU Stern is in up to its hip boots in the whole Koch Brothers-Wallison-Pinto-AEI-Mercatus "government housing policy was responsible" propaganda machine.



n his New York Times column, "The Big Lie," referring to The Big Lie about Fannie and Freddie causing the financial crisis, Joe Nocera writes:

"You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own...Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto."

http://www.nytimes.com/2011/12/24/opinion/nocera-the-big-lie.html?hp

Pinto's work was thoroughly debunked by the Financial Crisis Inquiry Commission. The FCIC did what Wallison, Pinto and their advocates consistently refuse to do; they refuse to look at loan performance--delinquencies, defaults, losses on liquidation--on a comparative basis.

http://fcic-static.law.stanford.edu...ata and Comparison with Ed Pinto Analysis.pdf



Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence

Pinto's key factoid is that FHA's foreclosure rate in 2006 is 13 times higher than it was in 1954. He attributes this spike in foreclosures to one singular cause, the spike in FHA borrower "leverage," which involves other calculations unique to Pinto. He writes, "From 1954 to 2006 FHA’s compound leverage (the combined effect of lower down payment, a longer loan tern and higher debt-to-income ratios) increased 16-fold while its incidence of foreclosure also exploded, increasing 13-fold."

Nothing else penetrates into Pinto's little artificial world. Why should he consider any other changes that happened between 1967 and 2006?





Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence



Faulty Conclusions Based on Shoddy Foundations

FCIC Commissioner Peter Wallison and Other Commentators Rely on Flawed Data from Edward Pinto to Misplace the Causes of the 2008 Financial Crisis

Faulty Conclusions Based on Shoddy Foundations | Center for American Progress




AEI’s FHA Disinformation Campaign Ignores Basic Finance


AEI?s FHA Disinformation Campaign Ignores Basic Finance | The Big Picture



“I respect Ed, but he’s dead wrong,” Mr. Zandi of Moody’s said. “He’s got it absolutely backward.” The private sector, not government, led us into the bubble.

Mr. Pinto has been repeatedly criticized for exaggerating the role of Fannie Mae and Freddie Mac in the mortgage crisis. The Financial Crisis Inquiry Commission took a long hard look at them, because Peter J. Wallison, a major proponent of the theory that the government created the housing bubble, sat on the commission.

The commission found that the Pinto analysis was flawed.


http://dealbook.nytimes.com/2013/01/09/new-target-in-finger-pointing-over-housing-bubble/

 

[Contumacious]

[MENTION=47022]Androw[/MENTION]

Pushing for more home ownership is tantamount to causing the housing bubble?

Good gawd, you're confused

Yeah, and you are a jerk. You come across as a jerk in every post.

But to answer your question.... duh... yeah.

Why can't you figure this out?

Banks do not need to be told "go make loans to everyone that wants one, and can afford it".

Banks will do that without the slightest external motivation.

You don't need to motivate banks to make loans, anymore than you need to motivate a dog to eat, or need to motivate a leftard Dante, to be an arrogant jerk on the forums.

It comes naturally. No one had to tell Dante to be an a$$hole, he just naturally is. That's why every post he's a jerk. Just like you don't tell a dog to eat, he just naturally eats until there's no food left.

Nor do you have to motivate a bank to make loans. They do that naturally.

So when the government says they are going to "push for more home ownership" what does that mean? They can't push for more credit worthy borrowers to get loans, because banks already give credit worthy borrowers loans without being told.

The only possible area that the government can 'push banks to make more loans', when they already give out all the loans they can to those who are safe.... is to those not credit worthy.

Which is exactly what happened. And when you suddenly increase the base of home buyers, by lowering the standards to include those who are not prime rate borrowers.....

Economics 101 jerk boy..... Demand goes... UP... supply stays the same.... what does the price do? It goes up. Did you keep up with that jerk boy?

So to answer your ignorance based question.... yes, pushing more home ownership directly caused the price bubble.

FYI, if you want to be treated like an adult, the first prerequisite, it to act like one, and treat others like you are one. If you are ok being treated as a spoiled brat child, keep on going, and I'll treat you the way you act.

Oh, big, bad Dante is a jerk! cry me a river

Your simplistic faith in economic models is hilarious.

You are referring to fascism, socialism, parasitism , I'm sure.

Your statement that banks will do certain things (make loans to everyone that wants one, and can afford it) is proven untrue by the facts on the ground.

Hummmmmmmmmmmm

So I take it that you have evidence that a PRIVATE BANKER, who does not have coercive monopoly powers, open his doors with the intention to lose money?!?!?!?!?!?

Link, puhleese.

.

 

[Dad2three]

WUT?

That has been against the law since the Carter administration.

"banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as "subprime" loans."

.





.

CRA is not to Blame for the Mortgage Meltdown


It's time to stop the scapegoating: According to a study by the Federal Reserve, 94% of high-cost loans originated during the housing boom had nothing to do with Community Reinvestment Act goals. Lending to poor didn't spur crisis -Fed's Kroszner -


The Comptroller of the Currency. John C. Dugan, agrees: "CRA [the Community Reinvestment Act] is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA. A recent study of 2006 Home Mortgage Disclosure Act data showed that banks subject to CRA and their affiliates originated or purchased only six percent of the reported high cost loans made to lower-income borrowers within their CRA assessment areas."**

CRA was effective long before the subprime market existed



Most subprime lenders weren’t covered under CRA



Wall Street created the demand for riskier loans


Regulatory oversight and accountability was missing


The majority of subprime loans went to white borrowers

CRA is not to Blame for the Mortgage Meltdown




Community Reinvestment Act, which was enacted more than 30 years ago, suddenly caused an explosion in bad subprime loans from 2002 to 2007. During the 1990s, enforcement under the reinvestment act was strong, prime lending to low-income communities increased and it was done safely. In 2000, a Federal Reserve report found that lending under the act was generally profitable and not overly risky.

By contrast, in the 2002 to 2007 period, the act’s enforcement was weak and its advocates had little influence with Congress. In 2003, President Bush’s chief thrift regulator — holding a chainsaw in his hands as a prop — boasted of his plans to cut banking regulations, including the scope of the reinvestment act and his enforcement staff, which he carried out over the next two years.



Instead, the bad subprime loans were predominantly made by financial firms not covered by the act


http://www.nytimes.com/2008/10/18/opinion/18barr.html


There was no requirement in the Community Reinvestment Act that required banks to lend to marginal borrowers, just encouragement to try to lend to weaker borrowers in areas where the banks opened branches.



Given CEOs' proclivity for government bashing, any lenders being driven to write bad loans by the CRA would have been on CNBC screaming at the top of their lungs.

But that dog that didn't bark.



First, with respect to the CRA, the main culprits in the crisis were private sector financial institutions that were not subject to the requirements of the CRA. In the story being pushed by free market advocates, the CRA forced banks to make loans to unqualified, low-income households. When those loans blew up, it caused the financial crisis. But the largest players in the subprime market were private sector firms that were not subject to the CRA's rules and regulations. For example, "Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics." The largest losses had nothing to do with banks covered by the CRA.



Second, even if the banks themselves were subject to the CRA, not all loans that they made were covered by these rules. Even in banks where the CRA applied, most of the problems were in loans that did not fall under the CRA's jurisdiction.

Third, the CRA has been in existence since 1977. If the CRA was responsible, why didn't the crisis occur sooner? The timing simply doesn't match up.

Fourth, the CRA only applies to domestic firms, but the crisis occurred in many countries. If the CRA is the problem, why did countries that had nothing like the CRA experience similar problems?

Fannie, Freddie, and the CRA are Not Responsible for the Financial Crisis - CBS News



CRA does not either encourage or condone bad lending. Bank regulators were decrying bad subprime lending before the turn of the millennium (see Interagency Guidance on Subprime Lending), and warning the CRA-covered institutions we regulated that badly underwritten subprime products that ignored consumer protections were not acceptable. Lenders not subject to CRA did not receive similar warnings.And we also explained to those we regulated how to serve lower income communities and borrowers in a manner that was good for the borrower, good for the bank, and earned CRA credit.


It's Still Not CRA | New America Blogs

The CRA is directly connected to the Mortgage Meltdown...

The problem didn't happen overnight, it took years to foster...

Clinton revised Carter's CRA in '96 and subsequently gave birth to FHA DPA, Zero Down, Zero risk mortgages...

Oh and BTW housing was taking off in '97...

This spawned the beginning of the Housing Bubble...

Sub Prime loans were born in '93, but they were not zero down loans with 560 FICO's, no they were 75% to 80% LTV's with rates 4% above par...

Glass-Steagall let the commercial banks into the picture and that's were Sub Prime Zero Down 560 FICO's started...

It was and still is very clear that none of the Zero Risk loans would have appeared if it wasn't for the Community Reinvestment Act (CRA), you tell yourself what ever makes you happy. You will have a very tough time finding anyone credible within the industry telling you anything different...

But then you probably believe Krugman was correct...

RealClearMarkets - How Did Paul Krugman Get It So Wrong?

Loans that were under government regulation did better than private loans, especially if they were regulated by the "Community Reinvestment Act."

Center for Public Integrity reported in 2011, mortgages financed by Wall Street from 2001 to 2008 were 4½ times more likely to be seriously delinquent than mortgages backed by Fannie and Freddie.


Wallison, of course, wrote a lonely dissent from both the Financial Crisis Inquiry Commission majority report and from his fellow Republican commissioners, in which he alone blamed the global financial crisis on U.S. affordable housing policies. This argument is clearly contradicted by the facts, including the following:

• Parallel bubble-bust cycles occurred outside of the residential housing markets (for example, in commercial real estate and consumer credit).

• Parallel financial crises struck other countries, which did not have analogous affordable housing policies

• The U.S. government’s market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s.

These facts are irrefutable.

Wallison’s argument (AND PINTO'S) , which places most of the blame on the affordable housing goals of the former government-sponsored enterprises Fannie Mae and Freddie Mac before they fell into government conservatorship in 2008, also ignores the actual delinquency rates. As David Abromowitz and I noted in December 2010:

“Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization[/SIZE].”


So how did Wallison get to the conclusion that it was federal affordable housing policies that caused the crisis, despite the countervailing evidence? As Phil Angelides, chairman of the FCIC, has stated, “The source for this newfound wisdom [is] shopworn data, produced by a consultant to the corporate-funded American Enterprise Institute, which was analyzed and debunked by the FCIC Report.”



As I point out in “Faulty Conclusions,” Pinto only gets to these numbers (which are radically divergent from all other estimates—for example, the nonpartisan Government Accountability Office estimates that there are only 4.59 million high-risk loans outstanding) by making a series of very problematic and unjustified assumptions.

...Case in point: To support his claim that the Community Reinvestment Act, which requires regulated banks and thrifts to provide credit nondiscriminatorily to low- and moderate-income borrowers, caused the origination of 2.24 million outstanding “high-risk” mortgages, Pinto includes many loans originated by lenders who were not even subject to CRA. In fact, most of the “high-risk” loans Pinto attributes to CRA were not eligible for CRA credit.


Similarly, in arguing that Fannie and Freddie’s affordable housing goals caused the origination of 12 million “subprime” and equivalently “high-risk” loans, Pinto includes millions of loans that would not typically qualify for those goals. In fact, the vast majority (65 percent) of the “high-risk” loans Pinto attributes to the affordable housing goals of Fannie and Freddie fall into this category.


Wallison: Still Wrong About Genesis of Housing Crisis | The Big Picture

 

[Dad2three]

Yeah, and you are a jerk. You come across as a jerk in every post.

But to answer your question.... duh... yeah.

Why can't you figure this out?

Banks do not need to be told "go make loans to everyone that wants one, and can afford it".

Banks will do that without the slightest external motivation.

You don't need to motivate banks to make loans, anymore than you need to motivate a dog to eat, or need to motivate a leftard Dante, to be an arrogant jerk on the forums.

It comes naturally. No one had to tell Dante to be an a$$hole, he just naturally is. That's why every post he's a jerk. Just like you don't tell a dog to eat, he just naturally eats until there's no food left.

Nor do you have to motivate a bank to make loans. They do that naturally.

So when the government says they are going to "push for more home ownership" what does that mean? They can't push for more credit worthy borrowers to get loans, because banks already give credit worthy borrowers loans without being told.

The only possible area that the government can 'push banks to make more loans', when they already give out all the loans they can to those who are safe.... is to those not credit worthy.

Which is exactly what happened. And when you suddenly increase the base of home buyers, by lowering the standards to include those who are not prime rate borrowers.....

Economics 101 jerk boy..... Demand goes... UP... supply stays the same.... what does the price do? It goes up. Did you keep up with that jerk boy?

So to answer your ignorance based question.... yes, pushing more home ownership directly caused the price bubble.

FYI, if you want to be treated like an adult, the first prerequisite, it to act like one, and treat others like you are one. If you are ok being treated as a spoiled brat child, keep on going, and I'll treat you the way you act.

Oh, big, bad Dante is a jerk! cry me a river

Your simplistic faith in economic models is hilarious.

You are referring to fascism, socialism, parasitism , I'm sure.

Your statement that banks will do certain things (make loans to everyone that wants one, and can afford it) is proven untrue by the facts on the ground.

Hummmmmmmmmmmm

So I take it that you have evidence that a PRIVATE BANKER, who does not have coercive monopoly powers, open his doors with the intention to lose money?!?!?!?!?!?

Link, puhleese.

.

What it is with today's conervatives is that the facts - whether scientific, historical, or just common sense - interfere with their ideological utopia.


Wall street banks freed to wheel and deal on main street got into the mortgage business because they could invest 1 dollar in the purchase of a mortgage and then magically change it into negotiable paper that produced 30 dollars of profit.

Available mortgages were quickly absorbed, so in an effort to produce more mortgages, Wall Street banks lowered their standards in order to produce more mortgages to be chopped up and sold as "investment paper" that would continue to produce unsustainable and totally fraudulent profits for the banks.

When investors started to get weary, Wall Street created the credit default swap which was insurance on the investments, this kept the machine rolling - W Bush tried to turn over Social Security funds to keep the pyramid alive, but he was rebuffed by the people.

Greed accompanied by deregulation caused the mess, Fanny and Freddie were late comers to the feast they did not cause the mess at all, though they got caught up in it.

Anyone that fails to recognize the facts is either ignorant or blatantly cynical.

 

[itfitzme]

""Loans that were under government regulation did better than private loans, especially if they were regulated by the "Community Reinvestment Act.""

Funny, I was just reading the oppsite bs halfway up and thought, "do i really want to go round this merry go round again by pulling up the facts, again".

They have no credible research to point to, just this bs meme that someone made up and they've been passing it around like an STD. (Socially Transmitted Disease).

 

[Dad2three]

Yeah, and you are a jerk. You come across as a jerk in every post.

But to answer your question.... duh... yeah.

Why can't you figure this out?

Banks do not need to be told "go make loans to everyone that wants one, and can afford it".

Banks will do that without the slightest external motivation.

You don't need to motivate banks to make loans, anymore than you need to motivate a dog to eat, or need to motivate a leftard Dante, to be an arrogant jerk on the forums.

It comes naturally. No one had to tell Dante to be an a$$hole, he just naturally is. That's why every post he's a jerk. Just like you don't tell a dog to eat, he just naturally eats until there's no food left.

Nor do you have to motivate a bank to make loans. They do that naturally.

So when the government says they are going to "push for more home ownership" what does that mean? They can't push for more credit worthy borrowers to get loans, because banks already give credit worthy borrowers loans without being told.

The only possible area that the government can 'push banks to make more loans', when they already give out all the loans they can to those who are safe.... is to those not credit worthy.

Which is exactly what happened. And when you suddenly increase the base of home buyers, by lowering the standards to include those who are not prime rate borrowers.....

Economics 101 jerk boy..... Demand goes... UP... supply stays the same.... what does the price do? It goes up. Did you keep up with that jerk boy?

So to answer your ignorance based question.... yes, pushing more home ownership directly caused the price bubble.

FYI, if you want to be treated like an adult, the first prerequisite, it to act like one, and treat others like you are one. If you are ok being treated as a spoiled brat child, keep on going, and I'll treat you the way you act.

Oh, big, bad Dante is a jerk! cry me a river

Your simplistic faith in economic models is hilarious.

You are referring to fascism, socialism, parasitism , I'm sure.

Your statement that banks will do certain things (make loans to everyone that wants one, and can afford it) is proven untrue by the facts on the ground.

Hummmmmmmmmmmm

So I take it that you have evidence that a PRIVATE BANKER, who does not have coercive monopoly powers, open his doors with the intention to lose money?!?!?!?!?!?

Link, puhleese.

.

Jamie Dimon, CEO of JPMorgan testified to the FCIC, "I blame the management teams 100% and...no one else."


The Financial Crisis Inquiry Report: Final Report of the National Commission ... - Phil Angelides, Bill Thomas - Google Books


YEAH, GSE'S WERE AROUND FOR NEARLY 70 YEARS, THAT WAS THE PROBLEM

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets OCT 2008

 

[itfitzme]

Oh, big, bad Dante is a jerk! cry me a river

Your simplistic faith in economic models is hilarious.

You are referring to fascism, socialism, parasitism , I'm sure.

Your statement that banks will do certain things (make loans to everyone that wants one, and can afford it) is proven untrue by the facts on the ground.

Hummmmmmmmmmmm

So I take it that you have evidence that a PRIVATE BANKER, who does not have coercive monopoly powers, open his doors with the intention to lose money?!?!?!?!?!?

Link, puhleese.

.

What it is with today's conervatives is that the facts - whether scientific, historical, or just common sense - interfere with their ideological utopia.


Wall street banks freed to wheel and deal on main street got into the mortgage business because they could invest 1 dollar in the purchase of a mortgage and then magically change it into negotiable paper that produced 30 dollars of profit.

Available mortgages were quickly absorbed, so in an effort to produce more mortgages, Wall Street banks lowered their standards in order to produce more mortgages to be chopped up and sold as "investment paper" that would continue to produce unsustainable and totally fraudulent profits for the banks.

When investors started to get weary, Wall Street created the credit default swap which was insurance on the investments, this kept the machine rolling - W Bush tried to turn over Social Security funds to keep the pyramid alive, but he was rebuffed by the people.

Greed accompanied by deregulation caused the mess, Fanny and Freddie were late comers to the feast they did not cause the mess at all, though they got caught up in it.

Anyone that fails to recognize the facts is either ignorant or blatantly cynical.

Some researcher, over at the Fed, matched up credit reports with motgage apps and found that the majority of the bad loans were to second, third, and fourth property buyers. In other words, flippers. Property flippers don't get good interest rates so they really liked the low doc and no doc loans that didn't reveal they were flippers? They are high risk because they are in it for the buck and have no problem walking away. The !arket softened then ot crashed as the flippers dropped of the keys at the bank.

You can find it by doing a search on the word "flipper" at the fed research site.

 

[Dad2three]

[MENTION=47022]Androw[/MENTION]

Right, so because he wasn't emperor of the universe, he's completely excused from saying there was absolutely no bubble, and there would be no crash, and therefore he would continue to push for more home ownership.

Got, you are partisan hack filling the forum with excuses like all the other partisan hacks.

Why should we care what you have to say on this issue anymore? What reason should we think you have any credibility?

Pushing for more home ownership is tantamount to causing the housing bubble?

Good gawd, you're confused

Yeah, and you are a jerk. You come across as a jerk in every post.

But to answer your question.... duh... yeah.

Why can't you figure this out?

Banks do not need to be told "go make loans to everyone that wants one, and can afford it".

Banks will do that without the slightest external motivation.

You don't need to motivate banks to make loans, anymore than you need to motivate a dog to eat, or need to motivate a leftard Dante, to be an arrogant jerk on the forums.

It comes naturally. No one had to tell Dante to be an a$$hole, he just naturally is. That's why every post he's a jerk. Just like you don't tell a dog to eat, he just naturally eats until there's no food left.

Nor do you have to motivate a bank to make loans. They do that naturally.

So when the government says they are going to "push for more home ownership" what does that mean? They can't push for more credit worthy borrowers to get loans, because banks already give credit worthy borrowers loans without being told.

The only possible area that the government can 'push banks to make more loans', when they already give out all the loans they can to those who are safe.... is to those not credit worthy.

Which is exactly what happened. And when you suddenly increase the base of home buyers, by lowering the standards to include those who are not prime rate borrowers.....

Economics 101 jerk boy..... Demand goes... UP... supply stays the same.... what does the price do? It goes up. Did you keep up with that jerk boy?

So to answer your ignorance based question.... yes, pushing more home ownership directly caused the price bubble.

FYI, if you want to be treated like an adult, the first prerequisite, it to act like one, and treat others like you are one. If you are ok being treated as a spoiled brat child, keep on going, and I'll treat you the way you act.

Weird, the US has had a 'homes push' by every generation since FDR, what changed 2002-2007?


Former Chase Banker Admits His Bank Pushed Minorities Into Subprime Mortgage Loans




These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.

“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas,” Theckston explained.

In 2006, Chase made high-price loans to 16.4 percent of white borrowers, while nearly half of black borrowers and more than one-third of Hispanic borrowers received high-price loans. These disparities help explain why, according to a new report from the Center on Responsible Lending, Latinos and blacks are twice as likely to have been impacted by the housing crisis as whites.


Former Chase Banker Admits His Bank Pushed Minorities Into Subprime Mortgage Loans | ThinkProgress


Predatory Lenders' Partner in Crime


Predatory lending was widely understood to present a looming national crisis.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge?

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative


Eliot Spitzer - Predatory Lenders' Partner in Crime

 

[Dad2three]

You are referring to fascism, socialism, parasitism , I'm sure.





Hummmmmmmmmmmm

So I take it that you have evidence that a PRIVATE BANKER, who does not have coercive monopoly powers, open his doors with the intention to lose money?!?!?!?!?!?

Link, puhleese.

.

What it is with today's conervatives is that the facts - whether scientific, historical, or just common sense - interfere with their ideological utopia.


Wall street banks freed to wheel and deal on main street got into the mortgage business because they could invest 1 dollar in the purchase of a mortgage and then magically change it into negotiable paper that produced 30 dollars of profit.

Available mortgages were quickly absorbed, so in an effort to produce more mortgages, Wall Street banks lowered their standards in order to produce more mortgages to be chopped up and sold as "investment paper" that would continue to produce unsustainable and totally fraudulent profits for the banks.

When investors started to get weary, Wall Street created the credit default swap which was insurance on the investments, this kept the machine rolling - W Bush tried to turn over Social Security funds to keep the pyramid alive, but he was rebuffed by the people.

Greed accompanied by deregulation caused the mess, Fanny and Freddie were late comers to the feast they did not cause the mess at all, though they got caught up in it.

Anyone that fails to recognize the facts is either ignorant or blatantly cynical.

Some researcher, over at the Fed, matched up credit reports with motgage apps and found that the majority of the bad loans were to second, third, and fourth property buyers. In other words, flippers. Property flippers don't get good interest rates so they really liked the low doc and no doc loans that didn't reveal they were flippers? They are high risk because they are in it for the buck and have no problem walking away. The !arket softened then ot crashed as the flippers dropped of the keys at the bank.

You can find it by doing a search on the word "flipper" at the fed research site.

Yep, that's what 'fed' the subprime crisis in areas like Florida, Nevada and California, the worst area's hit by Dubya's regulator failure...


Of course you know CRA and Barney Frank made them want to be flippers and the GSE's were bullying the mortgage brokers who made the vast number of subprime loans, into doing it right?

 

[itfitzme]

What it is with today's conervatives is that the facts - whether scientific, historical, or just common sense - interfere with their ideological utopia.


Wall street banks freed to wheel and deal on main street got into the mortgage business because they could invest 1 dollar in the purchase of a mortgage and then magically change it into negotiable paper that produced 30 dollars of profit.

Available mortgages were quickly absorbed, so in an effort to produce more mortgages, Wall Street banks lowered their standards in order to produce more mortgages to be chopped up and sold as "investment paper" that would continue to produce unsustainable and totally fraudulent profits for the banks.

When investors started to get weary, Wall Street created the credit default swap which was insurance on the investments, this kept the machine rolling - W Bush tried to turn over Social Security funds to keep the pyramid alive, but he was rebuffed by the people.

Greed accompanied by deregulation caused the mess, Fanny and Freddie were late comers to the feast they did not cause the mess at all, though they got caught up in it.

Anyone that fails to recognize the facts is either ignorant or blatantly cynical.

Some researcher, over at the Fed, matched up credit reports with motgage apps and found that the majority of the bad loans were to second, third, and fourth property buyers. In other words, flippers. Property flippers don't get good interest rates so they really liked the low doc and no doc loans that didn't reveal they were flippers? They are high risk because they are in it for the buck and have no problem walking away. The !arket softened then ot crashed as the flippers dropped of the keys at the bank.

You can find it by doing a search on the word "flipper" at the fed research site.

Yep, that's what 'fed' the subprime crisis in areas like Florida, Nevada and California, the worst area's hit by Dubya's regulator failure...


Of course you know CRA and Barney Frank made them want to be flippers and the GSE's were bullying the mortgage brokers who made the vast number of subprime loans, into doing it right?

Here is the study.


Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis - Federal Reserve Bank of New York

" In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default. "

 

[oldfart]

Yes, it would have prevented "bad" mortgages. You know why? Because first of all there has to be a source of money to fund the individual mortgage loan being written and second there had to be a secondary mortgage market created to sell the Mortgage Backed Securities that were now full of junk loans.

No traditional banks would have ever jeopardized their savings base making the types of loan being offered. No real mortgage banker would of even thought of offering some of the stupid loans that were being made.

Wall street DID provide a source of money to fund mortgage loans, bought and sold the mortgage backed securities and bought and sold derivatives to hedge their bets once they found out the securities were full of shit loans.

That would have never been possible before the repeal of Glass Steagal.

A major source of demand for AAA assets came from foreign institutional investors. Caballero (2010, 2009) argues that global payment imbalances were the manifestation of “global excess demand” for AAA securities that placed “enormous pressure on the U.S. financial system and its incentives.” Similarly, Gourinchas (2010) argues that excess demand for AAA assets “created an irresistible profit opportunity for the U.S. financial system” to create and market “safe” asset - backed securities to the rest of the world. Diamond and Rajan (2009) find that securitization became focused on squeezing out the most AAA paper from an underlying package of mortgages” because, according to Gorton and Metrick (2009), “there is not enough AAA debt in the world to satisfy demand.”


http://business.gwu.edu/creua/research-papers/files/fannie-freddie.pdf


US MORTGAGE MARKET WENT FROM $1 TRILLION A YEAR IN 2000 TO $4 TRILLION BY 2004


PLS (“private label” asset - backed securities) did this, not repeal of G//S

The Banksters went from AAA real securities to synthetic securities, aided by their creativeness'


60 per cent of all mortgage origination between 2005 and 2007 had “reckless or toxic features”````


America's economy risks the mother of all meltdowns - FT.com


Regulators and policymakers enabled this process at virtually every turn. Part of the reason they failed to understand the housing bubble was willful ignorance: they bought into the argument that the market would equilibrate itself. In particular, financial actors and regulatory officials both believed that secondary and tertiary markets could effectively control risk through pricing.


http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf

This is a pretty good summary of what caused the financial collapse. I would add a few points in support of how "financial innovation" made the system even more unstable and why it is going to happen again.

1. Glass- Steagel is actually the Banking Act of 1933, key provisions of which were repealed in 1998 due to the argument that banks knew how to manage their own risk. The former chairman of the Fed famously comment that he was wrong to fail to conceive that bankers could take the kind of risks they did. The problem was created and grew largely outside the regulated banking system (commonly called "shadow banking" which by 2007 was a bit larger than the regulated banking system and was generally unregulated by anyone). That system, composed of insurance companies, hedge funds, investment banks, options traders, and large institutional investors is still largely unregulated in the aspects that caused the collapse.

So the poster who stated that G-S would not have stopped the firms that collapsed was correct in one sense. When the 1933 Act was passed, along with the Securities Act and the Securities Exchanges Act, virtually all of the financial industry was covered except commodity brokerage. By 1940 the Investment Company Act brought mutual funds into the regulatory scheme. Derivatives in the current financial sense did not exist. In retrospect, the biggest failure was to allow the development of "instruments of mass financial destruction" without bringing them into the regulatory regime.

2. Particularly dangerous was the way the mortgage backed securities were structured and marketed. Before the mid-90's MBS's consisted only of government agency insured mortgages and based on the government guarantees, they had a very good track record, and achieved the coveted AAA ratings. When in the late 90's non-government backed mortgages began to be packaged, they also were rated AAA based on the performance of the government backed issues. The rating agencies never questioned the quality of the bonds without government backing.

But it got worse. The bonds were not sold simply as pro rata shares of the portfolio; they were divided into tranches. Each tranche took a slice of the risk of the entire portfolio until it was wiped out, and then the next tranche bore the risk. The investment (AAA) tranche was the most protected; losses had to exceed 20% before it would be effected. The mezzanine tranche absorbed losses from 10%--20% of the portfolio, and the speculative tranche took the riskiest 10% (at a great discount). This turned out to have two effects. First the investment tranche would vigorously oppose any effort to "work out" any mortgages (at least the write-down touched their interests) making the bonds impossible to resolve back into mortgages. The underwriting could not be unwound and it became virtually impossible to provide borrowers mortgage relief. Second, it guaranteed that once cumulative losses approached 20%, the mortgage and MBS markets would collapse.

3. The problem was and remains systemic. Bankers knew that a catastrophic collapse was possible, but they did not protect their firms. A competitive market can fail, and the dynamic here was everyone felt they could make lots of money today and get out when things started looking bad. But they couldn't get out. No one in a classic bubble ever can (see Hyman Minsky). Bubbles and systemic financial collapses are an inevitable part of market capitalism just as much as regular business cycles and profit motive. The dangers can be reduced and the effects mitigated by regulation and public policy, but the Andrew Mellon view of capital markets going through massive episodes of destruction of capital as a natural and inevitable feature of market capitalism is essentially correct. Without adequate regulation and appropriate monetary and fiscal policy, a capitalist economy spends about half of the time in recession or depression and a major depression comes about every twenty years.

 

[GWV5903]

CRA is not to Blame for the Mortgage Meltdown


It's time to stop the scapegoating: According to a study by the Federal Reserve, 94% of high-cost loans originated during the housing boom had nothing to do with Community Reinvestment Act goals. Lending to poor didn't spur crisis -Fed's Kroszner -


The Comptroller of the Currency. John C. Dugan, agrees: "CRA [the Community Reinvestment Act] is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA. A recent study of 2006 Home Mortgage Disclosure Act data showed that banks subject to CRA and their affiliates originated or purchased only six percent of the reported high cost loans made to lower-income borrowers within their CRA assessment areas."**

CRA was effective long before the subprime market existed



Most subprime lenders weren’t covered under CRA



Wall Street created the demand for riskier loans


Regulatory oversight and accountability was missing


The majority of subprime loans went to white borrowers

CRA is not to Blame for the Mortgage Meltdown




Community Reinvestment Act, which was enacted more than 30 years ago, suddenly caused an explosion in bad subprime loans from 2002 to 2007. During the 1990s, enforcement under the reinvestment act was strong, prime lending to low-income communities increased and it was done safely. In 2000, a Federal Reserve report found that lending under the act was generally profitable and not overly risky.

By contrast, in the 2002 to 2007 period, the act’s enforcement was weak and its advocates had little influence with Congress. In 2003, President Bush’s chief thrift regulator — holding a chainsaw in his hands as a prop — boasted of his plans to cut banking regulations, including the scope of the reinvestment act and his enforcement staff, which he carried out over the next two years.



Instead, the bad subprime loans were predominantly made by financial firms not covered by the act


http://www.nytimes.com/2008/10/18/opinion/18barr.html


There was no requirement in the Community Reinvestment Act that required banks to lend to marginal borrowers, just encouragement to try to lend to weaker borrowers in areas where the banks opened branches.



Given CEOs' proclivity for government bashing, any lenders being driven to write bad loans by the CRA would have been on CNBC screaming at the top of their lungs.

But that dog that didn't bark.



First, with respect to the CRA, the main culprits in the crisis were private sector financial institutions that were not subject to the requirements of the CRA. In the story being pushed by free market advocates, the CRA forced banks to make loans to unqualified, low-income households. When those loans blew up, it caused the financial crisis. But the largest players in the subprime market were private sector firms that were not subject to the CRA's rules and regulations. For example, "Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics." The largest losses had nothing to do with banks covered by the CRA.



Second, even if the banks themselves were subject to the CRA, not all loans that they made were covered by these rules. Even in banks where the CRA applied, most of the problems were in loans that did not fall under the CRA's jurisdiction.

Third, the CRA has been in existence since 1977. If the CRA was responsible, why didn't the crisis occur sooner? The timing simply doesn't match up.

Fourth, the CRA only applies to domestic firms, but the crisis occurred in many countries. If the CRA is the problem, why did countries that had nothing like the CRA experience similar problems?

Fannie, Freddie, and the CRA are Not Responsible for the Financial Crisis - CBS News



CRA does not either encourage or condone bad lending. Bank regulators were decrying bad subprime lending before the turn of the millennium (see Interagency Guidance on Subprime Lending), and warning the CRA-covered institutions we regulated that badly underwritten subprime products that ignored consumer protections were not acceptable. Lenders not subject to CRA did not receive similar warnings.And we also explained to those we regulated how to serve lower income communities and borrowers in a manner that was good for the borrower, good for the bank, and earned CRA credit.


It's Still Not CRA | New America Blogs

The CRA is directly connected to the Mortgage Meltdown...

The problem didn't happen overnight, it took years to foster...

Clinton revised Carter's CRA in '96 and subsequently gave birth to FHA DPA, Zero Down, Zero risk mortgages...

Oh and BTW housing was taking off in '97...

This spawned the beginning of the Housing Bubble...

Sub Prime loans were born in '93, but they were not zero down loans with 560 FICO's, no they were 75% to 80% LTV's with rates 4% above par...

Glass-Steagall let the commercial banks into the picture and that's were Sub Prime Zero Down 560 FICO's started...

It was and still is very clear that none of the Zero Risk loans would have appeared if it wasn't for the Community Reinvestment Act (CRA), you tell yourself what ever makes you happy. You will have a very tough time finding anyone credible within the industry telling you anything different...

But then you probably believe Krugman was correct...

RealClearMarkets - How Did Paul Krugman Get It So Wrong?

ED PINTO HUH? lol, Couldn't find the other stooge for AEI, Peter Wallison? OK PINTO IT IS


The paper which introduces SRISK is "Volatility, Correlation and Tails" by Brownlees and Engle (2010) and is mentioned, along with Acharya et al. at the main page:

V-Lab: Systemic Risk Analysis Welcome Page

James Hamilton did an independent assessment of the NYU Stern Volatility Laboratory here:

Measuring systemic financial risk | Econbrowser

and concludes by saying:

"I view these measures as a supplement to, rather than replacement for, other analyses based on direct linkages and derivative exposure. CDS could offer another useful market indicator. But the advantage of the NYU Stern approach is it can immediately draw out some of the implications of the latest stock market valuations and comovements for real-time use by regulators, investors, and business planners."

It should be pointed out that in the interest of skepticism, that NYU Stern is in up to its hip boots in the whole Koch Brothers-Wallison-Pinto-AEI-Mercatus "government housing policy was responsible" propaganda machine.



n his New York Times column, "The Big Lie," referring to The Big Lie about Fannie and Freddie causing the financial crisis, Joe Nocera writes:

"You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own...Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto."

http://www.nytimes.com/2011/12/24/opinion/nocera-the-big-lie.html?hp

Pinto's work was thoroughly debunked by the Financial Crisis Inquiry Commission. The FCIC did what Wallison, Pinto and their advocates consistently refuse to do; they refuse to look at loan performance--delinquencies, defaults, losses on liquidation--on a comparative basis.

http://fcic-static.law.stanford.edu...ata and Comparison with Ed Pinto Analysis.pdf



Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence

Pinto's key factoid is that FHA's foreclosure rate in 2006 is 13 times higher than it was in 1954. He attributes this spike in foreclosures to one singular cause, the spike in FHA borrower "leverage," which involves other calculations unique to Pinto. He writes, "From 1954 to 2006 FHA’s compound leverage (the combined effect of lower down payment, a longer loan tern and higher debt-to-income ratios) increased 16-fold while its incidence of foreclosure also exploded, increasing 13-fold."

Nothing else penetrates into Pinto's little artificial world. Why should he consider any other changes that happened between 1967 and 2006?





Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence



Faulty Conclusions Based on Shoddy Foundations

FCIC Commissioner Peter Wallison and Other Commentators Rely on Flawed Data from Edward Pinto to Misplace the Causes of the 2008 Financial Crisis

Faulty Conclusions Based on Shoddy Foundations | Center for American Progress




AEI’s FHA Disinformation Campaign Ignores Basic Finance


AEI?s FHA Disinformation Campaign Ignores Basic Finance | The Big Picture



“I respect Ed, but he’s dead wrong,” Mr. Zandi of Moody’s said. “He’s got it absolutely backward.” The private sector, not government, led us into the bubble.

Mr. Pinto has been repeatedly criticized for exaggerating the role of Fannie Mae and Freddie Mac in the mortgage crisis. The Financial Crisis Inquiry Commission took a long hard look at them, because Peter J. Wallison, a major proponent of the theory that the government created the housing bubble, sat on the commission.

The commission found that the Pinto analysis was flawed.


http://dealbook.nytimes.com/2013/01/09/new-target-in-finger-pointing-over-housing-bubble/

So you think copy and pasting this drivel is meaningful?

You have no clue of what you copy & paste...

Do you have any idea how many Zero Down FHA DPA loans were done over the 10 year span it was around?

This is a subject I have done for a living so I suggest you stop while you're behind...

Take sometime, bury your bias and figure out what really happened...

Helping low income first time homeowners is all I have done for 20+ years, what our GSE's, Fed Regs, Congress and Admins did is set people up for failure, I assure you they knew this when they set this crap in motion...

But I am sure you will continue to copy & paste more crap that you have no knowledge of...

 

[Dad2three]

Yes, it would have prevented "bad" mortgages. You know why? Because first of all there has to be a source of money to fund the individual mortgage loan being written and second there had to be a secondary mortgage market created to sell the Mortgage Backed Securities that were now full of junk loans.

No traditional banks would have ever jeopardized their savings base making the types of loan being offered. No real mortgage banker would of even thought of offering some of the stupid loans that were being made.

Wall street DID provide a source of money to fund mortgage loans, bought and sold the mortgage backed securities and bought and sold derivatives to hedge their bets once they found out the securities were full of shit loans.

That would have never been possible before the repeal of Glass Steagal.

A major source of demand for AAA assets came from foreign institutional investors. Caballero (2010, 2009) argues that global payment imbalances were the manifestation of “global excess demand” for AAA securities that placed “enormous pressure on the U.S. financial system and its incentives.” Similarly, Gourinchas (2010) argues that excess demand for AAA assets “created an irresistible profit opportunity for the U.S. financial system” to create and market “safe” asset - backed securities to the rest of the world. Diamond and Rajan (2009) find that securitization became focused on squeezing out the most AAA paper from an underlying package of mortgages” because, according to Gorton and Metrick (2009), “there is not enough AAA debt in the world to satisfy demand.”


http://business.gwu.edu/creua/research-papers/files/fannie-freddie.pdf


US MORTGAGE MARKET WENT FROM $1 TRILLION A YEAR IN 2000 TO $4 TRILLION BY 2004


PLS (“private label” asset - backed securities) did this, not repeal of G//S

The Banksters went from AAA real securities to synthetic securities, aided by their creativeness'


60 per cent of all mortgage origination between 2005 and 2007 had “reckless or toxic features”````


America's economy risks the mother of all meltdowns - FT.com


Regulators and policymakers enabled this process at virtually every turn. Part of the reason they failed to understand the housing bubble was willful ignorance: they bought into the argument that the market would equilibrate itself. In particular, financial actors and regulatory officials both believed that secondary and tertiary markets could effectively control risk through pricing.


http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf

This is a pretty good summary of what caused the financial collapse. I would add a few points in support of how "financial innovation" made the system even more unstable and why it is going to happen again.

1. Glass- Steagel is actually the Banking Act of 1933, key provisions of which were repealed in 1998 due to the argument that banks knew how to manage their own risk. The former chairman of the Fed famously comment that he was wrong to fail to conceive that bankers could take the kind of risks they did. The problem was created and grew largely outside the regulated banking system (commonly called "shadow banking" which by 2007 was a bit larger than the regulated banking system and was generally unregulated by anyone). That system, composed of insurance companies, hedge funds, investment banks, options traders, and large institutional investors is still largely unregulated in the aspects that caused the collapse.

So the poster who stated that G-S would not have stopped the firms that collapsed was correct in one sense. When the 1933 Act was passed, along with the Securities Act and the Securities Exchanges Act, virtually all of the financial industry was covered except commodity brokerage. By 1940 the Investment Company Act brought mutual funds into the regulatory scheme. Derivatives in the current financial sense did not exist. In retrospect, the biggest failure was to allow the development of "instruments of mass financial destruction" without bringing them into the regulatory regime.

2. Particularly dangerous was the way the mortgage backed securities were structured and marketed. Before the mid-90's MBS's consisted only of government agency insured mortgages and based on the government guarantees, they had a very good track record, and achieved the coveted AAA ratings. When in the late 90's non-government backed mortgages began to be packaged, they also were rated AAA based on the performance of the government backed issues. The rating agencies never questioned the quality of the bonds without government backing.

But it got worse. The bonds were not sold simply as pro rata shares of the portfolio; they were divided into tranches. Each tranche took a slice of the risk of the entire portfolio until it was wiped out, and then the next tranche bore the risk. The investment (AAA) tranche was the most protected; losses had to exceed 20% before it would be effected. The mezzanine tranche absorbed losses from 10%--20% of the portfolio, and the speculative tranche took the riskiest 10% (at a great discount). This turned out to have two effects. First the investment tranche would vigorously oppose any effort to "work out" any mortgages (at least the write-down touched their interests) making the bonds impossible to resolve back into mortgages. The underwriting could not be unwound and it became virtually impossible to provide borrowers mortgage relief. Second, it guaranteed that once cumulative losses approached 20%, the mortgage and MBS markets would collapse.

3. The problem was and remains systemic. Bankers knew that a catastrophic collapse was possible, but they did not protect their firms. A competitive market can fail, and the dynamic here was everyone felt they could make lots of money today and get out when things started looking bad. But they couldn't get out. No one in a classic bubble ever can (see Hyman Minsky). Bubbles and systemic financial collapses are an inevitable part of market capitalism just as much as regular business cycles and profit motive. The dangers can be reduced and the effects mitigated by regulation and public policy, but the Andrew Mellon view of capital markets going through massive episodes of destruction of capital as a natural and inevitable feature of market capitalism is essentially correct. Without adequate regulation and appropriate monetary and fiscal policy, a capitalist economy spends about half of the time in recession or depression and a major depression comes about every twenty years.

I agree on most of that, but the US only had a great depression in 1929 and then 2008


And the closest thing to laizze affair crap they want to happen to US post 1929 GOP/Harding/Coolidge great depression, was Reagan ignoring Mr Gray's warnings in 1984 about the problems with the S&L deregulation (could have stopped 90% of the crisis) And then Dubya's subprime crisis where he not only ignored the regulators, he gutted them!


Weird, we elect those to Gov't that don't 'believe in' Gov't or regulations/regulators, then are shocked when the economies collapse BECAUSE of their ideology!

 

[Dad2three]

The CRA is directly connected to the Mortgage Meltdown...

The problem didn't happen overnight, it took years to foster...

Clinton revised Carter's CRA in '96 and subsequently gave birth to FHA DPA, Zero Down, Zero risk mortgages...

Oh and BTW housing was taking off in '97...

This spawned the beginning of the Housing Bubble...

Sub Prime loans were born in '93, but they were not zero down loans with 560 FICO's, no they were 75% to 80% LTV's with rates 4% above par...

Glass-Steagall let the commercial banks into the picture and that's were Sub Prime Zero Down 560 FICO's started...

It was and still is very clear that none of the Zero Risk loans would have appeared if it wasn't for the Community Reinvestment Act (CRA), you tell yourself what ever makes you happy. You will have a very tough time finding anyone credible within the industry telling you anything different...

But then you probably believe Krugman was correct...

RealClearMarkets - How Did Paul Krugman Get It So Wrong?

ED PINTO HUH? lol, Couldn't find the other stooge for AEI, Peter Wallison? OK PINTO IT IS


The paper which introduces SRISK is "Volatility, Correlation and Tails" by Brownlees and Engle (2010) and is mentioned, along with Acharya et al. at the main page:

V-Lab: Systemic Risk Analysis Welcome Page

James Hamilton did an independent assessment of the NYU Stern Volatility Laboratory here:

Measuring systemic financial risk | Econbrowser

and concludes by saying:

"I view these measures as a supplement to, rather than replacement for, other analyses based on direct linkages and derivative exposure. CDS could offer another useful market indicator. But the advantage of the NYU Stern approach is it can immediately draw out some of the implications of the latest stock market valuations and comovements for real-time use by regulators, investors, and business planners."

It should be pointed out that in the interest of skepticism, that NYU Stern is in up to its hip boots in the whole Koch Brothers-Wallison-Pinto-AEI-Mercatus "government housing policy was responsible" propaganda machine.



n his New York Times column, "The Big Lie," referring to The Big Lie about Fannie and Freddie causing the financial crisis, Joe Nocera writes:

"You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own...Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto."

http://www.nytimes.com/2011/12/24/opinion/nocera-the-big-lie.html?hp

Pinto's work was thoroughly debunked by the Financial Crisis Inquiry Commission. The FCIC did what Wallison, Pinto and their advocates consistently refuse to do; they refuse to look at loan performance--delinquencies, defaults, losses on liquidation--on a comparative basis.

http://fcic-static.law.stanford.edu...ata and Comparison with Ed Pinto Analysis.pdf



Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence

Pinto's key factoid is that FHA's foreclosure rate in 2006 is 13 times higher than it was in 1954. He attributes this spike in foreclosures to one singular cause, the spike in FHA borrower "leverage," which involves other calculations unique to Pinto. He writes, "From 1954 to 2006 FHA’s compound leverage (the combined effect of lower down payment, a longer loan tern and higher debt-to-income ratios) increased 16-fold while its incidence of foreclosure also exploded, increasing 13-fold."

Nothing else penetrates into Pinto's little artificial world. Why should he consider any other changes that happened between 1967 and 2006?





Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence



Faulty Conclusions Based on Shoddy Foundations

FCIC Commissioner Peter Wallison and Other Commentators Rely on Flawed Data from Edward Pinto to Misplace the Causes of the 2008 Financial Crisis

Faulty Conclusions Based on Shoddy Foundations | Center for American Progress




AEI’s FHA Disinformation Campaign Ignores Basic Finance


AEI?s FHA Disinformation Campaign Ignores Basic Finance | The Big Picture



“I respect Ed, but he’s dead wrong,” Mr. Zandi of Moody’s said. “He’s got it absolutely backward.” The private sector, not government, led us into the bubble.

Mr. Pinto has been repeatedly criticized for exaggerating the role of Fannie Mae and Freddie Mac in the mortgage crisis. The Financial Crisis Inquiry Commission took a long hard look at them, because Peter J. Wallison, a major proponent of the theory that the government created the housing bubble, sat on the commission.

The commission found that the Pinto analysis was flawed.


http://dealbook.nytimes.com/2013/01/09/new-target-in-finger-pointing-over-housing-bubble/

So you think copy and pasting this drivel is meaningful?

You have no clue of what you copy & paste...

Do you have any idea how many Zero Down FHA DPA loans were done over the 10 year span it was around?

This is a subject I have done for a living so I suggest you stop while you're behind...

Take sometime, bury your bias and figure out what really happened...

Helping low income first time homeowners is all I have done for 20+ years, what our GSE's, Fed Regs, Congress and Admins did is set people up for failure, I assure you they knew this when they set this crap in motion...

But I am sure you will continue to copy & paste more crap that you have no knowledge of...

Got it, YOU are part of the problem. Sorry, I AM AN EXPERT, I've read and blogged on this subject for over 7 years, been part of a NYTimes article about it, and YOU can't refute a gaaawddamn thing I post! ALL you have is Wallison/Pinto/AEI talking points devoid of FACTS


GAAAWDDDAMMN WORLD WIDE CREDIT BUBBLE


It is clear to anyone who has studied the financial crisis of 2008 that the private sector’s drive for short-term profit was behind it.

Lest We Forget: Why We Had A Financial Crisis - Forbes


The big lie of the financial crisis, of course, is that troubling technique used to try to change the narrative history and shift blame from the bad ideas and terrible policies that created it.

What caused the financial crisis? The Big Lie goes viral - The Washington Post




Examining the big lie: How the facts of the economic crisis stack up

Examining the big lie: How the facts of the economic crisis stack up | The Big Picture




Regulators and policymakers enabled this process at virtually every turn. Part of the reason they failed to understand the housing bubble was willful ignorance: they bought into the argument that the market would equilibrate itself. In particular, financial actors and regulatory officials both believed that secondary and tertiary markets could effectively control risk through pricing.



The American mortgage market was nearly $1 trillion in 2000, ...The real surge in the mortgage market began in 2001 (the year of the stock market crash). From 2000 -2004, residential originations the U.S. climbed from about $1trillion to almost $4 trillion.

About 70% of this rise was accounted for by people refinancing their conventional mortgages at lower interest rates


http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf



Affordable Housing Goals

While the GSEs were likely attracted to the same extra yield on “safe” securities that made AAA PLS tranches attractive for other classes of investors, it seems reasonable to believe that affordable housing goals motivated these purchases
.
As explained by FHFA, PLSs were a major channel through which the GSEs fulfilled their affordable housing goals.

They had high ratings and were seemingly well protected by subordination.

They were goals intensive, and they were short term. Because the goals were set in terms of the flow purchases, rather the stock held, they could get credit for housing goals by what was essentially rolling over of the existing stock of what were essentially bridge loans

As a result they could buy 30% to 40% of the amount issued, but only hold around 15% of the outstanding stock


http://business.gwu.edu/creua/research-papers/files/fannie-freddie.pdf



That the GSEs invested in AAA tranches is significant because it largely undercuts claims that their purchases had a significant effect on subprime mortgage origination or the pricing of these securities. A common theme among research that has examined the causes of the financial crisis is the “insatiable demand” that existed for safe, dollar - denominated debt. Acharya and Richardson (2009) emphasize that securitization existed to create AAA tranches, which appealed to many classes of potential investors. As explained by Brunnermeier (2009), some of those investors were money market and pension funds limited by law or investment policy to invest only in AAA assets, while others were leveraged hedge funds attracted to AAA securities
because of their low haircuts and potential for greater leverage (Shleifer and Vishny, 2009).

http://business.gwu.edu/creua/research-papers/files/fannie-freddie.pdf





The dramatic growth in PLS issuance was the capital markets manifestation of the increase in the origination of nontraditional mortgage products outside of the GSE channel. According to the Government Accounting Office (GAO), “nonprime” mortgage loans (subprime plus Alt-A) accounted for 34% of the overall mortgage market in 2006. From 2001 to 2005, the dollar volume of subprime mortgages increased from $100 billion to $600 billion, while Alt - A mortgages grew from $25 billion to $400 billion over roughly the same period

http://business.gwu.edu/creua/research-papers/files/fannie-freddie.pdf

 

[Dad2three]

The CRA is directly connected to the Mortgage Meltdown...

The problem didn't happen overnight, it took years to foster...

Clinton revised Carter's CRA in '96 and subsequently gave birth to FHA DPA, Zero Down, Zero risk mortgages...

Oh and BTW housing was taking off in '97...

This spawned the beginning of the Housing Bubble...

Sub Prime loans were born in '93, but they were not zero down loans with 560 FICO's, no they were 75% to 80% LTV's with rates 4% above par...

Glass-Steagall let the commercial banks into the picture and that's were Sub Prime Zero Down 560 FICO's started...

It was and still is very clear that none of the Zero Risk loans would have appeared if it wasn't for the Community Reinvestment Act (CRA), you tell yourself what ever makes you happy. You will have a very tough time finding anyone credible within the industry telling you anything different...

But then you probably believe Krugman was correct...

RealClearMarkets - How Did Paul Krugman Get It So Wrong?

ED PINTO HUH? lol, Couldn't find the other stooge for AEI, Peter Wallison? OK PINTO IT IS


The paper which introduces SRISK is "Volatility, Correlation and Tails" by Brownlees and Engle (2010) and is mentioned, along with Acharya et al. at the main page:

V-Lab: Systemic Risk Analysis Welcome Page

James Hamilton did an independent assessment of the NYU Stern Volatility Laboratory here:

Measuring systemic financial risk | Econbrowser

and concludes by saying:

"I view these measures as a supplement to, rather than replacement for, other analyses based on direct linkages and derivative exposure. CDS could offer another useful market indicator. But the advantage of the NYU Stern approach is it can immediately draw out some of the implications of the latest stock market valuations and comovements for real-time use by regulators, investors, and business planners."

It should be pointed out that in the interest of skepticism, that NYU Stern is in up to its hip boots in the whole Koch Brothers-Wallison-Pinto-AEI-Mercatus "government housing policy was responsible" propaganda machine.



n his New York Times column, "The Big Lie," referring to The Big Lie about Fannie and Freddie causing the financial crisis, Joe Nocera writes:

"You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own...Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto."

http://www.nytimes.com/2011/12/24/opinion/nocera-the-big-lie.html?hp

Pinto's work was thoroughly debunked by the Financial Crisis Inquiry Commission. The FCIC did what Wallison, Pinto and their advocates consistently refuse to do; they refuse to look at loan performance--delinquencies, defaults, losses on liquidation--on a comparative basis.

http://fcic-static.law.stanford.edu...ata and Comparison with Ed Pinto Analysis.pdf



Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence

Pinto's key factoid is that FHA's foreclosure rate in 2006 is 13 times higher than it was in 1954. He attributes this spike in foreclosures to one singular cause, the spike in FHA borrower "leverage," which involves other calculations unique to Pinto. He writes, "From 1954 to 2006 FHA’s compound leverage (the combined effect of lower down payment, a longer loan tern and higher debt-to-income ratios) increased 16-fold while its incidence of foreclosure also exploded, increasing 13-fold."

Nothing else penetrates into Pinto's little artificial world. Why should he consider any other changes that happened between 1967 and 2006?





Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence



Faulty Conclusions Based on Shoddy Foundations

FCIC Commissioner Peter Wallison and Other Commentators Rely on Flawed Data from Edward Pinto to Misplace the Causes of the 2008 Financial Crisis

Faulty Conclusions Based on Shoddy Foundations | Center for American Progress




AEI’s FHA Disinformation Campaign Ignores Basic Finance


AEI?s FHA Disinformation Campaign Ignores Basic Finance | The Big Picture



“I respect Ed, but he’s dead wrong,” Mr. Zandi of Moody’s said. “He’s got it absolutely backward.” The private sector, not government, led us into the bubble.

Mr. Pinto has been repeatedly criticized for exaggerating the role of Fannie Mae and Freddie Mac in the mortgage crisis. The Financial Crisis Inquiry Commission took a long hard look at them, because Peter J. Wallison, a major proponent of the theory that the government created the housing bubble, sat on the commission.

The commission found that the Pinto analysis was flawed.


http://dealbook.nytimes.com/2013/01/09/new-target-in-finger-pointing-over-housing-bubble/

So you think copy and pasting this drivel is meaningful?

You have no clue of what you copy & paste...

Do you have any idea how many Zero Down FHA DPA loans were done over the 10 year span it was around?

This is a subject I have done for a living so I suggest you stop while you're behind...

Take sometime, bury your bias and figure out what really happened...

Helping low income first time homeowners is all I have done for 20+ years, what our GSE's, Fed Regs, Congress and Admins did is set people up for failure, I assure you they knew this when they set this crap in motion...

But I am sure you will continue to copy & paste more crap that you have no knowledge of...

"Do you have any idea how many Zero Down FHA DPA loans were done over the 10 year span it was around? "


IT WAS AROUND FOR 5 YEARS BUBBA!

From the 2000 GOP Platform:

“Implement the “American Dream Down Payment” program


Passed: December 16, 2003 — American Dream Down Payment Initiative (ADDI)

ADDI aims to increase the homeownership rate, especially among lower income and minority households, and to revitalize and stabilize communities. ADDI will help first-time homebuyers with the biggest hurdle to homeownership: downpayment and closing costs. The program was created to assist low-income first-time homebuyers in purchasing single-family homes by providing funds for downpayment, closing costs, and rehabilitation carried out in conjunction with the assisted home purchase.

President: George W. Bush (R)



Elimination of Non Profit Down Payment Assistance: On July 30, 2008, President Bush signed the Housing and Economic Recovery Act of 2008 which prohibits seller-funded DPA (Down Payment Assistance) for loans backed by the Federal Housing Administration.

Homebuyer Down Payment Grants Prior to 2008



Bush drive for home ownership fueled housing bubble


He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Concerned that down payments were a barrier, Bush persuaded a GOP Congress to spend as much as $200 million a year to help first-time buyers with down payments and closing costs.

And he pushed to allow first-time buyers to qualify for government insured mortgages with no money down


Loans that were under government regulation did better than private loans, especially if they were regulated by the "Community Reinvestment Act."


Center for Public Integrity reported in 2011, mortgages financed by Wall Street from 2001 to 2008 were 4½ times more likely to be seriously delinquent than mortgages backed by Fannie and Freddie.


PRIVATE MARKETS CAUSED THIS MESS!


Repetition is essential in spreading a humongous lie. Peter Wallison of the AEI was most responsible for the origin of the lie that Fannie and Freddie caused the 2007-2008 financial crises. Today, in The New York Times, Joe Nocera, a journalist of impeccable credentials and integrity, clearly and convincingly refutes Wallison, the Journal, and the lie.

Nocera points out that contrary to what this editorial asserts, the SEC evidence does not show that Fannie and Freddie were big players in the subprime fiasco.


The historical "originate and hold" mortgage model was replaced with the "originate and distribute" model. Incentives were such that you could get paid just to originate and sell the mortgages down the pipeline, passing the risk along. The big investment banks simply connected the investors to the originators, helped by the AAA ratings



The same exact thing happened at the exact same time in the sub prime auto finance business. And it was done by the same exact people. Difference is that there are buybacks in auto finance ABSs much stricter than in the mortgage industry.

The big players all went down. HSBC lost billions and went out of the business. Americredit all but went bankrupt and only survived with a buyout. Cap One went through the basement and was only kept alive because of their credit card profits. Dozens of others, some backed by huge corps, went under.

Needless to say, there was no CRA for auto finance, and there was no government car ownership policies for them to blame.

All by themselves, the investment banks created systemic risk, and that risk ruined them in the auto finance market.

Sadly, the same thing did not happen in the mortgage market.

 

[zeke]

I remember when the Ameri Dream program was first released. Underwriting hated it. FHA administrators wanted to do away with it. And they finally did when the default rates started climbing.

Loan officers and Realtors loved it. They get paid on commission. And that program made buyers out of wanna be buyers.

Leads me to how Realtor s received NO blame for the collapse. Yet, they were the ones steering crummy buyers to mortgage brokers who put them in junk, sub prime loans with the story about how they could refinance to an better loan in a year or so. LMAO.

 

[Contumacious]

Weird, we elect those to Gov't that don't 'believe in' Gov't or regulations/regulators, then are shocked when the economies collapse BECAUSE of their ideology!

Economies collapse when the the narcotized populace votes for demagogues who promise them welfare, hell insurance and to quench their thirst.

.

 

[Toddsterpatriot]

Yes, it would have prevented "bad" mortgages. You know why? Because first of all there has to be a source of money to fund the individual mortgage loan being written and second there had to be a secondary mortgage market created to sell the Mortgage Backed Securities that were now full of junk loans.

No traditional banks would have ever jeopardized their savings base making the types of loan being offered. No real mortgage banker would of even thought of offering some of the stupid loans that were being made.

Wall street DID provide a source of money to fund mortgage loans, bought and sold the mortgage backed securities and bought and sold derivatives to hedge their bets once they found out the securities were full of shit loans.

That would have never been possible before the repeal of Glass Steagal.

A major source of demand for AAA assets came from foreign institutional investors. Caballero (2010, 2009) argues that global payment imbalances were the manifestation of “global excess demand” for AAA securities that placed “enormous pressure on the U.S. financial system and its incentives.” Similarly, Gourinchas (2010) argues that excess demand for AAA assets “created an irresistible profit opportunity for the U.S. financial system” to create and market “safe” asset - backed securities to the rest of the world. Diamond and Rajan (2009) find that securitization became focused on squeezing out the most AAA paper from an underlying package of mortgages” because, according to Gorton and Metrick (2009), “there is not enough AAA debt in the world to satisfy demand.”


http://business.gwu.edu/creua/research-papers/files/fannie-freddie.pdf


US MORTGAGE MARKET WENT FROM $1 TRILLION A YEAR IN 2000 TO $4 TRILLION BY 2004


PLS (“private label” asset - backed securities) did this, not repeal of G//S

The Banksters went from AAA real securities to synthetic securities, aided by their creativeness'


60 per cent of all mortgage origination between 2005 and 2007 had “reckless or toxic features”````


America's economy risks the mother of all meltdowns - FT.com


Regulators and policymakers enabled this process at virtually every turn. Part of the reason they failed to understand the housing bubble was willful ignorance: they bought into the argument that the market would equilibrate itself. In particular, financial actors and regulatory officials both believed that secondary and tertiary markets could effectively control risk through pricing.


http://www.tobinproject.org/sites/tobinproject.org/files/assets/Fligstein_Catalyst of Disaster_0.pdf

This is a pretty good summary of what caused the financial collapse. I would add a few points in support of how "financial innovation" made the system even more unstable and why it is going to happen again.

1. Glass- Steagel is actually the Banking Act of 1933, key provisions of which were repealed in 1998 due to the argument that banks knew how to manage their own risk. The former chairman of the Fed famously comment that he was wrong to fail to conceive that bankers could take the kind of risks they did. The problem was created and grew largely outside the regulated banking system (commonly called "shadow banking" which by 2007 was a bit larger than the regulated banking system and was generally unregulated by anyone). That system, composed of insurance companies, hedge funds, investment banks, options traders, and large institutional investors is still largely unregulated in the aspects that caused the collapse.

So the poster who stated that G-S would not have stopped the firms that collapsed was correct in one sense. When the 1933 Act was passed, along with the Securities Act and the Securities Exchanges Act, virtually all of the financial industry was covered except commodity brokerage. By 1940 the Investment Company Act brought mutual funds into the regulatory scheme. Derivatives in the current financial sense did not exist. In retrospect, the biggest failure was to allow the development of "instruments of mass financial destruction" without bringing them into the regulatory regime.

2. Particularly dangerous was the way the mortgage backed securities were structured and marketed. Before the mid-90's MBS's consisted only of government agency insured mortgages and based on the government guarantees, they had a very good track record, and achieved the coveted AAA ratings. When in the late 90's non-government backed mortgages began to be packaged, they also were rated AAA based on the performance of the government backed issues. The rating agencies never questioned the quality of the bonds without government backing.

But it got worse. The bonds were not sold simply as pro rata shares of the portfolio; they were divided into tranches. Each tranche took a slice of the risk of the entire portfolio until it was wiped out, and then the next tranche bore the risk. The investment (AAA) tranche was the most protected; losses had to exceed 20% before it would be effected. The mezzanine tranche absorbed losses from 10%--20% of the portfolio, and the speculative tranche took the riskiest 10% (at a great discount). This turned out to have two effects. First the investment tranche would vigorously oppose any effort to "work out" any mortgages (at least the write-down touched their interests) making the bonds impossible to resolve back into mortgages. The underwriting could not be unwound and it became virtually impossible to provide borrowers mortgage relief. Second, it guaranteed that once cumulative losses approached 20%, the mortgage and MBS markets would collapse.

3. The problem was and remains systemic. Bankers knew that a catastrophic collapse was possible, but they did not protect their firms. A competitive market can fail, and the dynamic here was everyone felt they could make lots of money today and get out when things started looking bad. But they couldn't get out. No one in a classic bubble ever can (see Hyman Minsky). Bubbles and systemic financial collapses are an inevitable part of market capitalism just as much as regular business cycles and profit motive. The dangers can be reduced and the effects mitigated by regulation and public policy, but the Andrew Mellon view of capital markets going through massive episodes of destruction of capital as a natural and inevitable feature of market capitalism is essentially correct. Without adequate regulation and appropriate monetary and fiscal policy, a capitalist economy spends about half of the time in recession or depression and a major depression comes about every twenty years.

In retrospect, the biggest failure was to allow the development of "instruments of mass financial destruction" without bringing them into the regulatory regime.

Standardization and exchange clearing of derivatives would be nice. I'm all for it.

It wouldn't have prevented the collapse. No banks failed because of derivatives.

But they couldn't get out. No one in a classic bubble ever can

No one? Goldman came close and there were a few hedge funds that bet on the collapse and made big money.

 

[Contumacious]

Jamie Dimon, CEO of JPMorgan testified to the FCIC, "I blame the management teams 100% and...no one else."

That's because the folks at JP Morgan Chase knew that they were "too big to fail" as defined by the welfare state politicians.

JPMorgan Chase CEO: Bank Took TARP, 'Because We Were Asked to' by Treasury Secretary

.

 

[Dad2three]

Weird, we elect those to Gov't that don't 'believe in' Gov't or regulations/regulators, then are shocked when the economies collapse BECAUSE of their ideology!

Economies collapse when the the narcotized populace votes for demagogues who promise them welfare, hell insurance and to quench their thirst.

.

True I wish conservatives would knock it off with their 'job creator' and corp welfare crap and then their crony capitalism they push!