http://www.cnbc.com/id/100612622

A lovely unintended consequence of the fed's QE4ever policy.

4/3/2013 7:05:42 PM

Oh, and what's even worse is all the debate I've heard lately about banks not doing enough mortgage lending and how they're relying too much on credit score, and blah blah blah. Basically, our president and his people are once again encouraging banks to lend to unqualified mortgage applicants. Lesson not learned apparently.

4/3/2013 8:09:13 PM

Yeah this is stupid. Fannie and Freddie are finally making money, so lets blow everything up again.

4/3/2013 8:27:44 PM

hey look certain users unsurprisingly absent ITT

someone portray this as good

4/3/2013 9:17:35 PM

Let's just blow up all the banks like in Fight Club.

4/4/2013 12:45:29 AM

Increasing access to mortgages was not the root of the problem. Turning them into mortgage backed securities was the root of the problem.

4/4/2013 1:49:56 AM

^No. Mortgage backed securities worked for 70 years prior to Wall Street getting in on it.

4/4/2013 7:16:55 AM

Quote :

"once again encouraging banks to lend to unqualified mortgage applicants. Lesson not learned apparently."

Oh hey this myth again

4/4/2013 9:10:54 AM

^

4/4/2013 9:21:38 AM

Please explain how that's a myth? I'm not saying it was the only cause of the 2008 crash, but a tripling of mortgage defaults definitely helped burst the housing bubble.

Clinton definitely encouraged lowering the borrowing standards and the down payment amount. We're once again hearing about how banks aren't lending enough and are putting too much weight on credit scores as a measure for mortgage worthiness. Just look at the increase in FHA mortgages the last couple of years. Just let housing stabilize and regain value organically, stop trying to force the issue by issuing more sub-prime loans.

[Edited on April 4, 2013 at 12:06 PM. Reason : sdfsdf]

4/4/2013 11:53:44 AM

Quote :

"Please explain how that's a myth? I'm not saying it was the only cause of the 2008 crash, but a tripling of mortgage defaults definitely helped burst the housing bubble. "

I mean, who am I to question a narrative pushed primarily by the likes of Limbaugh and Hannity, but a teensy bit of research makes it a pretty laughable hypothesis that anything aside from the deregulation binge in the 90's and 00's were the primary culprit, and by primary I mean "fully necessary and sufficient to describe the crash."

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

Here's another good summary: http://www.businessinsider.com/10-myths-about-the-subprime-crisis-2009-7

Another: http://thinkprogress.org/economy/2012/03/28/453978/fed-study-affordable-housing-myth/

Quote :

"We find no evidence that lenders increased subprime originations or altered pricing around the discrete eligibility cutoffs for the Government Sponsored Enterprises (GSEs) affordable housing goals or the Community Reinvestment Act. Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by the GSEs were not due to affordable housing mandates."

For more info take your pick https://www.google.com/search?q=fannie+freddie+myth+crash&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a


edit Also, I'd love to see your source for the tripling of mortgage defaults. Particularly I'd like to see if this happened before or after the huge spike in layoffs. If it comes after, that's a bit of a dent in the "poors couldn't pay their bills" theory of the crash.

[Edited on April 4, 2013 at 2:12 PM. Reason : .]

4/4/2013 2:04:14 PM

ITT:

1) the poor can pay their bills

2) the poor understand adjustable rates

4/4/2013 4:49:18 PM

Also, if we're talking specifically about subprime auto loans, this is a pretty stupid argument. Defaulting on an $11k used car loan is a far cry from defaulting on a $250k mortgage. Cars are expected to lose value pretty quickly but houses are expected to grow pretty steadily over time (whether that's a correct assumption or not). It's better to be stuck with a used car that's still worth $6k or so than it is to be stuck with a house that has lost 20% of its value. One of these is measured in billions on the macro level and the other is measured in trillions.

4/4/2013 5:34:15 PM

Second link from your google search.

http://online.barrons.com/article/SB50001424053111904414004578016373986855276.html#articleTabs_article%3D1

Third

http://reason.com/archives/2011/03/04/the-truth-about-fannie-and-fre



And from one of your own links.

Quote :

"Subprime mortgages have been getting a lot of attention in the United States since 2000, when the number of subprime loans being originated and refinanced shot up rapidly. The attention intensified in 2007, when defaults on subprime loans began to skyrocket. Researchers, policymakers, and the public have tried to identify the factors that explained these defaults."

Read more: http://www.businessinsider.com/10-myths-about-the-subprime-crisis-2009-7#ixzz2PXOfmBPC

[Edited on April 4, 2013 at 6:55 PM. Reason : ssfdsdf]

4/4/2013 6:38:06 PM

Quote :

"Basically, our president and his people are once again encouraging banks to lend to unqualified mortgage applicants. Lesson not learned apparently."

I don't think the banks really give a shit whether Obama wants them to lend or not. For the banks, it's purely a numbers game; I don't think "ethics" even enters the equation for them. The rate at which they can borrow money/create credit determines the rate at which consumers can borrow. The lower the rates are, the more people are going to be eligible for loans. We can't really expect the American consumer to behave rationally when we don't have rational interest rates.

It seems like a lot people thought early on that all this cheap money was going to cause a certain rate of price increase across the board, but that's not how inflation works. Prices go up (or, at least, more up than they would have at a market-established interest rate - not 0%) in the areas where the money flows to first. So, the Fed creates money, gives it to banks, and they give out loans for homes, cars, college, government spending, whatever. That's what the article is referring to with "mini bubbles".

Of course, all of these bubbles are doomed to pop in time at which point the banks and borrowers alike (should) go through hell. Unfortunately, we live in a time where you can't really expect that risky behavior will be punished by the market; there's always a strong possibility that the state will step in to ensure "fairness" or "stability".

[Edited on April 4, 2013 at 8:37 PM. Reason : ]

4/4/2013 8:34:25 PM

The state needs to step in to prevent banks from getting so large that the state needs to step in.

4/5/2013 2:32:57 AM

Bubbles happen regardless of what the government does. The "price of money" is not the first criteria when making a loan -- whether or not they can make a profit given the risk of default is the main driver. That's why even though interest rates are at an all time low, lending is down. That's also why banks will make subprime loans as long as there is a hot secondary market to sell them off.

It's all about whether banks think they can make money on a loan considering all the factors involved (will the borrower default, do they have collateral, can I sell the loan to someone else), not just interest rates. The government can't magically force banks to make loans even though more people may want loans because of the lower rates.

The notion that interest rates set by the government are the driver of lending activity is a common misunderstanding of how banks work. If you want to blame the government for doing something that actually affects lending, you can point to all the subsidies and incentives the government directly offers for various loans.

With that said, financial institutions have always been perfectly willing to ride bubbles without the government's help. There were plenty of bubbles before central banks even existed.

4/5/2013 3:28:26 AM

Quote :

"The state needs to step in to prevent banks from getting so large that the state needs to step in."

It's not the size of banks we should be worried about. It's completely possible that a bank, even in our current system, could become very large without entering the subprime market.

Quote :

"Bubbles happen regardless of what the government does. The "price of money" is not the first criteria when making a loan -- whether or not they can make a profit given the risk of default is the main driver. That's why even though interest rates are at an all time low, lending is down. That's also why banks will make subprime loans as long as there is a hot secondary market to sell them off."

Do you really believe this? Whether it's the first criteria or not, it is a factor. The claim that interest rates don't affect the credit market is not only ridiculous, it's at odds with what the Federal Reserve and government officials have said. The stated intention of low/zero interest rate policy was to boost lending, prop up demand, or whatever other horseshit they've justified it with.

Bubbles will happen even in a totally free market, but the size and duration of the bubbles is influenced by policy in a huge way. Combine a fractional reserve banking system with deposit insurance and zero bound interest rate policy, and you've created the perfect environment for pyramiding debt.

4/5/2013 10:45:04 AM

Quote :

"Do you really believe this? Whether it's the first criteria or not, it is a factor. The claim that interest rates don't affect the credit market is not only ridiculous, it's at odds with what the Federal Reserve and government officials have said. "

Yes because the evidence bears this out. They can say what they want, but that doesn't mean they can do what they say. In fact, they have to say that they have a lever on the economy or else people will lose confidence in them. They will never say, "we tried everything we can do and it's not making fuck all of a difference." We have already seen this happen in Japan, which has had low rates for 20+ years and had deflation.

Quote :

"Bubbles will happen even in a totally free market, but the size and duration of the bubbles is influenced by policy in a huge way. Combine a fractional reserve banking system with deposit insurance and zero bound interest rate policy, and you've created the perfect environment for pyramiding debt. "

It's a perfect environment for borrowing, sure. It's not a perfect environment for lending. It takes two to tango. That's why lending is down even though interest rates are low. And when interest rates were higher, lending was going up. Even though the government may be trying to shoot itself in the foot by stimulating the housing market, it can't.

[Edited on April 5, 2013 at 11:00 AM. Reason : .]

4/5/2013 10:59:21 AM

http://www.huffingtonpost.com/rep-bernie-sanders/too-big-to-jail_b_2973641.html

We are supposed to be a country of laws. The laws should apply to Wall Street as well as everybody else. So I was stunned when our country's top law enforcement official recently suggested it might be difficult to prosecute financial institutions that commit crimes because it may destabilize the financial system of our country and the world.

"I am concerned," Attorney General Eric Holder told the Senate Judiciary Committee, "that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute -- if we do bring a criminal charge -- it will have a negative impact on the national economy, perhaps even the world economy."



The funny thing is isn't what these institutions did also disruptive to the economy? (an understatement to say the least)

[Edited on April 5, 2013 at 11:20 AM. Reason : .]

[Edited on April 5, 2013 at 11:24 AM. Reason : .]

4/5/2013 11:20:13 AM

Quote :

"The funny thing is isn't what these institutions did also disruptive to the economy? (an understatement to say the least)"

That doesn't mean much. A tumor can be disruptive to your brain, but that doesn't mean removing it will always be better, it could instead be fatal.

Break the banks up, then we can worry about prosecuting them. The solution to "Too big to fail" is to stop them getting so big.

[Edited on April 5, 2013 at 11:28 AM. Reason : .]

4/5/2013 11:27:30 AM

Quote :

"I don't think the banks really give a shit whether Obama wants them to lend or not. "

Not entirely accurate. Banks have to sufficiently fulfill CRA obligations to appease regulators. Banks are reviewed and assigned a CRA grade based on lending to lower income or for low income development. If banks repeatedly receive failing grades they could be shut down or forced to divest.

re: the crisis, the increased lending to high risk borrowers was one of many causes of the crisis. The securatization of mortgages already existed, just the packaging of them into CDOs increased the risk. Then credit default swaps (CDS) bought on the underlying, then CDS squared, etc. The main issue was that all of the collateral/underlying assets were correlated. So when housing market declined and defaults increased, since the underlying was same for some 40trillion of contracts, we all know what happened.

Point is, there isnt one thing that caused the crisis. Increased lending to high risk, predatory lending by loan offices unaffiliated with the banks, low rates, etc

4/5/2013 4:01:56 PM

Quote :

"The notion that interest rates set by the government are the driver of lending activity is a common misunderstanding of how banks work."

Are you honestly arguing that the price of an item is NOT the driver of market activity on that item? I can't think of a single more stupid statement ever made in the history of mankind.

Quote :

"It's a perfect environment for borrowing, sure. It's not a perfect environment for lending."

I wonder if the banks not being able to make as much money on a loan due to the price being lower while the risk is still high might be one of the reasons it's "not a perfect environment for lending." Just a thought.

Quote :

"Also, I'd love to see your source for the tripling of mortgage defaults. Particularly I'd like to see if this happened before or after the huge spike in layoffs. If it comes after, that's a bit of a dent in the "poors couldn't pay their bills" theory of the crash."

I'm about to blow your mind, but mortgage defaults, on their own, are not the only way that banks could have been burned by the requirement to lend to less credit-worthy borrowers. I need you to put on your thinking hat for this, but what if banks saw those riskier borrowers and made other decisions to hedge against the perceived risk of these riskier transactions. And what if these other decisions, which the banks otherwise wouldn't have made, weren't as solid a hedge as the banks thought? What do you think CDS and CDOs were? Is it possible that banks made these and other odd mortgage-backed securities to try and distance themselves from the perceived riskier borrowers to whom they were required to lend, creating an unbalanced system that eventually collapsed under much less stress than it otherwise would have? Given that the gov't barely understands the basics of economics, I really don't think that it could have even evaluated the new derivatives whatsoever, so your complaints of the evil "deregulation" being the big bad boy causing everything fall on deaf ears, as usual. The truth is that several factors converged to create the crisis, and one of the keys is unquestionably the government telling banks to relax lending standards. Secondly, the GSEs buying damned near any and every mortgage and MBS that came their way can't have helped either.

4/7/2013 12:26:28 AM

aaronburro, if you read the rest of his post and not just that one sentence you will find your answer


the way you fragment arguments because you are incapable or responding to complete points is tired, stop it.

4/7/2013 1:45:21 PM

I read the rest of his post, and it didn't contain any response to my queries. Thus, the reason I responded. If you don't like the way I post, then leave. otherwise, keep it to yourself

Besides, you don't need to read the rest of someone's post when they make a stupid statement like "price doesn't affect market supply or demand."

4/7/2013 5:32:10 PM