Published: Saturday, July 13 2013 12:00 a.m. MDT
The banks didn't want to give these loans out? Huh.
Interesting.Have you ever worked at a bank? I have. And we loved
giving out these bad loans. So you may want to check your facts as
Thomas Sowell has proven many times to have been out of touch.
This is revisionist apologetics for the banking industry. Pinning the bubble
and resulting mortgage crisis on mandated loans doesn't tell the whole
story. It excludes tax policy that allows home mortgages to be
deducted from taxes and excludes homes from capital gains. It
ignores extensive deregulation of the financial sector under Glass-Steagall. It overlooks the artificially low interest rates in the wake of the 2001
recession.It ignores the fact that the mortgage industry lobbied for
the ability to widen the mortgage pool, and concocted all sorts of exotic
mortgage vehicles to peddle to lower income people.It sidesteps our
mania for home ownership as part of the "American dream," speculation,
seeing homes as investment vehicles instead of roofs above our heads, and the
use of home equity as ATM machines by homeowners.It overlooks the
Wall Street frenzy for mortgage-bundled CDOs -- not to mitigate risk as the
letter argues, but as financial investment vehicles. It ignores the
shady rating of toxic CDOs with the highest of ratings.It fails to
account for the significant overleveraging of major financial institutions,
ravenous to snatch up these CDOs until apparent that the emperor had no clothes.
There was a time when banks simply refused to loan money to anyone who lived in
the "black" part of town. The Community Reinvestment Act of 1977
outlawed this practice. It did not ever require banks to loan money to people
with poor credit, or with inadequate income. To say that it was the cause of the
housing bubble is to say that it worked fine for 30 years and then it blew up
the world economy.Some conservatives refuse to accept that there can
be market failures, so if markets to fail, it must be the government's
good insights, Johnand what was started in 1997 was accelerated in
the late 90s and early 2000s by slick willy and barney frank, forcing fannie and
freddie to eliminate lending standards so more people could "afford" to
buy houses.the banking regulators issued a policy statement in late
2006 warning banks against non-traditional mortgages like payment option ARMs
that allowed the payments to be less than the interest, so the balances grew.
Other similar loan programs grew out of frank's pressure, like ninja (no
assets, no job) and liar loans (stated income without verification).under payment option ARMs, a $200k loan at 3% became $225k after 5 years,,
when the rate would increase, doubling the payment. The regulators told banks
to make sure the borrowers qualified at the doubled payment, but they were
ignored because fannie and freddie were still buying those loans. When fannie
and freddie stopped buying in the fall of 2007, the subprime mortgage market
collapsed, followed by the Alt-A market, followed by the overall market and the
housing bubble burst.thus we see the bubble was caused by fannie and
freddie, after pressure from slick willy and barney frank.
Nobody was EVER "compelled" to make any of those loans. That is a lie.
And those banks made those loans because it made them money and then
they sold them off to be packaged up as derivatives so that they didn't
bear any of the risk--thus they didn't care how many sub-prime loans they
made because they were still making money.That's the very
definition of the free market causing a problem.
The evidence points to Nagel being correct in his statements. Government
interference was the chief cause of the big bubble burst. Government tried to
artificially give more people a chance at home ownership and it didn't
work, causing huge problems for the entire country and even those people who
rightly could afford home ownership.
Crony-capitalism consists of collusion between government and selected
businesses. To say that the government was not involved in helping to create the
housing bubble is ludicrous. The so-called free-market was given free rein to
ignore regulations that would have minimized or prevented the crisis by
administration and Federal Reserve officials. This "free market" gone
rogue knew they had the "Greenspan put" and then the "Bernanke
put" to save them from toxic investments. It was a creation of a classic
"moral hazard." Enforcement of then-current regulations were sufficient
to avert disaster, but government refused to apply them to their cronies.
I think the banks were willing participants; you can't just slag this all
on big bad government. That's just cheap shooting.
Banks were willing participants, BUT ONLY AFTER the GOVERNMENT GUARANTEED the
loans if the borrower failed to pay. The government guarantee is
what set off the crazy lending. The government policy told banks to give loans
to high risk people and that they would be 'helping the poor, minorities,
etc' and in return the government would back all the loans. Make lots of
money while helping the poor? Of course lenders took advantage of that.So if the government guarantees medical care will be paid for, for everyone,
can we expect the same from the medical industry? YES!!! We are
dealing with humans with a propensity to want to make money. Medical
professionals too, will feel they are righteously helping people, while they
suck the public coffers dry and line their own pockets. Here we go
Lenders were compelled to give loans to people? Nonsense. I was getting
solicited (almost daily) by mortgage companies which are not nearly as regulated
as banks.Borrowers desired those loans under an assumption that,
with government backing, they could live better than they had been living? What
does that even mean? Either you can afford the mortgage or not. The backing
implied lowered the rate.To spread the risk, the financial community
started pooling sub-prime loans into packages that could be sold to willing risk
takers? Mortgages have been being pooled since at least the 1980s. The new
deal here were the risk tranches and the supposed ability to mix them up in such
a way that risk was taken out of most of the deal.This was a profit
party folks. When times are good you don’t have to compel the lenders
from going after every profit. You have to hold them back.Res Novae
- very nice.
Res Novae and Twin Lights:Thanks to both of you for bringing some much
needed perspective to this debate. Also for referring to those pesky things
called 'facts.' And like Twin Lights, I was actively solicited
by mortgage companies. And so were both of my brothers, my aged parents, and my
neighbors. One salesperson called me every day for weeks, apparently not
believing that when I said 'stop bothering me, I'm not
interested' I meant it.
Badgerbadger,We discussed the implied govt. guarantee of Fannie and
Freddie back when I was in college in the early 1980s. There was nothing new
here. Do you think the markets just "discovered" this in the late
2000s?Eric,Hope you are well. Good to see you here and
Thomas Sowell is nothing more than a partisan hack. He will do anything to make
excuses for the failed supply side economics of "trickle down
effect."Of course everything is thegovernment's fault and
the private sector is always blameless. This letter's excuse, blaming the
recession on loans made to poor people, was debunked like 4 years ago. It's
just a shame that Sowell and this letter writer are just so out of touch.
Government was the KEY cause of the real estate bubble and subsequent collapse
and financial crisis. Yes, greedy and naive home-buyers, speculators, real
estate agents, appraisers, etc. have fault as well, but the key causes of the
bubble and collapse are all centered in Washington DC. And this is not
"revisionist history", as much as those on the left and right want it to
be so. Key government failures include:- Fiscal policy: Greenspan
monetary pumping (probably #1 in importance)- Monetary policy: Massive
deficit spending by Congress, and administrations on both sides of the aisle
since FDR.- Lax and outdated bank over-site by the Federal Reserve, SEC,
and many other agencies, and a complete failure of regulators to understand the
risks and potential failures of new financial products such as Credit Default
Swaps-Bank and financial market deregulation (pushed by the right!)-
Unteathered Congressional support for Freddie Mac and Fannie Mae, and tacit
government backing for both- Congressional pressure and legislation that
gave incentives for over-borrowing, over-lending, etc. including bowing to
pressure from lobbyists who made large contributions to campaigns.Greedy individuals could not have caused such harm without the full backing of
pols in D.C.
Exactly right, Carmen. This was anything BUT a free-market phenomenon.
It's pretty incredible to me that in the most obvious example of the
private sector caving in on its' own greed since Black Tuesday of 1929 that
there are so many from the right who wish to blame this on the public sector.
Not only that, but demonize poor people along the way.Can the
private sector be held accountable??? For ANYTHING? Or must the
right defend the unfettered greed and class warfare (to steal what little the
rest of us still own) at any cost?
I think the greater question is, what has been done to prevent this from
happening again?Have new regulations and better practices been put
into place?Nope. Repubs won't allow it. Our economy is just a ticking time bomb. Rather than resolve anything repubs
prefer to kick the can down the road. Maybe this next time when we're asked
to bail out wall street they can finally finish the job and take what little we
have left. Finally, the 1 percent will own 100 percent of the country's
@The Real Maverick, Exactly! We have a free market trifecta of
deregulation, tax exemptions, and low interest rates. All powering a
laissez-faire financial sector, and all heavily lobbied for by the banking,
mortgage, and financial investment industries. Yet somehow it's STILL all
the government's fault! As is so typical, government
interference in the markets is a heresy to capitalism. Except when it's
not. It may not be consistent, but at least it's predictable!
Maverick"Can the private sector be held accountable??? For
ANYTHING?" If people get fat, the food industry and soft drink
makers did that to them. People can only eat what they are given.If
a person is invited to a free 'all you can eat' buffet, and they get
sick from eating too much, it's the buffet's fault.If a
student doesn't do the work in school, it is because the teacher
didn't meet all his/her needs, or because they didn't get to go to
Headstart.If a government leader lies to the public, it is because
the other party made him do it.If a person has lots of sex partners
and spreads disease and creates unwanted pregnancies, it is nature's fault
for making sex desirable.If a person borrows more than they can
afford to pay back, it is all the predatory lender's fault. If
a person comes to the USA illegally, it is society's fault, because home
society is bad so bad they can't get rich, and the USA's society
won't share our riches.Nope, private sector people cannot be
held accountable for anything.
Lib 2dA & MavYou forgot the most important one.If
anything goes wrong in Obama's presidency, it's George W Bush's
fault! Oh wait, he is a private sector person now. So
how does that fit with your narrative?
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