The Democrat Thread

[lostfan]

It's the fault of a LOT of people, from the borrowers to the lenders, to the lawmakers, to the auditors that combined, allowed this to happen, and watched WHILE it was happening. It was then the fault of the insurance underwriters claiming the mortgages were safe, and when they could no longer do that, accepting 'bundles of mortgages', and instead calling those safe when they could no longer be called that on their own. It was then the fault of the likes of AIG and other insurance carriers ACCEPTING and backing those loans.

 

Deregulation of the mortgage industry led to this, because the things they did were simply never before thought of...and when you deregulate an industry thinking they do things XYZ, but suddenly they begin doing them ABCXYZ under the new regulations, which didn't account for the ABC, this is what you get.

I'm really kind of in awe at the s*** they were able to pull. The regulators are at a disadvantage, they are looking at, say, a monthly flow of events but the cheaters are working on a day to day flow.

 

Greenspan is a douchebag, he took away what little oversight actually existed, then when s*** blew up, he said "I can't do anything about it, this is what the market wants." No you f***ing asshole, this was not an issue before you made it one. The karma fairy needs to do some really awful s*** to Greenspan. He's the source of a lot of this s***.

[lostfan]

I said s*** 4 times in one post. I really, really hate Alan Greenspan. I wish he played around fast-moving buses more often.

[Balta1701]

Are you guys seriously contending that the idea that government will back a risky mortgage doesn't play into the thought process of a lender? That the government creating a program back in the 40's or whatever it was to lend to low and middle class people didn't change the risk tolerance of lenders? You don't think it created a shift in lending practices when I no longer accept 20% down but can now accept 5%?

We've heard this sort of reaction before...but really there's one statement missing from this which is totally implied throughout it: everyone in the entire financial industry is an idiot. And you know what, I'm not sure its wrong.

 

For this logic to follow, it implies that the entire financial industry has absolutely no idea how to assess risk. They see that 1 loan in 1 place makes money and therefore assume that all loans must make money and dump tens of trillions of dollars into it with no assessment of the actual risks or reasons why that one particular loan made money.

 

Basically it paints the entire financial industry as a bunch of lemmings jumping over a cliff faster than the one before.

[StrangeSox]

I'm really kind of in awe at the s*** they were able to pull. The regulators are at a disadvantage, they are looking at, say, a monthly flow of events but the cheaters are working on a day to day flow.

 

They are understaffed, underfunded and as I'm sure ss2k5 would add, overlapping in some areas with huge gaps in others. Plus it's mostly a revolving door like most other regulatory bodies these days.

 

Greenspan is a douchebag, he took away what little oversight actually existed, then when s*** blew up, he said "I can't do anything about it, this is what the market wants." No you f***ing asshole, this was not an issue before you made it one. The karma fairy needs to do some really awful s*** to Greenspan. He's the source of a lot of this s***.

Yup, this is what happens when you take some rip-off Nietzsche mixed with a heavy dose of sociopathy in the form of a novel as some sort of gospel truth.

 

Bernanke's not doing much better. Despite studying the Great Depression academically, he's not actually doing nearly as much as he could or as he'd argued in the past that somebody should in that position.

[lostfan]

Matt Taibbi does a fantastic job of explaining this in layman's terms that everyone can understand (plus he's just a great writer and really funny). He doesn't let the losers who bought houses with no intention of ever making any payments off the hook either, but they are not the ones who engineered this whole disaster.

[Y2HH]

I said s*** 4 times in one post. I really, really hate Alan Greenspan. I wish he played around fast-moving buses more often.

 

Yea, can't say I'm a fan of his either.

 

I remember that douche trying to "control the .com economy" by inflating interest rates on what seemed like a weekly basis back then. He was one of those that were arrogant enough to actually believe he [they] had control of it in the first place.

[StrangeSox]

We've heard this sort of reaction before...but really there's one statement missing from this which is totally implied throughout it: everyone in the entire financial industry is an idiot. And you know what, I'm not sure its wrong.

 

For this logic to follow, it implies that the entire financial industry has absolutely no idea how to assess risk. They see that 1 loan in 1 place makes money and therefore assume that all loans must make money and dump tens of trillions of dollars into it with no assessment of the actual risks or reasons why that one particular loan made money.

 

Basically it paints the entire financial industry as a bunch of lemmings jumping over a cliff faster than the one before.

 

It paints them as a bunch of people who made boatloads of money off of these shenanigans and haven't really suffered at all thanks to the crash they brought about. In fact, they're doing better than ever. If you're a greed-obsessed asshole with Rand as your guiding philosophy, then they were acting like geniuses.

[Balta1701]

Yea, can't say I'm a fan of his either.

 

I remember that douche trying to "control the .com economy" by inflating interest rates on what seemed like a weekly basis back then. He was one of those that were arrogant enough to actually believe he [they] had control of it in the first place.

Serious Q in reply: what should have been done in 2000 then? There was an enormous, unsupported, multi-trillion dollar asset bubble sitting there (with a few hundred billion in fraud thrown in for good measure). Should they have continued to let it grow? Somehow attempt to pop it more slowly?

 

The right answer ought to be to have regulations and actions that prevent the development of such an asset bubble, but by 2000 that ship had sailed, so what do you do?

[lostfan]

Yea, can't say I'm a fan of his either.

 

I remember that douche trying to "control the .com economy" by inflating interest rates on what seemed like a weekly basis back then. He was one of those that were arrogant enough to actually believe he [they] had control of it in the first place.

When he did this, it was actually just a way of siphoning money from ordinary people. He had many different ways of doing that. He was creative, I'll give him that much.

[lostfan]

Serious Q in reply: what should have been done in 2000 then? There was an enormous, unsupported, multi-trillion dollar asset bubble sitting there (with a few hundred billion in fraud thrown in for good measure). Should they have continued to let it grow? Somehow attempt to pop it more slowly?

 

The right answer ought to be to have regulations and actions that prevent the development of such an asset bubble, but by 2000 that ship had sailed, so what do you do?

Go back in time. Advise Greenspan's father to take a cold shower, give him condoms. Give Greenspan's mother birth control pills.

[StrangeSox]

Matt Taibbi does a fantastic job of explaining this in layman's terms that everyone can understand (plus he's just a great writer and really funny). He doesn't let the losers who bought houses with no intention of ever making any payments off the hook either, but they are not the ones who engineered this whole disaster.

And these are pretty far and between cases. Plenty of people bought houses to live in fully intending to pay for them. Sometimes they were pushed into higher-cost subprimes even if they qualified for normal FHA-backed loans, especially if they were minorities. Other times they were convinced or pressured to spend more money. Other times maybe they just didn't have the financial literacy to really analyze what was within their reach and the 'experts' that are supposed to screen and advise people were only looking to churn as many mortgages as possible. Bankers/originators were under no obligation or legal requirement to loan $500k to someone making $30k or, hell, by the end, not even verifying their incomes or assets at all, but they did. Because it was immensely profitable for many of them for a long time.

[lostfan]

And these are pretty far and between cases. Plenty of people bought houses to live in fully intending to pay for them. Sometimes they were pushed into higher-cost subprimes even if they qualified for normal FHA-backed loans, especially if they were minorities. Other times they were convinced or pressured to spend more money. Other times maybe they just didn't have the financial literacy to really analyze what was within their reach and the 'experts' that are supposed to screen and advise people were only looking to churn as many mortgages as possible. Bankers/originators were under no obligation or legal requirement to loan $500k to someone making $30k or, hell, by the end, not even verifying their incomes or assets at all, but they did. Because it was immensely profitable for many of them for a long time.

It had gotten to a point where they knew this was going to come crumbling down, it was just a matter of when, but they didn't give a s*** because they knew they'd be ok.

[Balta1701]

Go back in time. Advise Greenspan's father to take a cold shower, give him condoms. Give Greenspan's mother birth control pills.

You know, there was one thing Greenspan did that actually helped a whole lot of people. There was enormous pressure on him around 1996 to start raising interest rates because there was a generally believed rule that anything under 5% unemployment rates would rapidly lead to inflation surges. Greenspan didn't listen to those folks, and as a consequence we wound up with unemployment rates closing in on 3% and the only period in the last 35 years where there has been actual wage growth for anyone but the investor class.

[lostfan]

You know, there was one thing Greenspan did that actually helped a whole lot of people. There was enormous pressure on him around 1996 to start raising interest rates because there was a generally believed rule that anything under 5% unemployment rates would rapidly lead to inflation surges. Greenspan didn't listen to those folks, and as a consequence we wound up with unemployment rates closing in on 3% and the only period in the last 35 years where there has been actual wage growth for anyone but the investor class.

I'm sure this was simply incidental.

[Y2HH]

Serious Q in reply: what should have been done in 2000 then? There was an enormous, unsupported, multi-trillion dollar asset bubble sitting there (with a few hundred billion in fraud thrown in for good measure). Should they have continued to let it grow? Somehow attempt to pop it more slowly?

 

The right answer ought to be to have regulations and actions that prevent the development of such an asset bubble, but by 2000 that ship had sailed, so what do you do?

 

Nothing. It was going to pop one way or another, and all they did to "control it" did absolutely nothing, if not make things even worse. The .com bubble lasted all of 2 years. People make it sound like something that spanned decades. Control was an illusion, and all they did with the interest rates made it even worse on the fall as when the bubble popped we were stuck with massively inflated interest rates for quarters to come. The only thing that stops any kind of bubble is conservative investing, something most people don't do, because fad investing is the cool thing to do.

[StrangeSox]

Nothing. It was going to pop one way or another, and all they did to "control it" did absolutely nothing, if not make things even worse. The .com bubble lasted all of 2 years. People make it sound like something that spanned decades. Control was an illusion, and all they did with the interest rates made it even worse on the fall as when the bubble popped we were stuck with massively inflated interest rates for quarters to come. The only thing that stops any kind of bubble is conservative investing, something most people don't do, because fad investing is the cool thing to do.

 

If you take a look at the whole period from 1999 until now, there's a good argument to be made that we never really recovered from the .com bubble. Sure, there was 'growth' under Bush, but it was fueled entirely by the illusionary housing bubble.

 

eta: fad investing is also the profitable thing for Wall Street to do, and if your bank is playing it 'conservative' and getting hammered by the competition, you'll be out on your ass in a hurry.

Edited April 9, 2013 by StrangeSox

[Y2HH]

You know, there was one thing Greenspan did that actually helped a whole lot of people. There was enormous pressure on him around 1996 to start raising interest rates because there was a generally believed rule that anything under 5% unemployment rates would rapidly lead to inflation surges. Greenspan didn't listen to those folks, and as a consequence we wound up with unemployment rates closing in on 3% and the only period in the last 35 years where there has been actual wage growth for anyone but the investor class.

 

He ended up raising them far beyond that shortly after to "control" the .com boom, though. So, if the interest rates are the answer to both problems, you are going to have to blame him for keeping them that low in 1996, when in 1998 the .coms sprang up from his economy. By then, it was too late to control the growth.

 

So, by one token, keeping the rates low in 1996 was a good thing, but by 1998, they were too low, and then it was too late to do anything about the pending bubble.

[Balta1701]

Nothing. It was going to pop one way or another, and all they did to "control it" did absolutely nothing, if not make things even worse. The .com bubble lasted all of 2 years. People make it sound like something that spanned decades. Control was an illusion, and all they did with the interest rates made it even worse on the fall as when the bubble popped we were stuck with massively inflated interest rates for quarters to come. The only thing that stops any kind of bubble is conservative investing, something most people don't do, because fad investing is the cool thing to do.

I'd actually say it was about a 5-6 year bubble if you look at P/E ratios:

 

PE ratios cross 20 at the start of 1995 and continually rose until the peak (with one notch associated with the asian economic crisis and the LTCM bailout)

[southsider2k5]

If you take a look at the whole period from 1999 until now, there's a good argument to be made that we never really recovered from the .com bubble. Sure, there was 'growth' under Bush, but it was fueled entirely by the illusionary housing bubble.

 

Versus now which is just being fueling by a "free money" bubble.

[lostfan]

This reminds me of the time when "they" were telling everybody the budget surplus was bad and we had to get rid of it.

[Y2HH]

I'd actually say it was about a 5-6 year bubble if you look at P/E ratios:

 

PE ratios cross 20 at the start of 1995 and continually rose until the peak (with one notch associated with the asian economic crisis and the LTCM bailout)

 

It wasn't until 1998 where PE ratios were rocketing above 20. Below 20 is average, even now.

[StrangeSox]

RE: the CRA and its influence on the sub-prime market:

 

http://en.wikipedia.org/wiki/Community_Rei...inancial_crisis

In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[63][127] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[128] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[129] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[130] Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.[131]

[Balta1701]

It wasn't until 1998 where PE ratios were rocketing above 20. Below 20 is average, even now.

You say that like I didn't download the data. P/E ratios crossed 30 in early 1997.

[StrangeSox]

Versus now which is just being fueling by a "free money" bubble.

Great deal for the banks, though. Borrow money for free and then charge to loan it back out.

 

Too bad we couldn't use some of that free money for nice things like infrastructure and public works.

[StrangeSox]

He ended up raising them far beyond that shortly after to "control" the .com boom, though. So, if the interest rates are the answer to both problems, you are going to have to blame him for keeping them that low in 1996, when in 1998 the .coms sprang up from his economy. By then, it was too late to control the growth.

 

So, by one token, keeping the rates low in 1996 was a good thing, but by 1998, they were too low, and then it was too late to do anything about the pending bubble.

 

I've heard it argued before that these low interest rates somewhat fueled the subprime/MBS bubble in that investors internationally went looking elsewhere for "safe" investments (AAA!) since treasuries were paying so low.