Talk:Banking crisis

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The key[edit]

[from article page] // ... enabled many US lenders to make risky lending decisions, primarily high-interest rate mortgages to the "sub-prime" sector - people who typically have "No Income, No Assets" and no chance of making repayments should they fall on hard times or if interest rates increase.

Enabled is the wrong word for a lot of what Congress did. Legislated might be a better word. Should Congress insist that lending institutions make loans more available to low-income folks?

Congress believed poor people, the "No Income, No Assets" folks, should get in on the boom in housing prices, that way we can all get rich, because real estate always increases in value. BAD assumption made by pols, lawyers that know how to make easy money, but don't understand even elementary economics.

It's the iron law of unintended consequences -- govt always believes it can control the economy (they like to call it regulation), but like just about everything govt touches, they make things worse. It's not a partisan issue, it's the heavy hand.

// It has treated us to the somewhat bizarre spectacle of a particularly right-wing Republican government nationalizing vast swathes of the American economy.

Not that bizarre. Right-Pubs may pay lip service to the free marketplace, but when the rubber hits the road, they are no better than Left-Dems -- they can't keep their finger out of the pie -- power has them in its grip. Top-down control of the economy doesn't work.

The question i posed above is key to the banking crisis.

-- RemBeau 08:51, 18 September 2008 (EDT)

You've managed to contradict yourself there, Rembrandt.ryan.
It was the government that decided to remove itself from controlling a part of the economy that caused this mess. Let me explain.
Most of the developed world has a thriving consumer credit industry, and most of the developed world has legislation in place about how this works. This ranges from how financial organisations are allowed to share and use shared credit data (i.e. with credit reference agencies), to how lenders should lend money in a responsible manner. One such piece of legislation is Basel II, which most international banks adhere to, in that they must hold back a certain percentage of their capital to allow for economic downturns. (Most US banks do not adhere to Basel II though)
For example, the UK is regarded as having a very good balance between allowing people at most levels of society having access to credit, and the legislation that prevents irresponsible lending. Think of it as the banks having a responsibility to protect consumers from themselves.
In the US, things are different. When the lending laws were relaxed, just about anybody was able to get a mortgage with barely the minimum of credit checks. The banks thought they were quids (or dollars) in, as they could charge astronomical interest rates for these loans. The legislation was not there to protect consumers from their own stupidity / risk of loosing jobs / economic downturn / interest rate rises (delete as appropriate).
So by removing the legislation (surely a libertarian policy), the US government set the wheels in motion for the banking crisis.
Bondurant 11:43, 18 September 2008 (EDT)
I don't think that's being entirely fair. I'll grant you, I can't say that I fully understand the minutia involved here, but I do understand the basic principles, and I don't think you can make the argument that anytime you deregulate a market this will happen, and that if it stays deregulated this will never get better. The companies that made bad decisions are now bankrupt, defunct, or devoid of confident investors. If they ever get back on their feet again, they won't be making such dumb decisions any time soon Those few lenders that didn't lose out on sub-prime loans (here's where the minutia comes in; I know there were some but couldn't tell you who they are) are now in prime position (no pun intended) to take over a large market share. Survival of the fittest -- next time there's a housing boom stupid decisions will be at least somewhat mitigated by the lack of irresponsible lenders and the experience of what happened last time. Some people may argue that libertarian policy is perfect the first time and everytime; those people clearly just don't know what they are talking about. But I don't think it's fair to take this crisis as an example of how libertarian policy doesn't work; when it can't yet be argued that the policy isn't working! JazzMan 12:17, 18 September 2008 (EDT)
It is a complex issue, I agree. I work within the credit risk industry, and so I see up close the complicated relationship between creditor, consumer and the legislative framework that surrounds it.
But fundamentally, it is people's livelihoods at stake here, not just for the people who are facing foreclosure of their mortgages, but for the workers who are made redundant and the people who's pension funds are worth a lot less than they used to. "Survival of the fittest" doesn't help them, does it?
Good legislation, as we have in the UK, protects both the consumer and the lenders, and global worries aside, keeps the economy as a whole healthy and growing steadily. Take away some of those pillars of protection, and what you get is a boom and bust economy. Quick growth, followed by recession, rinse and repeat. Why? Because lenders get greedy and reckless and are doomed to repeat their mistakes. They make over-optimistic appraisals of the economy, and think they have the magic solution of how to make money from sectors of society that should treated with utmost caution. And many have no plan-B for when it all goes tits up.
Bondurant 12:32, 18 September 2008 (EDT)
Here's where I must bow out. I understand how libertarian policies are supposed to work, but I can't in this case tell you how or if they are better (or worse) than more regulated policies. Obviously such an extreme "survival of the fittest" as what is currently happening is good for nobody (except for those sleazy bulk gold purchasers you see on TV all the time), but then again, even Ron Paul doesn't advocate for complete deregulation overnight. JazzMan 12:48, 18 September 2008 (EDT)

Sub Prime Lending[edit]

Sub prime lending is not a new thing, despite it coming under close scrutiny probably for the first time in the recent "crisis". And in fact, sub prime lending is not a bad thing when it is done well.

It is a good thing for people to have access to credit, and it can help people better themselves. For example, if a person is able to buy a car that they cannot afford to pay for outright, then it opens their options in the jobs market and they are able to better themselves, by potentially gaining a higher salary. Similarly, it is good in many cases for people to be able to get onto the housing ladder, as rent is no investment at all.

In the UK, sub prime auto loans and mortgages have been around for some time. There are industry bodies, such as the Financial Services Authority and the Finance and Leasing Association, as well as government legislation in the Consumer Credit Act that ensure that this lending is done responsibility. For example, mortgage advisors must be registered and as such can be sued by an individual with support from the FSA if they miss-sell a mortgage to someone.

Furthermore, all UK lenders are constrained to act within certain rules. They must be very up-front about the details of any credit offered, such as APRs, late payment charges, and the overall cost for comparison of any loan they offer. Failure to do this is a serious breach, and an organisation can be fined and suffer reputational damage for breaking the rules. Similarly, lenders are not allowed to charge unlimited late payment charges, which to someone who is already having payment difficulties will only make matters worse.

I've had a few sub-prime organisations as clients, and they are pretty risk-savvy. They have sophisticated scoring processes, they use credit bureau data, and they take appropriate measures to validate the identity of the person applying to them. They also make affordability checks. Much of this is imposed by law, or else is just done through common sense.

Much of what we have seen in the US that led to the current crisis was because the lenders simply became careless. They lent too much to the wrong people, without taking the basic common-sense measures that UK lenders do. And while "it couldn't happen here" springs to my mind, the UK is suffering from the consequences of US policy.

In summary, thanks a fucking bunch. Bondurant 13:19, 18 September 2008 (EDT)

AIG[edit]

There is something which I don't quite understand about AIG. I hear that they are an insurance company for banks and other large institutions. Not just in the US but internationally. So if you wanted insurance against a a bank going bankrupt anywhere in the world they were your place to go. Obviously this is a great business to be in as long as banks don't go bankrupt, but if they do then you face massive claims. Now that the US government has taken effective ownership of this giant, has the US government just taken on the obligation to underwrite the global financial system? Or have I misunderstood the nature of AIG's business or the significance of the US government's action? If I am right - what is the potential exposure to risk which the US has taken on?--Bobbing up 14:21, 18 September 2008 (EDT)

Yes, you are kind of correct. The ultimate irony being that they have become the insurers of their own investments, not exactly a great place to be in (usually, you want someone else to insure you against your own losses). As 80% owners of AIG, the US public's potential exposure to risk is vast - even if that risk is not so severe for any given bank or lender, the perception of its severity could cause a run on banks anywhere in the world, leading to them being staved of the very means of surviving the challenge. The top-of-the-heap risk is that if the banks collapse, the AIG policies kick in to cover the institutions, AND the FDIC will have to cover the consumer accounts. Triple whammy. Ouch. Run for the hills! DogP 14:41, 18 September 2008 (EDT)
But if that's the case it would seem to be an incredibly foolhardy thing to do. For example, in Spain we've had double digit hour price inflation for well over the past decade and we're about to start falling down the other side of the graph. With rising unemployment, far more restrictive mortgage lending policies, increased mortgage rates and a change in house buyer sentiment it's difficult to predict where the bottom of the market will be. It seems inevitable that some Spanish institutions will go to the wall. But will these institutions have been insured by AIG? Will the US taxpayer have to pick up the final bill? Will they stand for picking it up?--Bobbing up 15:12, 18 September 2008 (EDT)
Interesting you mention that, Bob, as the one major player I know of that has been largely unaffected by the crisis so far is Spanish bank Santander. They didn't have any truck with "structered investment vehicles" and had a business model that did not rely on external investment. They also concentrated on growing markets in Latin America and are also making significant inroads into the UK market too. They are probably the most buoyant of the European banks.
So, if Santander's credit rating comes under threat, then it's a true sign that the whole world if fucked for some time to come. Bondurant 15:48, 18 September 2008 (EDT)
You're right that Santander in particular - and for that matter Spanish banks in general - had minimal involvement with the American Sub-prime fiasco. I read some time ago that that was because the Bank of Spain told them to have no truck with the things. Perhaps an argument for state regulation? The problem with the Spanish market is internal, and I don't think everybody has fully woken up to it yet. But I'm convinced that Spain is going to have it's own private sub prime fiasco. I've already got students who are learning the dread phrase "negative equity", inflation is at a stubborn point about the European average and productivity is well below it. Meanwhile the banks lent money like it was free into the bubbling house price market, and they have yet to reap the whirlwind. To be fair though, I'm not sure what Santander's involvement in the Spanish mortgage market is. It will probably be the local banks (of which there are many) and the Spanish equivalent of "building Societies" which go to the wall. (Now I think about it though, I'll bet Santander has got some exposure to the builders - and they're starting to drop like flies.)--Bobbing up 17:02, 18 September 2008 (EDT)

To answer the original question (dated Sept. 18, 2008), "has the US government just taken on the obligation to underwrite the global financial system?" The original author appears to have been on target. [1] nobsWould you like anchovies on your sub-prime mortgage? 23:00, 14 February 2013 (UTC)

Unfinished business[edit]

Bondurant -- I am impressed with your knowledge of the AIG situation, right down to the Spanish bank Santander, and the fact that you used your own words.

I am not so impressed with your assertion (in "The Key" above) that i have managed to contradict myself, yet you didn't point out where you thought my contradiction was. If you can't find the contradiction in my post, kindly withdraw your assertion.

And be it noted that you didn't answer my one and only question in that section. Please do, as it is critical to the discussion.

I reprint it here: Should Congress insist that lending institutions make loans more available to low-income folks?

-- RemBeau 13:46, 19 September 2008 (EDT)

I reprint it here: Should Congress insist that lending institutions make loans more available to low-income folks? - I am in no way an expert, but it seems to me this is a very "all or nothing" attitude, one I find depressing and dismissive. Poor people are not lazy, they are not poor cause they do not try, do not want for more, and do not sacrific. They simply cannot access teh system. Why can we not be better about FHA type loans, Student loans, and other government backed loans for REASONABLE first time home. (say, under a 100,000 dollar home or somethign)? to say "should poor people get loans" is to not understand the *real* americna dream, in favor of the neo-con american dream where "I'm rich, so I must be better than you, and must clearly have worked hard to be rich, therefore i deserve what I can get."--Sun mowse.pngEn attendant Godot"«Poetry involves the mysteries of the irrational perceived through rational words. V.Nabokov» 14:24, 19 September 2008 (EDT)
Rembrandt:ryan, you seem to be saying that the US government told the lenders in the States, "You have to go out and lend to the sub-prime market," and the lenders reluctantly shrugged and said, "oh awwwlllright then," like a disobedient teenager.
I see it from the opposite angle. That the government removed the pillars that prop up the credit industry and said to the lenders, "Here you go, do what the fuck you like, we don't care," and the banks engaged in a feeding frenzy on the sub-prime, like a piranha pit on a Bond villain.
The first is a socialist policy, the latter is a capitalistic or libertarian policy. I don't think you can realistically accuse the Bush administration of socialist policies.
The fact is, is that no government in a capitalist state can force a commercial entity to do anything in terms of positive business (i.e. make the banks lend to people they don't want to), but a government can put restrictions around how they do business. I think if the UK government, for example, came along and told, say HSBC, to start lending to an new market sector, HSBC would quite rightfully tell the government to mind its own business.
Bondurant 06:51, 20 September 2008 (EDT)
Godot, you raised my hopes, then dashed them. For a long moment i thought YOU would be the one to answer my question since you reprinted it verbatim; always a good sign. But then, up you forgot as down you wrote.
"Should poor people get loans" is a totally different question i hope you realize -- one apparently designed to separate the goodies from the baddies, the Left from the Right, the Cro Magnon from the Neanderthal. But let me put a Libt spin on it: Should poor people get rich? My answer: Yes, posilutely. And anybody that disagrees with me is Scum.
You claim not to be an expert, but you are, in that you know the Left believes that the Right believes: Poor people are lazy, do not try, do not want for more, and do not sacrifice. And the Left believes the opposite.
You are BOTH right and BOTH wrong. Some poor ARE lazy and some aren't. Some rich are the same. Some deserve their lot, and some don't. Inheritance plays a part. Some inherit money, some only inherit traits, both good and bad. Broken homes are a factor as well.
The "real" American dream: Get run over by Gates, Forbes, or Buffett, get a fifty-million settlement then completely recover, donate a hospital wing with your name on it, and hang out with the beautiful people. Only a Neo-Paleo-Quelquechose would think that a bad thing.
Will somebody answer MY question, puleeze.
Is "Let me become the shadow of your dog" an idiom in French that means something or have i mis-translated it?
-- RemBeau 08:20, 20 September 2008 (EDT)
Hi Rem. I'm not an expert on foreign countries law and politics but I'll give it a shot. So your question is, Should Congress insist that lending institutions make loans more available to low-income folks? This is presumably both a moral question and a practical one. "Should" implies a moral obligation, so "should" they do it? Do they have a moral obligation to do so? Personally I don't think they have the moral authority to tell financial institutions what to do. Do they have the practical authority to do so, I think not. So moral authority no, legal authority no. Consequently, no, they can't. I suppose you could still insist they "should" - even though they can't - but it doesn't seem very fruitful. Mmmmm what exactly was your point?--Bobbing up 09:15, 20 September 2008 (EDT)
Yes, that was my question and i thank you for not altering it.
You have nibbled around the edges of it, raised other questions of your own which you then answered yourself, but have not yet answered my question directly. I think i know the reason nobody wants to answer it -- plausible deniability.
-- RemBeau 12:49, 21 September 2008 (EDT)
Haven't I? I thought I considered the construction of the question and then said, "no". But if my answer is not clear, and bearing in mind that I'm pontificating about a foreign country I'll say, "no" again. In part because such an action would make them look foolish if they couldn't enforce it.--Bobbing up 14:59, 21 September 2008 (EDT)
You claim not to be an expert but you are well on your way. Just agree with me more often and you will be one. I can spot talent.
Moral authority, no -- actual authority, unfortunately yes. The Community Reinvestment Act of 1977 became law, designed to force lending institutions to offer loans to those least likely to be able to make payments -- the poor. Now that SOUNDS moral and charity is something i believe in, big time, but forcing others to pay for your favorite charity is unethical, immoral, and counterproductive. The crash is inevitable and that ultimately hurts the poorest among us the most when the system has to be bailed out.
I don't doubt that the low-level lending sales guys were all too happy to comply with the law and sign up as many clients as they could, and probably felt constrained before by managers that wouldn't allow them to lend to poor risks. Who cares what happens down the road, they still get their wages and the top dogs get golden parachutes, really big ones.
But again, those that supported spending OPM can feel good, knowing they were well-intentioned and very sincere. When the inevitable collapse comes they can pretend it was the free market that let us down. That completes the cycle, and we can start a new one, until freedom is completely pushed out of the market.
Paul Krugman (NYT) and i rarely agree on things, and he is no Libt, but he wrote an interesting article about the situation -- written just a few days before the current calamity. (I wish i knew the exact date; does anybody else remember it? i think it was titled "The Hissing Sound You hear".)
-- RemBeau 17:51, 21 September 2008 (EDT)
Interesting. If Congress did that then it clearly made a mistake.--Bobbing up 02:35, 22 September 2008 (EDT)

Fascinating Reading[edit]

Bizarrely scary article today in the NY Times. And for our conservative readers who wouldn't touch the NY Times with a bargepole, what's scary is not what's written by the journalist, it's what the various politicians of both stripes are quoted as saying in the article. DogP 18:50, 19 September 2008 (EDT)

Indeed, fascinating reading, and probably worth working into the article in some way. It'll have to wait until my hangover subsides though. :-( Bondurant 06:59, 20 September 2008 (EDT)
Thanks for that DP, Yes, interesting indeed.--Bobbing up 08:24, 20 September 2008 (EDT)
Scary, yes, but only bizarre if you thought a bunch of rich lawyer-legislators actually understood simple economics and could tinker with the economy without hurting it. They broke it but won't pay for it out of their own pockets -- not guilty because they plead ignorance, a totally valid plea. I just wish they had been aware of it before they put their sabots into the machinery.
I feel their angst. It's a hard blow when you realize you don't really know how to control an economy. All that power, yet something you can't control.
The big question is, can the goose be revived that laid the golden eggs, or has it been bled too much? Will these pompous asses, if the goose survives, remember that they were totally baffled, and next time not repeat their meddlesome mistakes? Actually, we know the answer to that question, unfortunately.
As to the comment on the article page, "Let's make it bleeding obvious. Free market libertarianism doesn't work. At all" -- is it possible that commentor believes we HAVE a free market? I thought everyone knew that we have regulators regulating regulators regulating the economy. This calls for more regulation.
-- RemBeau 08:35, 20 September 2008 (EDT)
Rembrandt.ryan, I am coming to the conclusion that you are to Libertarianism what Philip J Rayment is to young Earth creationism. Except a whole lot less eloquent. You have ignored every point that said that it was the removal of regulation that caused the whole problem. That it was allowing the greed of the banks and investors to go unchecked that has sunk the world into the depths of a financial crisis the likes of which we have never seen.
I think your question above was "should the poor have access to credit" although it was hard to tell, to be honest. The answer is "Of course they should, provided they are lent to responsibly." Responsibly means making affordability checks and not lending to people to the point that they are struggling to make repayments, employed or not.
Bondurant 08:47, 20 September 2008 (EDT)
This Reuters article is one of the best summaries I have read.--Bobbing up 05:41, 21 September 2008 (EDT)
It is a good summary, and the article touched on the underlying problem (the rising tide of bad mortgage debt), but didn't mention the problem underlying the underlying problem.
-- RemBeau 13:08, 21 September 2008 (EDT)
Bondurant -- So all you've got is insults, repetition, and dishonesty? It is ridiculously dishonest for you to say:
// I think your question above was "should the poor have access to credit" although it was hard to tell, to be honest.
You DON'T think any such thing, there is no thinking involved in repeating my question exactly as i framed it. Godot and Bob did it, so could you. So it is not "hard to tell, to be honest", it is a straight-forward question, and the question definitely wasn't, "should the poor have access to credit" -- that's your spin as you are well aware.
I have no truck with Philip J Rayment, don't even know who he is, nor do i care whether you think me less eloquent than he, nor do i have any interest in young Earth creationism. I do know this: none of that is relevant (you're obviously just playing to your fans) and that you'd rather toss out chaff than answer my question directly and honestly.
Here again is the question you apparently dread:
>> Should Congress insist that lending institutions make loans more available to low-income folks?
-- RemBeau 13:25, 21 September 2008 (EDT)
may I answer? to paraphrase: "should congress force financial institutions to lend money to people who may struggle to pay it back"? Well, that's how this whole mess got started. Buy a fucking paper sometime. You admire libertarianism so much that you think it can do no wrong, ignoring the fact that unregulated loaning caused the current crisis. Unregulated finance leads to unregulated profiteering, as much now as in 1929. You are in denial, mate. Wake up. Totnesmartin 14:12, 21 September 2008 (EDT)
"Matey" to you, Bucko. Only logical and reasonable people are allowed to call me mate. And you didn't wait for my answer when you asked, "May I answer?" It would have been "NO", not until you learn how to consider facts before evaluating a situation.
You just KNOW in your bones that it was the UNregulation rather than the regulation that brought this sorry mess about, and you are SURE more regulation will help. Do i detect a slight bias? Why bother thinking when you already know the answer?
What fornicating paper should i buy? One that always assumes the free marketplace is no good? Like you, i wouldn't want to know both sides. My knee is ready to jerk.
// ... ignoring the fact that unregulated loaning caused the current crisis.
A fact eh? No doubt one of them KNOWN facts. Definitely not an established one ... why bother when you have what is known as "received wisdom".
Open up your mind, Tot -- it needs some aire fresco.
-- RemBeau 14:53, 21 September 2008 (EDT)
My mind is always open to new possibilities and new thinking. Would you like a list of things I've changed my opinion on? My opinion on the current banking crisis is informed by journalism, although I admit my politics gets in the way of which paper I get. And... talking of getting a paper, I apologise for the intemperate remark in my earlier answer. Totnesmartin 16:49, 21 September 2008 (EDT)
That's okay -- i need every image advantage i can get. I formed my impression of you much earlier, and i perceive you as okay and somebody i can trust -- i may regret that later. (Don't take me too seriously.)
No list is necessary, i wouldn't show you mine. (Especially not my hit list.) I've thought certain things thru pretty thoroughly, and work hard to keep my mind closed on them ... alas, comes along a seductive point of view which sends me back to the drawing board, and sometimes i'm unable to avoid switching opinions. Bu' i dint like thet much. (Trying to sound British.)
// although I admit my politics gets in the way of which paper I get.
Natch. I too embark on auto-indoctrination, and haven't read all of Friedman and Rothbard yet. But i have this advantage: there is so much intelligent Liberal opinion out there that is impossible to avoid, whereas you have to go out of your way to hear Libertarian opinions.
-- RemBeau 19:01, 21 September 2008 (EDT)
"Should Congress insist that lending institutions make loans more available to low-income folks?" That's a bit of a strange question, isn't it? Firsly, I assume that Congress doesn't "insist" on anything, it legislates. Secondly, you're not being very specific. Who are "low-income folks", what sort of loans are you thinking of, and how do you imagine they would be "[made] more available"? --AKjeldsenCum dissensie 15:57, 21 September 2008 (EDT)
AK: // That's a bit of a strange question, isn't it?
Other formulations had problems, and i wanted it to be inclusive, not too specific.
// Who are "low-income folks", what sort of loans are you thinking of, and how do you imagine they would be "[made] more available"?
Mortgages, primarily. There is a contimuum of wealth among people from super rich to competely destitute. Also, there are many other factors like health, steady job in a company that's in little danger of going out of business, amrital status, number of kids, credit ratings, etc.
Now put yourself in the place of a lender. It's your own money (which would make you much more careful than if it were your company's money) and you trust the guy asking for a loan. While you're deciding, somebody else comes along and agrees to put up the cash. Changes things a bit, yes? Then that someone tells you he'll pay you a day's wages for every loan you agree to. I think you understand the psychology.
You learn where to draw the line, then the law comes along and tells you to move that line to include some folks that you wouldn't ordinarily lend to. That's how it works.
-- RemBeau 18:14, 21 September 2008 (EDT)
"Now put yourself in the place of a lender. It's your own money" Wow, talk about not knowing what you are talking about. Lenders use other people's money, which they take in on deposit, encouraged by the promise of a return to the depositor (whether a low rate to the small depositor for FDIC/FSLIC guaranteed accounts or higher rates for larger deposits bearing higher risk). The banking system is a way for people to gain access to other people's money for their own purposes, for which they pay a fee depending on the risk they present. ħumanUser talk:Human 14:55, 26 September 2008 (EDT)

Deregulation is to Libertarians what bacon is to food--always the best answer. --Gulik 16:43, 21 September 2008 (EDT)

Hello, been away all day and seen a bit of action on this page!
How does the government insist that a commercial entity does business? If Joe Redneck wants a mortgage and goes to a bank, is the bank obliged to lend to him? Of course it isn't.
How the crisis all happened was that there was no regulation. The government should have been insisting that lenders carry out the required checks on credit worthiness and affordability. It didn't.
Furthermore, the banks were able to package up their sub prime deals and sell it onto investment banks (who have no idea whatsoever how to manage consumer risk) which then gave the mortgage lenders the capital to lend to still more sub-prime customers. Again, the government should have been insisting that checks were in place so that the risks were known. It didn't.
Since the crisis has happened, the government has enacted the Predatory Lending and Mortgage Protection Act to prevent such things happening again. Sadly the horse has already bolted.
Rembrandt.ryan, you are not only barking up the wrong tree you are in the wrong forest entirely. I'm despairing that I can explain things in small enough, foolproof chunks for you. I'll try one more time.
Imagine the government says to you, "It's a good thing to donate money to homeless charities." Undoubtedly it is, but that doesn't compel you to do so. In the same way that the government cannot compel a lender to lend to someone who is not credit worthy.
The government does legistlate that you should not give money to your drug dealer for drugs. If you do, you are breaking the law. Just as if the government says, "don't lend to someone without doing the require checks, in case they are not credit worthy." Well, until the Predatory Lending and Mortgage Protection Act came into effect, there was no barrier to the lenders lending to the non-credit worthy.
Whatever your area of expertise, you seem to have no concept for human nature. One of the fundamental aspects of human nature you don't get is that the "haves" will always try to exploit the "have-nots" if you let them do it. And if you do let them do it, the "have-nots" have little or no chance of become the "haves." Your world view seems to be, "that's fine with me."
yawn Bondurant 17:04, 21 September 2008 (EDT)
Bon -- // ... the "have-nots" have little or no chance of become the "haves." Your world view seems to be, "that's fine with me."
Why do you say stuff like that? I might think you're an idiot, a fool, and a knave that doesn't have a clue, but i wouldn't say it. We both have prejudices, and i try to keep mine in check. You give yours free reign. (I know, you'll say you actually believe i'm incredibly evil, but you're sparing me the truth.)
You may not believe this, but politics is mostly not about good guys versus bad guys, it's about how folks perceive the world, what experiences they've had, how self-aware they are (that's a biggy), their ability to think things thru, what kind of folks they like, their moral code, how gullible they are ...
// If Joe Redneck wants a mortgage and goes to a bank, is the bank obliged to lend to him? Of course it isn't.
Oh?
// How the crisis all happened was that there was no regulation.
Wrong. There WAS regulation, not enough to suit your taste tho. And how to you know it was regualtions that contributed to the problem?
// I'm despairing that I can explain things in small enough, foolproof chunks for you. I'll try one more time.
Why not consider the possibility that we just disagree, and also that YOU may be the one that is wrong?
You're a Liberal (i guess) and i'm a Libt -- why should you be more frustrated than i that the other won't accept the correct view? Is it a given that Libertarianism is wrong?
// ... the government cannot compel a lender to lend to someone who is not credit worthy.
What would it take to convince you that is not true?
// Whatever your area of expertise, you seem to have no concept for human nature.
Are you talking to ME? Could be you are the one living in a dream-world.
// One of the fundamental aspects of human nature you don't get is that the "haves" will always try to exploit the "have-nots" if you let them do it.
So you put the "haves" in charge of regulating everything? Does that make sense to you? Or maybe a committee of "haves" and "have nots" and give them power. That should do it. Bad logic.
And i don't accept your total cynicism anyhow. Some "haves" are good-willed and some "have-nots" are as well.
-- RemBeau 18:38, 21 September 2008 (EDT)
So you're saying that a bank is obliged by the US government to extend credit to someone regardless of whether they are credit worthy? That leaves two possiblities:
1) You are right. In which case, that's the craziest thing I have heard (on a par with the people who believe that the Earth is 6000 years old). I apologize for my previous bluntness. You have to understand that this isn't how things work in the rest of the world. In the UK, the government specifically legislates that predatory lending should not happen. In this scenario, the credit risk industry is a sham, as no bank in America actually needs to check a credit bureau and develop risk strategies. My colleagues in the States need to look for other jobs. Or;
2) You are wrong. In which case, my colleagues in America are still safe in their jobs, as credit risk is still going to be assessed in deciding whom to extend credit to. My shares in my company are not going to take a hit due to us having to sell off the US division.
And here is where I must leave things. You believe 1) and you can no more convince me of this than a Young Earth Creationist can convince me the Earth is 6000 years old. I hold to position 2) - the real world where acceptance rates for mortgages are not 100%.
In position 1), the banks were compelled, with their arms twisted behind their backs to lend to anybody, and didn't complain about it to the government, the press, their shareholders, nobody. In position 2), the banks were simply stupid, blinded by the dollar signs in their eyes, they had a feeding frenzy in the promise of massive returns from astronomical interest rates, free in the knowledge they could simply sell the debt onto the eager investment banks.
Having read one of your earlier posts, on the CRA, I can see the confusion, however. The Act definitely did have a part to play; the primary one being that it doesn't enshrine the requirement to run identification and affordability checks, and the simple fact remains that this was not done. But what the Act does not say is that the banks had to lend whatever each person asked for. Having a mortgage product for all people means that those with lowest affordability should only be eligible for a smaller loan amount (as well as require a higher proportion of the house value to be paid as a deposit). The Act did not cause any problems for 30 years, but it was the changes in the mid 90s that allowed securitization that sowed the seeds of the crisis, and further compounded by the Gramm-Leach-Bliley Act (more deregulation!).
A sub-prime mortgage lender I work with in the UK has a mortgage for anybody, no matter what their circumstances. That said, they still carry out full identification checks, income validation, affordability checks and pull data from a credit reference agency. With all this, they will categorise the applicant into one of about 8 different loan products, which may be worse terms than they originally applied for. The offer is limited by:
  • Maximum loan amount
  • Maximum loan to value (i.e. minimum deposit)
  • APR - priced per risk
If the applicant cannot buy their intended property due to these restrictions then the deal is not done. The offer was there, though.
Deregulation of the market meant that banks became predatory, offering sweet introductory rate loans to bring people on board. They didn't price for risk any more and didn't understand the circumstances of when those introductory rates ended, and with their house value falling, plunging many people into debt.
Bondurant 04:34, 22 September 2008 (EDT)
It appears you perceive my posts to be starkly black or white, and perhaps you haven't read my responses to others, so let me add a bit of nuance to clarify.
// So you're saying that a bank is obliged by the US government to extend credit to someone regardless of whether they are credit worthy?
I am NOT saying that lending institutions are obliged, by law, to lend to EVERYONE who is not credit-worthy. I am saying that govt has changed the criteria in such a way that you have to move your cutoff line.
// In the UK, the government specifically legislates that predatory lending should not happen.
I suspect you are referring to regulation of interest rates, but i wonder if predatory lending shouldn't include people that are poor risks and likely to default on their loans, losing their entire investment.
Let's assume every lender has to develop risk strategies. Being careful not to lend to bad risks is one thing -- being pressured to lend to SOME that you consider bad risks is something else. That's the problem with the Community Reinvestment Act of 1977.
// In which case, my colleagues in America are still safe in their jobs, as credit risk is still going to be assessed in deciding whom to extend credit to.
Credit risk will, i have to assume, be assessed pretty much always, and that is a good thing. I also assume your colleagues in America are NOT necessarily safe in their jobs. The heavy hand of govt makes it increasingly difficult for companies to keep jobs in America. The tax laws make our workers uncompetitive (is that a word?) in the global economy.
Now it is clear to me why you are so knowledgeable about these matters -- you work in the industry. So you DID know of the 1977 CRA?
// In position 1), the banks were compelled, with their arms twisted behind their backs to lend to anybody, ...
That's NOT what i'm saying. Replace "anybody" with "some they wouldn't have lent to".
// ... and didn't complain about it to the government, the press, their shareholders, nobody.
Yo !
The US press is anti-business, Congress believes businessmen are all greedy and few there understand business, and all that shareholders have is lobbyists. Now you could complain to your local pol, but well-intentioned laws are not easily overturned. Is this different in the UK? (Overturning well-intentioned laws, that is.)
// In position 2), the banks were simply stupid, blinded by the dollar signs in their eyes, they had a feeding frenzy in the promise of massive returns from astronomical interest rates, free in the knowledge they could simply sell the debt onto the eager investment banks.
Ha. That is EXACTLY what most in Congress seem to believe, except the "simply stupid" part -- "diabolically clever" is what they believe. Hence the business-unfriendly legislation they often come up with.
// The Act [CRA] did not cause any problems for 30 years, ...
How do we know that? You mean because the big collapse didn't happen sooner?
// but it was the changes in the mid 90s that allowed securitization that sowed the seeds of the crisis,
Now you're talking over my head and i WILL need this in bite-sized chunks -- that is, if it's worth it. It may not be, and i won't be offended if you don't.
The world has other big problems it is up to me to solve, i can't afford to get bogged down.
// and further compounded by the Gramm-Leach-Bliley Act (more deregulation!).
There you go -- deregulation -- QED ?
// They didn't price for risk any more and didn't understand the circumstances of when those introductory rates ended, ...
Wouldn't that be considered a fraudulent practice?
And what is the benefit to the lender if the borrower can't pay?
-- RemBeau 08:09, 22 September 2008 (EDT)
I think in the interests of cordiality, I'd like to try to focus on the points we agree on.
1) We agree that regulation was at fault, whether it was bad regulation or just the fact that it's there in the first place.
2) The government has a share of the blame, to a greater or lesser degree.
There, that was easy. 1 and 2 are actually the same problem, but never mind.
Apart from that we will have to agree to disagree on just about everything else.
There was much else to object to in your post, such as the anti-business conspiracy theory going on in the press, or the massive tax burden you poor Americans have, but I'd be wasting my time, I'm sure.
Looking at the results of the fiasco, it happened in America, and it couldn't have happened in Europe due to our heavy regulations on Lending. That's the same Europe where we have a much higher tax burden than the States (roughly 1/3 of my income goes on some tax or another, even before I pay for VAT on stuff I buy!). The same Europe where both Sterling and the Euro have been outperforming the Dollar for years. And the same Europe who's heavily regulated banks (such as Barclays) are now picking over the spoils of the failed US investment banks.
Oh, one thing. Where you say "There you go -- deregulation -- QED ?" you do understand that by deregulation, I mean the removal of regulations, don't you?
Bondurant 09:04, 22 September 2008 (EDT)
Bon -- Cordiality works for me, especially when compared to the opposite. And i do admire the clever two-step you produced to achieve it, and the still cleverer wording -- bravo.
Yet we still disagree -- how can that be? You were on a roll ...
// ... the anti-business conspiracy theory going on in the press,
Wow. I'm wondering if it is that you don't understand what the word means that you are accusing me of believing ...
Conspiracy = a secret agreement between two or more people to perform an unlawful act -- a plot to carry out some harmful or illegal act (especially a political plot) -- a group of conspirators banded together to achieve some harmful or illegal purpose.
For one thing, there is no secret agreement. For another, there is no hint of illegality. For a third, there seems to be very little banding together. Also, i would bet none of the news media crowd believe their anti-business bias to be harmful, and in fact believe their opinions to be beneficial.
Now i do love a conspiracy theory, and could listen to them all day, but i just can't think of any important ones that i believe. The last ones i can think of exist only in history (Nazi and Communist plots and agents), unless you count Hillary's "the vast right-wing conspiracy" comment.
I suppose you could consider Bill Gates scheming with his management team to keep market share while producing shoddy products to be a conspiracy, but for me that's stretching the definition.
No, the newsies don't need a conspiracy, they just naturally gravitate toward the same worldview, and the academics and politicians that share it -- and that worldview includes the belief that businesses are a necessary evil, and some seem not to be sure about the "necessary" part. One thing they ALL agree on -- Fox News doesn't fit in.
// Where you say "There you go -- deregulation -- QED ?" you do understand that by deregulation, I mean the removal of regulations, don't you?
Yes, i do. I meant that in an ironic sense, but as humor it apparently misfired. Another example of my amusing only myself.
// ... the massive tax burden you poor Americans have ...
Well, we're not poor yet, but the trend is in that direction. It's not just the tax burden, it's also heavy regulation and unfunded mandates, and the large govt presence in higher education and healthcare, causing an ever greater gap in wealth distribution. There was a time when families could get by with a single bread-winner, now college graduates from better universities have a hard time making an adequate living, just for themselves.
Your "it couldn't happen here" (the UK?) scenario is an interesting one. I hope you're right -- altho many people believe they are better off when other countries do poorly economically, i am aware that it is exactly the opposite. But then i'm one of those nutcases which believes a rising tide lifts all ships.
-- RemBeau 05:57, 23 September 2008 (EDT)

Convenient edit button[edit]

I must admit that the phrase "tax burden" is not something I immediately connect with the US. How much is your tax rate over there, anyway? --AKjeldsenCum dissensie 06:42, 23 September 2008 (EDT)
We don't have a single tax rate, it is a complicated affair. It has been estimated that the average American taxpayer works five and a half months of the year just to pay the taxes.
But that doesn't tell the whole story of how our govt hurts the economy -- in order to avoid raising taxes even higher, Congress has created a bunch of unfunded mandates to further burden producers and consumers. This combination has lead naturally to American workers being less competitive in the world market, hence jobs are moving offshore.
It's a vicious cycle -- people lose their jobs so govt pays them, which raises taxes and creates more mandates and fewer new jobs ...
-- RemBeau 08:58, 25 September 2008 (EDT)
It's not government legislation, it's high wage levels. As a frinstance, the person who does the same job as me but is based in Chennai rather than the UK, gets paid around 10% of my wages. If the organisation I work for could it would shift all the work from the UK to Chennai thus getting a 90% reduction in wage costs overnight. It's only government intervention which keeps me employed. Silver Sloth 09:08, 25 September 2008 (EDT)
Putting some figures on this, if I earned what I do in the US instead of the UK, then I would pay a marginal tax rate of 28%.
As it stands, in the UK, I pay a marginal tax rate of 40%. On top of that, I pay nearly 9% of my salary towards National Insurance (which primarily pays for the NHS and my state pension, if it still exists in 30 years time).
Other taxes I pay are 17.5% VAT (not sure what the US rate is) and fuel duty, which works out at about £0.50 per litre, on which I also pay VAT, meaning the total cost for a litre of petrol is about £1.12 at the moment. This compares to the US, where fuel duty averages about 12 cents per litre.
This feels like the tax equivalent of the scene in Jaws where they are in the boat at night, comparing wounds and scars. Anyone think they can up me? Bondurant 10:14, 25 September 2008 (EDT)
Oh, Denmark is way ahead there. Our tax rates go from ca. 37% for the lowest bracket to ca 62% for the highest, depending on the local municipial rate. And then you get a 25% VAT and other duties on top. Of course, we get quite a lot for that money in return. --AKjeldsenCum dissensie 10:42, 25 September 2008 (EDT)
You win :-) Bondurant 10:46, 25 September 2008 (EDT)
Actually, what do you get for your money? Lots of government interference in your lives, I bet, such as insiduous things like gun control and insistence that bikers wear crash helmets and stupid stuff like that. And I bet you've got crappy things like high life expectancy, free health care, and care for the elderly, and stuff that doesn't really matter, like free education and a low poverty gap. What a nightmare society!!!1!one! /Remtrolling Bondurant 10:54, 25 September 2008 (EDT)
Indeed. Not to mention that they ensure our food is healthy, disabled people get pensions, and our cultural heritage is publicly accessible and doesn't crumble to dust. Frankly, it's horrible. :-( --AKjeldsenCum dissensie 11:02, 25 September 2008 (EDT)

(Undent) Sigh. Wall.gif

I think we are in agreement that Bad Legislation is worse than Good Legislation, and what you had in the US is very, very bad legislation.

By "poor" I didn't mean poor in the cash sense, maybe it's a British turn of phrase associated with pity. ("Poor Margarate Thatcher, going senile in her old age," some people may utter over here, probably not publicly, though. Not saying she's hard up, more that she deserves some pity.)

By "conspiracy" I was being flippant. I don't believe the newspapers conspire to suppress news about business. But I can't accept that not a single news organisation, be it print, radio or TV would choose to ignore concerns raised by big business. Consider NBC, owned by the world's biggest company, General Electric, who also have a significant consumer lending division.

Personally, I am happy with the UK's balance of legislation as it generally protects the economy, promotes competition, prevents anti-competitive practices, protects the consumer from themselves and predatory lending. Those of us in the credit industry look at the US credit industry and consider it to be remarkably unregulated compared to ours, and we don't look with any envy.

Your analogy of a tide is very apt, as a tides fall as well as rise. I remember reading somewhere recently (I think it was a UN report - I'll dig out the link when I get some time) that the US has the widest gap between the richest and poorest members of society in the Western world.

Bondurant 07:23, 23 September 2008 (EDT)

Edit button 2[edit]

UN reports are, to put it politely, unreliable. Nevertheless it is possible that we will reach that point in due course, given govt bungling. It's bad enough when CEOs in the private sector pull down these huge bonuses, but when CEOs of quasi-public businesses (Fannie Mae and Freddie Mac) beat them into the ground, quit just before collapse, and get a huge bonus (it has been reported that one of them got $150 million when he stepped out the door).
Clearly America's greatest growth occurred before govt started getting very big and super greedy.
I've recently seen video clips of Congressmen STILL supporting the goals of the 1977 Community Reinvestment Act as recently as 2005, in response to those in Congress that warned of the coming collapse and tried to push legislation to avoid it. I think the legislation was targeted (more oversight) against Fannie Mae and Freddie Mac given the govt involvement with them.
JFK quoted those words "a rising tide lifts all ships" just before pushing tax cuts which resulted in a very long growth surge in the economy.
-- RemBeau 18:50, 26 September 2008 (EDT)
America's greatest period of economic growth was when the income tax was highest. FNMA and FDMC were privatized ages ago. The CRA has nothing to do with the recent collapse, if you weren't paying attention. ħumanUser talk:Human 20:06, 26 September 2008 (EDT)
I'm paying attention, but FNMA and FDMC seem to me to have some govt ties (hence my use of the term quasi-public).
Fannie Mae has a federal charter -- what does that mean?
In any case, the NYT article below seems relevant.
-- RemBeau 07:10, 27 September 2008 (EDT)

New York Times -- September 30, 1999[edit]

The New York Times (Libertarian newspaper) article of September 30, 1999 [2] stated in part, "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits".

Assuming the first clause in the NYT quote above to be accurate, how could the Clinton Administration put "pressure" on Fannie Mae if it is NOT a quasi-public entity?

Continuing on, the article says:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

Peter Wallison, a resident fellow at the American Enterprise Institute was quoted as saying, If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.

HUD includes Freddie Mac:

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

The NYT is making a cause and effect prediction in this article -- were they wrong?

-- RemBeau 07:06, 27 September 2008 (EDT)

long and short of it[edit]

Here's the long and short of it: By 1999, all the "A credit" borrowers, people with FICO score of 620 and above, had either re-financed or completed home purchases. The market dried up. The big bucks for both lenders and loan orignators has always been in subprime -- people with bad credit. Fannie Mae, in order to expand its market share of home lending, expanded into subprime by lowering FICO requirements (from 620 to 585). IOW's to get "prime lending, Fannie Mae backed rates", people with demonstrated failure to pay obligations on time were awarded "A credit" status. nobsWould you like anchovies on your sub-prime mortgage? 19:07, 16 February 2013 (UTC)

Further clarification, "by 1999, after the federal budget was balanced and interest rates dropped, all the 'A credit' borrowers had refi'ed or completed new home purchases. The market dried up." nobsWould you like anchovies on your sub-prime mortgage? 19:17, 16 February 2013 (UTC)

Curiouser and curiouser[edit]

It's curious that nobody has mentioned the quote from the article page, // ... enabled many US lenders to make risky lending decisions, primarily high-interest rate mortgages to the "sub-prime" sector - people who typically have "No Income, No Assets" and no chance of making repayments should they fall on hard times or if interest rates increase.

Are there lenders that actually offer "high-interest rate mortgages" to people who have "No Income, No Assets"? I would hope even the govt wouldn't be that stupid. (But maybe i should hedge my bets.)

-- RemBeau 08:24, 22 September 2008 (EDT)

Tot -- I originally misplaced my 19:01, 21 SEP response to your post, so you may have missed it. I have since moved it immediately beneath yours.
-- RemBeau 08:28, 22 September 2008 (EDT)
They're known as Ninja (No Income, No job or assets) mortgages. I find your trust in private enterprise rather touching. I work for a major multinational which has taken on a number of contracts where the costs outweigh the returns because there was a 'growth at any costs' policy. The managers that set these up have all gone after receiving massive bonuses and we're left servicing loss making contracts. As I was once a civil servant before being 'outsourced' I have seen both sides of the fence. Believe me, since privatization the quality has nose dived, the paperwork has multiplied, and the savings have come from moving as many jobs as possible to Chennai. Silver Sloth 08:43, 22 September 2008 (EDT)
You aren't, by any chance, a government IT support guy now employed by capgemini are you? If so, I pity you. Could be worse though, I suppose, could be EDS. I worked with people from MPhasis for a while. Biggest bunch of incompetents EVAR. Only EDS could ever consider MPhasis an asset. --JeevesMkII 09:00, 22 September 2008 (EDT)
Almost right, it's IT Support for a government department, but it's Siemens IT Services and Solutions. Now, if you thought CapGemeni or EDS were incompetent - sorry, they're not even in the same ball park. Silver Sloth 09:16, 22 September 2008 (EDT)

Liquidity[edit]

As this crisis was building banks developed an aversion for lending to each other, apparently because they were unsure of each others' credit standing. In an attempt to resolve this situation we were told at various times that the central banks were involved in billion-dollar liquidity injections into the financial markets. It seems that making more money available to the banks is supposed to make them more likely to lend to each other. Perhaps the RationalWiki financial brains trust could explain a couple of things to this poor amateur.

  • Where does this money come from? Is it printed? Is it wished into existence by some arcane financial magic? Does it come from some massive reserve fund?
  • If this money is simply being added to the financial system what are the implications for inflation? Won't such substantial increases in the money supply feed, sooner or later, into inflation?--Bobbing up 13:24, 23 September 2008 (EDT)
I'm also an amateur but I'll share my understanding anyway. This used to be a really trivial question. The wealth of nations was the sum of the value of the physical assets they owned. This simple fact lead to the gold standard where every scrap of currency issued by a country was backed by its equivalent value in gold and the promise to pay the bearer of a bank note really meant something, you could at least in theory march down to the central bank of your country and trade in your cash for so-and-so much gold.
In the last 40 years, however, this has all gone totally pear shaped. The vast majority of the world's wealth is no longer in tangible goods, but rather is in intellectual property. There has also been an explosion in various systems of using money to make money. Not simply old fashioned physical goods backed derivatives like futures trading, but what essentially what amounts to gambling on various aspects of global markets. At this point, we're utterly fucked. It is essentially impossible to calculate a nation's wealth, or at any rate a developed nation's wealth. When you hear on the news about the latest economic growth figures, keep in mind they're essentially a polite fiction. They're still based on the now archaic measure of GDP, which is the output of finished products and services. At very best, they provide some limited measure of insight in to the economic health of a nation.
So, the value money is still based on the wealth of a nation but that wealth is now impossible to calculate. As far as I understand it, economic theory has almost totally drawn a blank on producing a grand unified theory of money in this brave new world. Trade and exchange essentially muddle through on trade based feedback loops which can be perturbed by something as trivial as collective the mood of the traders involved and over which central banks have comparatively little control. I hope I'm not talking out of my arse here, but this is certainly the impression I've picked up from my reading. --JeevesMkII 14:46, 23 September 2008 (EDT)
You're right that trade figures are partially dependent on mood and confidence - Sometimes the FTSE has gone up or down depending on royal weddings, football results etc. In the stock exchange people take more risks, and trade more generally, if they're happy and confident, which good news helps bring about, even if it's not economic news. Totnesmartin 14:56, 23 September 2008 (EDT)
Thanks for taking the time to comment Jeeves, but - and I'm running the horrible risk of sounding like Rem - I don't really think you answered the questions. How do they create the money; is it real or virtual in some way, and what implications does it have for inflation?--Bobbing up 14:58, 23 September 2008 (EDT)
Well, since money isn't backed by anything measurable all one has to do to create more is to say "make it so." However, doing this doesn't actually make much of a difference due to the aforementioned feedback loops. Adding more money simply increases inflation, and you no longer get as much goods or foreign currency in exchange. --JeevesMkII 15:04, 23 September 2008 (EDT)
Isn't money the equivalent, for countries, of shares, for companies? Its value an indication of the confidence of investors? SusanG  ContribsTalk 15:20, 23 September 2008 (EDT)
Bob: // and I'm running the horrible risk of sounding like Rem ...
Hey -- somebody calls you that, you come see ME -- nobody should have to bear that insult !!!
Anyway, here's your answer (for the USA): Treasury bills, when they come due. When the govt wants to insert money into the economy, they pay off some of it with real money, the rest with invented money. The proportion depends on how much they want to inflate the money.
Admit it -- i keep you guys awake. Else you'd bore each other to death.
-- RemBeau 18:50, 23 September 2008 (EDT)
No; you bore us nigh to death. Talk about prolix. down girl,downSusanG  ContribsTalk 19:06, 23 September 2008 (EDT)

FYI Bailout[edit]

For what it's worth, it looks like the current (130 page long) version of the bailout, which held few of the items that progressives wanted to see in the Bailout, and which wasn't supported by *true* fiscal conservatives (and interesting set of bedfellows, don't you think?) did not pass. The Session will end, and Congress will have a few days (if they wish to reconvene) or longer to take action in a more well thought out, less rushed, less panicked manner.--Sun mowse.pngEn attendant Godot"«Poetry involves the mysteries of the irrational perceived through rational words. V.Nabokov» 14:49, 29 September 2008 (EDT)

Yes, though the way things are going, the possibility of their being less panicked in a few days seems remote. :-) --Bobbing up 14:52, 29 September 2008 (EDT)
Good thing we have John McCain to calm things down by his reasonable and measured respo-- ... uh, wait, that doesn't sound right. --AKjeldsenCum dissensie 14:58, 29 September 2008 (EDT)
So the House of Representatives has said "no" and the Senate votes on Wednesday. Could some smart citizen of the USA tell us what happens if one votes "yes" and the other votes "no"?--Bobbing up 15:03, 29 September 2008 (EDT)
Sure. Nothing. Normally, the one that voted no will try to debate to say "is there a good reason to vote yes that we didn't understand", and it can go back into comittee for revisions, etc. But in this case, the House is out of Session as of today. So there is no more discussion on this without special session -- which can and will be called if a decent, well thought out plan is placed on teh desks of Pelosi and the house minority WHIP.--Sun mowse.pngEn attendant Godot"«Poetry involves the mysteries of the irrational perceived through rational words. V.Nabokov» 15:07, 29 September 2008 (EDT)
Anytime there is a difference of opinion between a bill in the senate and house (this happens more often than not, usually just amendments not differences in voting) a team of negotiators from each chamber is selected and they meet to "hash out their differences" the negotiators than report back to their respective chamber often with a "compromise bill" that both chambers must pass again. Rinse repeat till you either pass the same bill, or give up and table it. tmtoulouse 17:53, 1 October 2008 (EDT)
P.S. all signs point to another house vote on Thursday. tmtoulouse 17:54, 1 October 2008 (EDT)
Yeah, Just watched Obama give his speech. I have read the new bill, and see nothing of what he claims are "our protections" in it. And *still* no one is able to say exactly what the *exact* issue is, who this money will go to, specifically, and why "throwing a bunch of money at it" will be at all helpful. Let us not forget that just one week ago the US congress voted down (not sure if it was in house or senate, and i know bush was ready with his veto pen) a 60 billion dollar public works project that would have created some 150,000 jobs and injected money into the economy while building a hospital, roads, and I don't' know what else, cause "it is simply too much government spending on socialism". Um, yeah... too much money to put people to work and build our infra-structure, but 700billion tossed into a fire pit for all we care is "ok". GROWL.--Sun mowse.pngEn attendant Godot"«Poetry involves the mysteries of the irrational perceived through rational words. V.Nabokov» 18:06, 1 October 2008 (EDT) (I needs a drink)
Godot: // ... nothing of what [Obama] claims are "our protections" in it.
Of course not. What would a protection look like? (Serious question.)
And Obama could hardly be expected to know more than those that have been dealing with economic issues in Congress for 20 or 30 years. Granted, they caused these problems, but you can't claim they haven't got tons of experience dealing with the nation's money.
// And *still* no one is able to say exactly what the *exact* issue is,
That is because NO one can think of an economic issue that ANY of them can solve. Did you think many of them even understand the tiniest bit of economics?
Remember, the majority of them refused to support bills that would regulate the GSEs that they said were spinning out of control going back years. In fact, the biggest fools among them are on record saying Fmae and Fmac were doing just fine, and they carried the day.
// ... who this money will go to, specifically,
Oh, they know -- they just hate to admit it.
// ... and why "throwing a bunch of money at it" will be at all helpful.
Again, that is because they don't have a clue. They just know they've got to do something, and the only solution most of them ever propose is "throwing a bunch of money at it". (Not THEIR money of course -- OURS.)
// Let us not forget that just one week ago the US congress voted down (not sure if it was in house or senate, and i know bush was ready with his veto pen) a 60 billion dollar public works project that would have created some 150,000 jobs and injected money into the economy while building a hospital, roads, and I don't' know what else, cause "it is simply too much government spending on socialism".
That is very likely not an actual quote, given that most of them wouldn't know what Socialism is if they tripped over it. (And right now they ARE tripping over it.) The ones that ARE knowledgeable Socialists do, but aren't likely to admit it.
That "60 billion dollar public works project that would have created some 150,000 jobs and injected money into the economy" couldn't POSSIBLY create jobs without destroying jobs -- given you'd have to take $60B OUT of the economy to do it. If you could get the $60B from somewhere else, that might help, but if you take it from us, that just steals our buying power, which is what ACTUALLY creates jobs.
Unless you can create wealth, you can't create jobs.
-- RemBeau 08:47, 2 October 2008 (EDT)
McCain claims that there are provisons in the bill that would make sure the taxpayers get some of the money back that the govt makes when assets are sold off -- anybody here believe any such money would go anywhere except to the govt?
(I know, some of you think that would be a good idea.)
And what are the chances that there will be any money to split in the first place?
-- RemBeau 08:52, 2 October 2008 (EDT)

Bailout - The Senate's Turn[edit]

One good thing about all tax issues (or money issues, period) being started in the House, is that 100% of the house members are up for election this year. While they may or may not be overly concerned about Joe American and his counter part Jane WorldResident, they do care about keeping thier jobs. The Senate is a different matter. So far, 1 hour into the "debates" on this issue, it is a startling not so surprising, I guess 15 to 1 in favor of the new and "improved" (which is actually WORSE, if you can believe that) bail out of 700Billion AND tax cuts for the richest 5% of Americans. Bend over America, this will definitely hurt.--Sun mowse.pngEn attendant Godot"«Poetry involves the mysteries of the irrational perceived through rational words. V.Nabokov» 17:50, 1 October 2008 (EDT)

Um...the majority of tax cuts in there are for things like renewable energy and rural schools. Also, it included a provision that insurance companies have to include mental health coverage, and it raised the FDIC cap, which was LONG overdue. Most of the individual tax cuts are for the middle class, as well. (I was in the favor of the original bailout, having taken a long look at what's already happening; cities are unable to get bonds bought currently, and many stores cannot lay in additional inventory for the upcoming Christmas season, which is usually the only thing that keeps them solvent.) Researcher 09:10, 2 October 2008 (EDT)
I'm curious why no one can answer this, though. 1)Where is the money actually going to go? Into exactly who's hands? 2) Why 700Billion and not 100Billion, or 100Million or 100Trillion. no one, and i do mean no one, has or can explain the amount, and Pawlson admitted he "pulled it out of his head" cause he "thought it sounded reasonable". I'm beyond caring in any real sense, cause it's going through, we will be saddled with debt like this country has never seen... we will be paying our new debt to the people holding the old debt, and nothing has penalized -- not one thing -- those who speculated on our economy, on our homes, ect. The golden parashoots are still in place, but they will be taxed at 500,000 instead of 1,000,000 whoohoo. I really do not see what is good about this plan that couldn't have been accomplished later, without the 700Billion price tag. I agree that FDIC cap is LONGLONGLONG over due. That's a ten second bill on its own, passed without hesitation in house and senate after this. The "individual tax cuts" do not sit with the middle class, actually. They are cap gains tax cuts, which frankly, most of us in any middle class I know of, do not make. It's 451 p ages long, and the Senate has had roughly 2 days with the plan to understand 450 pages?--Sun mowse.pngEn attendant Godot"«Poetry involves the mysteries of the irrational perceived through rational words. V.Nabokov» 11:28, 2 October 2008 (EDT)
PS, if you haven't read it, and you care... here it is. 451 pages worth [3]

Dow gets a haircut, bailout didn't work so good didit?[edit]

Back when they first put the spotted owl on the endangered species list, and the loggers were thrown out of work, I saw whole families living in tents in the woods up in Skamania County where I liked to go hiking in the Columbia River Gorge. Now with all the foreclosures, and rents higher than my mortgage, I expect to see this sort of thing again. Francine 17:13, 6 October 2008 (EDT)

I'm not a fan of the "bailout", but your argument is pretty rash, given that none of the Bailout has been spent yet. Give the plan time to actually be implemented before you say "see, I told you so". Though I agree with you that odds are, it will be a "see, I told you so" moment.--Sun mowse.pngEn attendant Godot"«Poetry involves the mysteries of the irrational perceived through rational words. V.Nabokov» 23:55, 6 October 2008 (EDT)
Francine -- is it possible you consider humans to be more important than spotted owls ???
Surely you don't consider us to be more important than caribou as well -- that would just be soooo speciesist. (Where is PETA's phone number; they must be notified.)
In your next reincarnation, it would be fitting for you to come back as a deer tick.
-- RemBeau 23:19, 7 October 2008 (EDT)
Godot: (previous section above) // One good thing about all tax issues (or money issues, period) being started in the House, is that 100% of the house members are up for election this year.
That only works if you have an informed public -- we might have to go back 200 years to get that. Also, who among us feels confident enough of our own view on this issue to vote for someone on that basis?
// While they may or may not be overly concerned about Joe American and his counter part Jane WorldResident, they do care about keeping thier jobs.
TRUTH has been spoken !!!
They belong to a pretty exclusive club, and after they are there awhile, they'll do almost anything to stay, and that is corrupting in itself. I have changed my mind COMPLETELY on term limits -- now i want them.
The hate and ridiculously strong partisanship many of the elctorate feel is NOT reflected on Capitol Hill. It is clear demagoguery for them to whip us up into a frenzy when they are all buddies. They are putting on an act akin to professional wrestling.
// Bend over America, this will definitely hurt.
Oh yeah. The damage has already been done, big time -- the bailout will be anticlimactic and may do as much damage as good. One thing is sure -- more power now resides in the hands of govt and less in the people. Maybe only a Libertarian thinks of that as a bad thing.
-- RemBeau 23:27, 7 October 2008 (EDT)
Hmmm. For the record the bailout did stop the implosion of the banking industry, but it also fucked over a ton of homeowners. Mixed record.Longnameislonger (talk) 13:21, 16 April 2012 (UTC)

Banking woo[edit]

Read somewhere that some Americans think the banks buy people at birth on the assumption of their future earnings (hence social security numbers). Is there a page on this anywhere? (The illogic of this is obvious - Michael Jackson, John Paul Getty III and JK Rowling would have started off with rather different ratings and look what happened to them).

Sounds like a combination of debt slavery and the "straw man" theory the sovereign citizen movement uses. Nebuchadnezzar (talk) 19:32, 22 February 2011 (UTC)

Free market libertarianism doesn't work[edit]

Not true. It would have worked perfectly here, if it were followed hard and fast - these banks and every single fucker who was invested or exposed to them in any way at all would have been fucked. Completely and utterly fucked. And it would have been a whole lot of people - yes it would have been a very nasty correction, but if you live and die by the free market, that's how you have to roll... DeltaStarSenior SysopSpeciationspeed! 01:10, 20 June 2011 (UTC)

Attention needed[edit]

Can somebody with some grasp of the economics involved please fact check & tidy this, especially the 2007-2008 section which seems high on hyperbole & low on citations for many of its claim. If we want to look seriously at who is responsible for the crisis, we should steer clear of absurd exaggerations like "mortgages given out to bums" and "pizza delivery boys promoted to loan offices". WẽãšẽĩõĩďWeaselly.jpgMethinks it is a Weasel 00:09, 14 December 2012 (UTC)

If no one has done any work on it by Monday I'll see what I can do, though make no promises.--Just relax, and stay funny (talk) 00:10, 14 December 2012 (UTC)
Yes, this needs a serious overhaul (as does Greece-baiting and a few others). We haven't seen a word of discussion on EU cutting its budget for the first time in 56 years, meaning the idea of a Keynesian stimulus has been officially rejected, EU policy is to rely on the private sector to sort things out, and deflation (though not necessearily a contraction in the money supply) is here for the first time in several lifetimes. nobsSay hello to my leetle friend 18:02, 10 February 2013 (UTC)

Ok, gave it a start; there's a lot more to be added and subtracted. nobsSay hello to my leetle friend 20:05, 10 February 2013 (UTC)

Enron & Sarbanes-Oxley[edit]

I suggest we strip out for now the Enron reference at the start as being a primary cause of the 2007-08 crash; compliance with the Sarbanes-Oxley bill which supposedly fixed the Enron loophole in turned sparked the much larger AIG collapse. I say, gut Enron out of here for now and deal with it later. nobsSay hello to my leetle friend 18:14, 10 February 2013 (UTC)

In fact, the Commodity Futures Modernization Act had virtually nothing to do with the Enron collapse. The bill was signed into law Dec. 31, 2000, and Enron collapsed October 2001, hardly enought time to defraud investor out of more money than the company was worth. Further, Enron stock was overseen by SEC, not the CFTC. The only coincidence is the timeframe. Years later, an "Enron loophole" was discussed in amending the CFMA, but by that time Enron was long defunct and Enron's accounting problems had more to do with reporting to the SEC, not taking advantage of legitmate regulations and reporting requirments to CFTC. All the Enron fraud occured in the mid to late 1990s, not post-CFMA. nobsSay hello to my leetle friend 18:36, 10 February 2013 (UTC)

"No Income, No Assets"[edit]

This needs much better clarification. It sounds like lending to bums, but in reality these types of loans go to self-employed business owners who use bank deposits for proof on income, rather than tax returns. nobsSay hello to my leetle friend 21:38, 10 February 2013 (UTC)

"enabled many American lenders to make risky lending decisions, primarily high-interest rate mortgages to the "sub-prime" sector - people who typically have "No Income, No Asset" and no chance of making repayments should they fall on hard times or if interest rates increase."

This language just doesn't work for the above stated reason. It addresses sub-prime lending in the Low Doc, No Doc, Stated income market for business people with high incomes but are not required to furnish business expenses and net personal income. As stated, it's just wrong. And the "primarily" section ignores the fact 2/28 Adjustable Rate Mortgages were equally if not more of a contributing factor, and most of these loans were not made in the sub-prime sector. They typically (for the the better part of 10 years) were only made to borrowers with high credit scores, 620+. nobsAnchovies on your Fannie Mae backed mortgage? 22:51, 10 February 2013 (UTC)

Do we realy need this crap?[edit]

==Hypocrisy==
In October 2007 Dubya vetoed the "SCHIP" children's health insurance bill because it would have appropriated $30 billion more than the President requested, on the grounds that spending that much money was socialism, pure and simple. But let his Wall Street buddies get into trouble and all of a sudden we need to give a blank check worth 700 billion dollars to Henry Paulson (and his successors) with the following language, which is actually contained in the three-page proposal sent to Congress, and which has made the "liberals" balk:
"Decisions by the Secretary [of the Treasury] pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Last I checked, W is toast, Pelosi & the Democrats passed the $700 billion, and Obama's Tim Geitner wrote then, and is executing now, the non-reviewable provisions of the Act. It needs to be removed entirely, and if any of it is pertinent, can be included elsewhere later. nobsWould you like anchovies on your sub-prime mortgage? 00:25, 11 February 2013 (UTC)

Yes and No[edit]

Some of this information, while relevant and amusing, is loaded with half truths that don't give an accurate picture. I'm not saying wholesale removal, cause the tenor and tone needs to be kept, but more clarification. Here's just a fews examples:

  • Many of them lied about their incomes.

while this is possible under certain circumstances, it generallly applies to people with high wp:FICO scores and not the subprime market. What's more, prime lending underwriters allowed for it.

  • Loan officers often lied for them by rewriting the application forms.

a distinction should be made between a loan officer, who represents a lender with ability to approve a loan, and a broker, who represents a borrow to a lender. Further, Fannie Mae Form 1003 (Uniform Underwriting Loan Application) requires the loan originator (broker or officer) to fill in certain information borrowers decline to disclose.

  • Many of them were just sharks who hit buyers with tons of econo-babble and finance speak to make them believe the mortgage was a good idea.

here's a big half-truth; most of the bad loans were in the re-finance market, and not the homebuyer market. Generally first time homebuyers are the only one's needing a down payment. Refinances do not need money down, nor do rollovers (selling a home and rollingover equity into a new home) do not need a down payment. And Fannie Mae guidelines are careful to require disclosure of source of funds for a first time homebuyer's down payment, because it may be a pre-exiting encumbrance not reported as an outstanding obligation affecting debt to income ratios.

  • Sometimes, they just picked up the first bum they could find and threw him into a McMansion, no job or money required!

See all of above, although I'm not denying it wasn't possible, or it didn't happen. nobsWould you like anchovies on your sub-prime mortgage? 19:42, 11 February 2013 (UTC)

Fannie Mae & Wall Street[edit]

I think there is a fundemental misunderstanding in the article as to what exactly Fannie Mae is (unless I'm reading it wrong). Two examples:

  • When Fannie Mae and Freddie Mac saw their market share being sucked up by Wall Street firms, they loosened lending policies ...
  • Fannie and Freddie .... later joined in the fun buying up shitty loans after Wall Street had eaten away their market share...

Fannie Mae is not in competition with Wall Street banks for market share; Fannie Mae guarantees purchase of mortgage bundles from Wall Street banks that issue mortgages conforming to Fannie Mae Guidelines. As such, some sections may need radical excision and rewriting which will significantly alter the POV conclusions in this article. nobsWould you like anchovies on your sub-prime mortgage? 05:17, 12 February 2013 (UTC)

Ok, now we have a better picture of what the original author means by "market share". Fannie Mae did not loose market share to anyone. Fannie Mae, prior to loosening it's guidelines in Sept 1999, had virtually exclusive market share for the "Prime", or "A Credit" borrowers (unless a mortgage was owner-financed). Fannie Mae expanded it's market share by moving into the subprime sector after 1999 (well before repeal of Glass-Steagall, Gramm-Leach, and the CFMA). "Loosing market share", is a contorted way of saying Fannie Mae was loosing out on the growing subprime market. There was no "their market share" in the subprime market until they moved in, and they never "lost" anything to anyone. nobsWould you like anchovies on your sub-prime mortgage? 04:05, 13 February 2013 (UTC)

SEC & banking[edit]

This is totally irrelevent to the article:

In the meantime Shrubya gutted the SEC, appointing weak-kneed regulators or ones who would intentionally turn a blind eye. The SEC was so ineffective that Bernie Madoff remarked he was "astonished" that he didn't get caught and noted, "They never even looked at my stock records...If you're looking for a Ponzi scheme, it's the first thing you do."[16]

This refers to the SEC - stock regulators, not bank regulators. Unless someone can show Bernie Madoff invested in banks, or some connection between the SEC & bank regulation or the banking crisis, it needs to go. nobsWould you like anchovies on your sub-prime mortgage? 02:49, 13 February 2013 (UTC)

Deregulation[edit]

So "deregulation is bad" is a sacred cow. Was creation of a new entity, FHCs (financial holding companies). and regulatory bureaucracy to oversee them, deregulation? And it's for this reason repealing the repeal of Glass Steagall is impossible.

Or when Fannie Mae de-regulated its own guidelines (dropping FICO scores from 620 to 585 for example) to dole out government cash and subsidized interests rates to borrowers with establihsed records of not meeting their debt obligations? Subprime borrrowers couldn't get financing otherwise (subprime can sometimes be a code word for "minority" and "white trash"). nobsWould you like anchovies on your sub-prime mortgage? 05:39, 13 February 2013 (UTC)

IOW, it took de-regulation to get financing and investment into minority communities because of institutional racism. In those days, they were called "enterprize zones", or later "empowerment zones". Jesus. I'm amazed this embarassing shit sat in this article for nearly five years. nobsWould you like anchovies on your sub-prime mortgage? 05:44, 13 February 2013 (UTC)

@Hipocrite, ok, thus far no big problems, other than, "Non-conforming high-interest rate "sub-prime" loans - people who did not qualify for Fannie Mae loans, were ripe ..."

Once Fannie Mae lowered its guidelines after 1999 (beginning with lowering the FICO score necessary to qualify, from 620 to 585, and eventally 525 I beleive), thise subprime borrowers did qualify for Fannie Mae financing.

Subprime market are also known as "B" and "C" lenders. The Prime market are known as "A lenders" and prime borrowers as "A credit borrowers"; prior to 1999 Fannie exclusively backed the prime market and "A lenders"; after Sept 1999 Fannie Mae began providing financing for B lenders. By 2006 and 2007, Fannie Mae subprime borrowers and lenders began experiencing problems. nobsWould you like anchovies on your sub-prime mortgage? 13:38, 13 February 2013 (UTC)

Please don't invent things based on your history as a right-wing extremist. Provide sources for all your pretend facts. Hipocrite (talk) 14:12, 13 February 2013 (UTC)
I'm not certain what's the problem with this sentence (not added by me, but in been in this article for 4 andhalf years)
' There were also other FHCs made up of hedge funds and other investment firms, that held as big a share of the market as traditional banks, and they were largely unregulated to begin with.
There should be something said about hedge funds. The degree of regulation needed is important: too much and they're no longer hedge funds, not enough and their ripe for fraud. Hedge funds do provide an important source of capital for business and homebuyers with less than sterling credit and no one else to turn to. And some hedge funds are "subprime lenders" who hold their own paper (see UCC wp:Holder in due course), don't re-bundle securities or dump it on Fannie Mae. nobsWould you like anchovies on your sub-prime mortgage? 22:24, 14 February 2013 (UTC)
"that held as big a share of the market as traditional banks." Please don't invent things based on your history as a right-wing extremist. Provide sources for all your pretend facts. Hipocrite (talk) 22:36, 14 February 2013 (UTC)
huh? can cite anything at all in this article to support that claim, you've now stated twice? Or howaboput addressing the question? nobsWould you like anchovies on your sub-prime mortgage? 22:49, 14 February 2013 (UTC)

──────────────────────────────────────────────────────────────────────────────────────────────────── You have no idea what an FHC is. You have no idea how they are/were regulated. They made no difference at all to the crisis. Hipocrite (talk) 16:52, 16 February 2013 (UTC)

Gramm-Leached allowed for Bank holding companies to aquire insurance companies, i.e., companies with potentially a lot of liability. This isn't rocket science. nobsWould you like anchovies on your sub-prime mortgage? 19:21, 16 February 2013 (UTC)
And again, Hipocrite, ""that held as big a share of the market as traditional banks." WAS NOT MY LANGUAGE. You seem to ignore the fact that original, uncited statement, was true. It only needs sourcing. nobsWould you like anchovies on your sub-prime mortgage? 19:24, 16 February 2013 (UTC)

Repeal of Glass-Steagall, Gramm-Leach and FHCs not a factor?[edit]

Is there a reason User:Hipocrite striped this out?

  • Morgan Stanley - Reverted to bank holding company status

Reverted, meaning it was a BHC, become an FHC under Gramm-Leach and repeal of Glass-Steagall, bought crappy Fannie Mae subrime loans & AIG default swaps to cover the risk, was bailed out and reverted to BHC status.

Eliminating this, the Fannie Mae & Subprime sections pretty much guts anything and everything we know about the Banking crisis of 2007-08. Maybe User:Hipocrite ought to strip out what a big douche-bag Phil Gramm is, too. Since these factors had nothing to do with the crisis and the evidence has been reverted. nobsWould you like anchovies on your sub-prime mortgage? 19:46, 16 February 2013 (UTC)