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A more formal introduction to the subprime crisis
Libertasplz
Member Posts: 221
This is only a snippet and includes the general layout of the problem in laymen's terms.
American home ownership blossomed from 45% to 65% a decade after WWII due to a variety of factors. One of these was the introduction of long-term fixed mortgages. These mortgages allowed a burgeoning middle class with with good credit and a 20% down payment to build equity that used to be only available to the wealthy. This down payment was possible for many due to a high general savings rate and forced savings accounts by the government.
However home ownership was still out of the reach of many lower income families who could not afford the down payment and minority families who were occasionally discriminated against by the banks even if they qualified. One of the reasons for this was that most mortgages were held by institutions called savings and loans. These savings and loans were bound to Regulation Q of the Federal Reserve that limited the interest they could pay and ultimately limited their ability to attract deposits used to finance new mortgages. As a result mortgage institutions were very selective in who they chose and only individuals who posed the least perceived risk to default would qualify for a mortgage.
It was part of this peculiar aspect of mortgages in the United States that led to deregulation. It is not that banks could not provide mortgage loans; they often did and were regulated by Regulation Q as well. However it was the savings and loans, now known as thrifts, that underwent a financial crises in the 1960s. The disintermediation crisis was caused primarily by rising inflation rates. For long-term fixed loans, this was a serious problem, and thrifts found inflation outstripping the returns of their mortgages. To combat this thrifts tacked an inflation premium onto mortgage loans and attempted to raise interest rates on their deposits. However, Regulation Q caps on time deposit rates led many families to invest in market securities that offered better returns. This led to a decrease in deposits and less money to finance new mortgages. It set up a potential crisis: mortgage access was becoming restricted only to the most creditworthy borrowers because the thrifts did not have a large fund pool and the 'reward' for having good credit was a significantly higher interest loan.
The solution to this crisis was a new source for mortgage funding created by the Federal Government: Federal Home Loan Banks provided funding for thrifts so that they could sell new mortgages. Of more importance was the removal of Regulation Q ceilings , which allowed the thrifts to compete with regards to investment returns. The deposit rate ceiling was eliminated gradually and by 1986 was phased out completely. However, thrifts were still suffering; 1300 thrifts failed between 1980-1994, as did 1600 banks. The lifting of Regulation Q ceilings did little good if the banks could not earn the mortgage profits necessary to pay competitive rates.
The foundation for subprime mortgages and also the return to financial health for banks and thrifts was the enactment of the Depository Institutions Deregulatory and Monetary Control Act of 1980. Developed by the administrations of Jimmy Carter and Ronald Reagan when scarcity of credit was at issue , this Act removed the usury laws that prevented mortgages above a certain rate from being made. It was these mortgage rate caps that effectively prevented banks from ever providing mortgages to moderate risk clients because there was no financial incentive to do so.
Section Two: The Development of the Subprime Crisis
The removal of the cap by the Depository Institutions Deregulatory and Monetary Control Act of 1980 effected the genesis of the subprime mortgage security in the United States. However, subprime lending was a niche market until the early 1990s when it expanded from 35 billion dollars in 1994 to 332 billion dollars in 2003 The crisis that arose from this lending did not manifest until 2007 when there was a 70% increase in the number of subprime foreclosures compared to 2006.
The origin of the subprime crisis is not simplistic, it is helpful to differentiate between the factors that brought about the subprime mortgage market with the factors that resulted in the actual subprime crisis. Subprime mortgages are an effective way for a society to build wealth and excessive regulation that unduly affects legitimate subprime lending is not prudent. The following chart illustrates the complexity of the development and outline the narrative that follows:
Many components of the subprime market worked in conjunction to initiate the subprime crisis. Once the conditions for a potential crisis initiated (the housing boom via price appreciation), a synthesis of various factors exacerbated the situation and generated a housing bubble. The crisis is the result of the bust of that bubble.
Part 1A Deregulation
Part 1B Legal Regulations
Part 1C Credit Crunch and Tax Reform
leads to: SMBS's Introduction to Subprime Markets Growth of Subprime Lenders
Part 2: Convergence
Banks/Thrifts: Desire subprime loans for SMBSs and value
Subprime Lenders: Entry into first mortgage markets
Part 3: Result: Increased competition for new market with fewer rules
Part 4: Response: New Financial Instruments
Part 5: The Origins of the Subprime Crisis: The Housing Boom
Part 6A: Conditions Fueling the Boom
- Increased profits
- Low interest rates
- Foreclosure profitability
Part 6B: Conditions Impeding the Boom
- less affordability
- less creditworthy
Part 7: The Breaking Point
The Relaxation of Underwriting Standards based on the Faulty Premise of Housing Appreciation
Part 8: Response: Predatory Lending
Part 9: Culmination: The Boom Goes Bust
Part 10: The Future
Part 11: Composition of the Legal Framework
Comments
I did not see this included, but one might read up on derivitives as well. Those little worthless "made up" documents lent their little hand in this mess as well.
Part 1A: Deregulation leads to SMBSs
The subprime crisis can be traced all the way back to the largest single factor of the development of the subprime mortgage market: the subprime mortgage-backed security (SMBS). Prime mortgage securitization existed under Freddie Mac and Fannie Mae in the 1970s, but it was only the deregulation of mortgages in the 1980s and securities in the 1990s that allowed for the compilation of SMBSs.
The Reagan administration recognized the benefit of banks and other financial intermediaries (thrift agencies and mortgage banks) competing in each other's markets. To enable this, Congress enacted the Garn St. Germain Act of 1982, which brought about greater competition in the mortgage market by removing all of the statutory restrictions on real estate lending. This deregulation continued when the Office of the Comptroller of the Currency amended its rules and gave banks more freedom in mortgage markets.
The deregulation in the securities market was most affected by the Financial Services Modernization Act (1999), which allowed banks to enter the fields of insurance and security sales. Coupled with the repeal in the same year of the Glass-Steagal Act (1933) that separated commercial banks from investment banking and insurance services, it was now possible for banks to generate mortgage-backed securities and sell them on the financial markets on their own.
Securitization is the sale of a registered security on the capital markets. One category of security is the asset backed security; a security that is not backed by the company's earnings but instead by a tangible asset. These illiquid assets are grouped together and sold as a security serviced by the cashflows they yield. The largest type of ABS in the United States is the Mortgage Backed Security (MBS), of which SMBSs have been the largest growing segment in the past decade.
In the 1980s the sale of MBSs were only available to banks and conforming lenders who followed Fannie Mae and Freddie Mac guidelines. Over time these regulations have relaxed and banks have gained the ability to sell and insure their own ABSs. Banks and thrifts pool their existing mortgages together into separate classes based on the loan proceeds and their relative risk. They upgrade their credit value by having the MBSs insured and increasing their value even further.
The benefits to a lending institution of packaging together an MBS and selling it on the open market are numerous:
1) They remove assets from the balance sheets which eases capital regulation pressure. The securities are then completely separate from the financial lender.
2) The sale of the assets raise funds quickly. These funds can be immediately put back into the mortgage markets or the money can be kept.
3) MBSs contain high-grade loans that are subject to similar capital requirements as lower grade loans with higher yields. This helps raise the returns of banks because they can get the high-grade assets off the books and keep subprime loans with higher returns for themselves.
These options provide a great amount of flexibility to a lending institution. If it is under capital pressure it can package prime loans into a MBS, remove them from the corporate balance sheet, and still net a good return. In the alternative, if their capital holdings are sufficient, they can package the subprime loans into SMBSs and receive an outstanding return, giving them even more money to lend or improving the institution's liquidity.
They have also proven to be very attractive to investors. Up until the subprime mortgage crisis they have been thought of as safe investments. Not only were the securities backed by home mortgages but they also had credit enhancements in the form or guarantees by the bank itself or a separate insurance company. The markets have had a hungry appetite for risk-averse investments with better returns than US Treasuries; the equity in American's homes was an ideal selling point, especially given that a large portion of them were guaranteed by a private insurer.
Part 1B: Legal Requirements Introduce Banks to Subprime Mortgages
Of prime importance in the development of subprime mortgages has been government legislation and regulation. The legislation that has helped this growth is vast; to incorporate it into this outline(and particularly this portion of the narrative) would skew this overview to the point that it would become unwieldy. The legislative impact is large enough that it warrants an individual section (Section 3). Additionally, examining each piece of legislation by itself makes it more apparent where it fits in the overview and gives it the priority in which it is due. Specific laws are only presented when it is critical to the development of the outline.
On that note, it is clear that an understanding of the development of the subprime markets for large banks would not have been possible without the introduction of the Community Reinvestment Act (CRA). This mandate, opposed by a majority of financial institutions initially, played a vital role in the development of subprime lending infrastructure.
The CRA was integral to getting banks to provide mortgage funds to meet the needs of communities in which they receive deposits. Under this Act banks have to provide detailed reports to the Federal Reserve Board regarding their loan portfolios. This requirement essentially forced banks to provide loans to income groups and risk groups they were not accustomed to on the fear their ability to build new branches and merge with other institutions would be restricted: "a weak lending record can slow or even derail a deal."
It was only with this experience did banks develop major portfolios of subprime loans. Although subprime foreclosure rates were higher the loans also came with approximately a 2% interest rate premium and most importantly a 550% increase in delinquency rates, which is where a significant percentage of banks profits have originated from. Banks quickly became less averse to the prospect of subprime lending.
Part 1C: Credit Crunch and Tax Reform Lead to Subprime Mortgage Companies
However there was one credit group that large banks still stayed away from and those were families and individuals with debt consolidation loans. The increase in the average amount of credit card debt in the United States resulted in significant growth in the debt consolidation business. These consolidating loans made families generally ineligible, at least in the early 1990s, for bank loans of any type, including subprime mortgages. Families with these loans looking to buy their first home were out of luck.
The growth of exclusively subprime lenders like New Century and Ameriquest Mortgage moved in to capitalize on this market on two fronts. First, they offered loans to those without homes to consolidate their debts, effectively cutting them off from the major banks. Secondly, the Tax Reform Act of 1986 encouraged homeowners to transform their non-mortgage debts into mortgages as it became one of the few remaining tax-deductible forms of interest.
Part 2: Convergence of Banks and Subprime Lenders With First Mortgages and SMBSs
Inevitably the banks and thrifts along with the subprime lenders came to the realization of the possibilities of subprime mortgage lending. For large institutions, who through the CRA had come to realize the lucrative nature of the subprime market, the natural evolution was to develop SMBSs and further increase their profits. The loans were eagerly anticipated in the market; SMBSs still had predictable cashflows, they were transferable, and they helped bring significant returns on investments (ROI) with little perceived risk.
The move for subprime lenders was a natural step: they entered the first mortgage market exclusively for subprime borrowers and started packaging together their own SMBSs. The margins and increases in revenue in the early 1990s allowed new players to appear at an astonishing pace.
Part 3: Increased Competition and Fewer Rules
With banks, thrifts, mortgage banks, and subprime lenders now all competing for business in the subprime market, loan origination (the location of a creditworthy borrower ) became considerably more difficult. Luckily the subprime market in the United States is not small. The final "Statement on Subprime Mortgage Lending" released March 8, 2007 by the major U.S. federal banking agencies described what a subprime borrower is. The definition is broad, a subprime borrower can be anyone with a weakened credit history or a reduced debt repayment capacity. Weak credit histories are categorized to include those with "payment delinquencies, charge-offs, judgements, and bankruptcies" and borrowers listed as having a reduced repayment capacity have lower credit scores and/or poor debt-to-income ratios.
Another part of the new subprime market was the relative lack of regulation. Unlike the prime mortgage markets where the financial lenders undergo meticulous audits every three years , state charters regulate the subsidiaries of banks and the mortgage companies that offer subprime loans. These regulations vary widely in the protection they afford subprime borrowers.
Part 4: New Financial Instruments
This lack of regulation coupled with the increased competition in the market helped advance the development of alternative mortgage instruments. These new financial vehicles also, due to their variety, were thought of as prudent in that they diversified the asset portfolio of the lender. This protected against extreme rate fluctuations; massive inflation can turn a portfolio of long term fixed mortgages into a disaster as the Federal Reserve has to limit the money supply to combat it.
These new products also offer consumers terms and conditions that they can afford more easily. These instruments allow individuals to buy a house that they would not otherwise be able to afford by keeping down payments low and monthly payments as low as possible. Often the short-term look of these loans is very enticing to lenders because of the expected payoff later due to the borrower's need to refinance and their smaller principal payments.. The most common in the subprime mortgage market are:
Adjustable Rate Mortgages (ARMs): These mortgages periodically readjust to the interest rate based on fluctuations of a relevant external index. Initially heavily restricted, it is now only required that the index used to determine the variable rate be independently verifiable. Under the Competitive Equality Banking Act of 1987, ARM's also have to possess a maximum interest rate, but this is a relatively useless provision because the maximum rate is determined by the lender and the lendee. The most popular version of ARM is the 2/28, which is a two year fixed mortgage followed by a 28 year adjustable rate mortgage.
Shared Appreciation Mortgages: These are fixed interest rate mortgages that are lower than the market rate but possess contingent interest. This contingency is based on the amount of price appreciation in the property and is not paid until the property is sold by the borrower. These mortgages were likely popular with lenders in the early part of the decade during the housing boom; it is unlikely that they are available now.
Graduated Payment Mortgages: Section 245 of the National Housing Act authorized the Department of Housing and Urban Development to insure mortgages with varying rates of amortization based on an individual's income. These mortgages cater to individuals with increased expectations of future income. They start with low interest rates that gradually rise by a predetermined amount during the term. In some instances these mortgages produce negative amortization the first few years.
Straight Term Mortgages: These mortgages have no provision for the amortization of principal. Instead the borrower pays interest for a fixed term and then is required to pay the unpaid principal and accrued interest at the end of the term. The balloon payment at the end is vary rarely paid. Instead, the straight term mortgage is refinanced. This is a financial windfall to lenders as they get to keep the appreciating property, charge high interest rates and charge high fees for the refinancing.
Part 5: Subprime Mortgage Crisis: Origins: The Housing Boom
Housing ownership in the United States remained relatively static from 1960-1990, remaining at around 65%. 1994 saw the beginning of a housing boom that increased home ownership rates to 70% by 2005. Taking into account strong population growth, this resulted in twelve million new American homeowners in a 11 year span. A majority of this growth has come from subprime borrowers; subprime originations had grown from $65 billion to $332 billion in 2003 and has continued to grow ever since.
The boom was easy to understand. Financial lenders were making enormous profits by leveraging themselves. By borrowing as much as they could, lending it at a high rate and immediately securitizing it into a market that loved MBSs, banks were being immediately paid for the entire mortgage within months instead of decades. SMBSs did particularly well. In 2003 $203 billion were sold, an 18-fold increase in nine years. For large banks with fewer subsidiaries it was especially important to remove assets off the books to ease their considerable capital requirements; their subprime asset of choice to bundle were A- grade mortgages (along with their premier and premier plus loans). The number of A- loans securitized in 2003 was approximately 600,000 compared to nearly 100,000 for B, C, and D grade loans.
The connection between the financial markets and the mortgage capital markets has become increasingly strong. The benefits are numerous: MBSs reduce intermediary costs and enable the cheaper raising of funds for financial institutions of all types, resulting in more competition in the mortgage markets for the borrower. This increase in competition in the United States has been obvious.
Such credit facilitation can lead to powerful economic growth. However, eventually the rush for market share ends when the new market is saturated, leaving in its wake a financial speculative bubble that necessitates a correction which can sometimes be volatile. The rush for subprime borrowers was especially strong due to a number of interrelated factors that together created a scramble more vicious than the sum of the individual conditions could have ever produced. Above all, it created massive housing appreciation; this housing appreciation was the culmination of banker's greed preying on increasingly less sophisticated and less qualified borrowers. And it was that appreciation that played a major factor in continuing the aggressive hunt for new borrowers.
Part 6A: The Conditions Fueling the Boom
The financial innovation and deregulation that allowed access to these new group of borrowers had a very positive effect on banks' profitability, increasing from .9% from 1979-1989 to 1.9% from 1989-2001. The lending market was also very attractive with a record low Federal Funding Rate of 100-125 basis points from November 6, 2002 to August 10, 2004. Because subprime mortgages have less correlation with the Federal Reserve's Rate due to their risk this made them more attractive to the lenders. They could borrow money more cheaply while not passing the better rates onto the subprime borrower. Instead, mortgages were presented as being better values due to short fixed term teaser rates, such as those found on ARM 2/28 mortgages, where the two year fixed term teaser rate was often comparable to what a premier borrower would receive.
During this time of aggressive growth it became obvious that subprime borrowers were far more likely to default on their loan obligations. In 2002 1.5% of home loans were in foreclosure; 7.2% of these were subprime loans while less than 1% were prime loans. The lowering of the Federal Reserve Rate increased mortgage lending and mortgage financing 72% from 1995-2002. Yet despite these lower rates foreclosures increased far faster than new mortgages appeared: they increased 250% from 1995-2002.
In retrospect this is not surprising as the average interest rate (derived from studies of loan portfolios in SMBSs) of a subprime loan was 12.5%. This is at a time when the Federal Funds Rate was extremely low and 85-90% of all subprime securities were made up of A- grade loans. The premiums on interest rates for lower quality loans compared to A- loans is 1-3% depending on the grade.
Due to these extremely high rates given to people with reduced abilities to pay the rates of foreclosure are not surprising. On average foreclosure rates in 2003 were ten times greater than they were for prime loans. The question is how did these loans increase profitability when banks had to foreclose on so many more of them? After all foreclosures consume bank resources and sell at a reduced price compared to other homes in a specific market.
The profitability arose from the considerable housing appreciation that occurred in the United States, particularly from 2002-2006. Even when lenders had preyed upon less sophisticated purchasers who had a very small chance of every being able to afford their homes, the housing appreciation allowed borrowers in trouble to sell the house, pay the prepayment penalty and walk away from the property with a small loss or in some cases even a modest profit. Foreclosure was an even better scenario for a lending institution. Banks were more than happy to wipe out the equity that had been built into the home as the house was worth considerably more the next year.
Part 6B: Conditions Impeding the Boom
Ironically the housing appreciation, fueled by aggressive lending, low interest rates, and new financial instruments, also contributed to deteriorating conditions for future borrowers. Data on US household income suggests that housing ownership should have deteriorated into the boom of 2002-2006. In 1970 the median house cost 2.33 times the median family income, while in 2002 it had escalated to 2.94 nationwide and as high as 4.11 in the Western US. Up until 2002 this was mainly due to the deterioration of US income distribution. There was a stagnation of real income for the bottom three quintiles of the American population, where average after-tax household income declined for each quintile.
The result of this is that low and moderate income households had less real income to qualify for a mortgage and less real income to pay for a down payment. In addition, the price of housing increased 45% from 2002 until 2006, further decreasing the ability of lower income earners to afford a home. Yet if the cost of housing is outstripping household income by such a large margin, what allowed the increase in home ownership to continue for so long, thus further exacerbating conditions and the speculative housing bubble?
Part 7: The Breaking Point: The Relaxation of Underwriting Standards Based on a Faulty Premise
Low interest rates, increased competition and profits all played a part in the subprime crisis. However it was the response to the interaction of these factors with a deteriorating base of qualified borrowers that sent the market over the edge into unadulterated speculative fever. The response was for financial institutions to gradually introduce into their financial models continuous housing appreciation. This premise allowed financial lenders to relax their underwriting standards to a point that it did not matter if a prospective home buyer could afford his home. Instead, in an appreciating market, one of three things could happen:
a) the mortgager would sell the house, pay the prepayment penalty and associated fees, and leave. The bank profited from the fees and the prepayment penalty.
b) the mortgager defaulted and the house was foreclosed. The foreclosed home might break even and the profit from the mortgager's lost equity and previous delinquent payment fees made it quite lucrative.
c) The foreclosed property sells at a loss and the mortgage insurance covers the loss to the bank.
These were no lose situations for the financial lenders . These rules were especially true for the subprime borrowers they serviced. With these rules in place, the only real requirement was to find borrowers, whether they could afford the home or not.
Part 8: The Response: Predatory Lending
The frenzy that resulted brought about unscrupulous lending activities by large banks (often done through their subsidiaries) and the large exclusively subprime lenders like Ameriquest and New Century. Increasingly the ability of the borrower to pay was ignored; employment, income and credit histories became moot issues as delinquencies and foreclosures were extremely profitable ventures. Prime and near-prime loans were merely vehicles of securitization to raise more funds to loan out to the lucrative subprime market. Lenders used many of these tactics:
a) Loan flipping: The lender repeatedly refinances a borrower's loans over a short period of time, pocketing fees and attempting to strip equity out of the house.
b) Balloon payments: Payments due at the end of the loan that often total more than the full amount loaned. They are legal provided they are explained to the borrower, like in the example of straight term mortgages.
c) Equity stripping: The lender creates a scenario where the borrower is destined to default on the loan. It is a tool used with the expectation that the equity stripped from the home will ultimately make up for any loss on foreclosure and works effectively during appreciating markets. Balloon payments and monthly payments that exceed 50% of the borrower's income are all equity stripping techniques.
d) packing: These are fees that far exceed justification and are often costs packed into the mortgage that are normally paid up front, like insurance premiums.
Further to this, many lenders practices were fraudulent. Fairbanks is a large nationwide network that in 2004 serviced a half million loans. In 2003 Fairbanks settled with the Federal Trade Commission for forty million dollars in regards to its conduct with customers. Such conduct included:
a) They did not post mortgage payments on time, resulting in unwarranted late fees to approximately 670,000 borrowers
b) Charged unwarranted prepayment penalties
c) Collected improper and unwarranted late fees
d) Misrepresented amounts the consumers owed
e) Communicated false credit information to credit rating agencies
Such practices occasionally pushed the debt level higher than the value of the home. This made it impossible to refinance; the options at that point are to pay the fees or be foreclosed on. And although some households ultimately did foreclose, the profits coming from the fees and delinquent payments with interest ultimately made it profitable for Fairbanks. It charged $5 for copies of loan documents, $15 for printouts of the loan history and $50 for payoff statements routinely required by the mortgagor.
Lenders were not the only instigators of such action. Many other people involved in real estate profited from the speculative bubble. Contractors directed their customers to brokers for financing. The broker turned equity in a home into cash, which was then used to pay the contractor for home improvements. Since both contractor and broker were paid from the equity loan, they both had an incentive to make the loan as large as possible. If the second mortgage was from a subprime mortgagor the interest rates was considerable.
To address this potential conflict of interest the AARP and the National Consumer Law Coalition reviewed state law and looked for the following regulations with regards to contractors. The regulations they looked for were:
a) licensing requirements
b) minimum experience levels
c) certification exams
d) minimum levels of fiscal solvency
e) barring convicts from running contracting firms
f) minimum levels of disclosure in contracts
g) barring of anti-consumer contract provisions
h) prohibition of certain tactics like bait and switch
The review showed that only seventeen states had half of these provisions and only Tennessee had all eight. The cumulative effect of the actions of lenders, contractors, mortgage insurers and Wall Street ultimately perpetuated the crisis. Unfortunately the perpetuation came increasingly at the expense of less sophisticated borrowers: minority communities, seniors, and less educated individuals.
Part 9: Culmination: The Boom Goes Bust
For this to be a crisis instead of an economic growth story the speculative housing bubble had to collapse. This happened in 2006 when housing prices began to fall. The median sale price of existing homes in the United States dropped from $221,200 Q3 2007 to $195,900 in February of 2008. This substantial 13% drop in market price coupled with already reduced sale prices for foreclosed homes left many financial institutions with an excess inventory of homes that were suddenly major liabilities. These inventory levels continue to rise today: the Mortgage Bankers Association describes the foreclosure problem now as of March 2008 as the worst it has been in fifty years and with no signs of foreclosure rates slowing down.
These foreclosed homes have been very hard to sell, especially because it is increasingly difficult to get a mortgage. This is despite the U.S. Federal Reserve lowering its fund rate from 4.25% to 2.25% since January 22; instead the average fixed 30 year mortgage has increased from 5.69% to 5.88%. These rate increases are consistent across the board despite the lending rate being 200 basis points less. Even compared to a year ago when the lending rate was 5.25% average mortgage rates have only decreased .3%. Compound this with economic anxiety, and the results on mortgage applications are clear: as of April 2, 2008 there has only been a 4.8% increase in mortgage applications despite a 3% reduction in the federal funds rate.
The consequence of this system is a rapidly depreciating housing market. A depreciating market means that many homeowners have mortgages worth more than the property itself. Without the worry of losing an appreciating asset, many families are simply walking away from their properties. This has increased the rate of foreclosures dramatically with the number topping 15% for recent subprime loans. The economic conditions are even worse for subprime lenders: the two largest subprime lenders New Century filed for bankruptcy and Ameriquest was bought out by Citigroup and then dissolved.
_______
*Lengthy Sections afterwards removed*
*copyrighted material*
For you to peruse Fishermage.
So after reading all that we are still left with the fact that Republicans have been calling for more regulation and oversight of the mortgage industry and specifically Fannie Mae and Freddie Mac over tha last several years while Democrats resisted and blocked such recommendations.
Both parties had their heads stuck in the mud up until the last year.
Republicans and democrats alike are now picking positive evidence from their partisan position and ignoring the unfavourable legacy of their administrations. There is also considerable hindsight bias sneaking its way into the discussion. It was obvious that there was a problem for the average homeowner and the housing market but very people called the massive losses and liquidity issues for mainstream financial institutions. Very few.
As I have said, the roots of the problems like in GSE's and the CRA -- government social engineering, beginning with the best of intentions, leading to disastrous results.
Deregulation of this rigged and screwed up system certainly helped exacerbate this problem. Had it been pure market forces, with no GSE's and no Government programs encouraging bad debt, none of this would of happened.
The problem lies with the initial bad debt; the deregulation multiplied it through the whole system. It's not a problem of free enterprise, but one of socialized banking and government social programs. This is the way things always go.
It's happening with Social Security, it's happening with health care; welcome to the red west.
fishermage.blogspot.com
You say it's copyrighted material, but since it's intangible, it's not private property, and therefore, you don't believe in it. Why bother even believing in copyrights?
fishermage.blogspot.com
Oh I wouldn't pretend to build a moral, philosophical argument for intellectual property. However, I could make a pretty good economic one!
Bumped for Faxxer and Dekron.
And why is that?