Republican Position - Minorities Caused the Financial Crisis

[Karen Kraft]

Question, where was Barney Frank in all this? He's been pretty quiet up until recently.

Isnt he Chairman of the Financial Services Committee??

He caused this problem.

He is a kind-hearted man and a very hard worker. But he put ideology before economics. He insisted that lenders make home loans to folks who could not qualify if they had to show their tax returns, or had to pay the full amount it would take to satisfy the interest the notes were earning every month. This is a very sweet plan, in the spirit of helping those who don't earn a lot get their chance at the so-called "American Dream" -- home ownership.

As long as the market was going up, these folks could wait until their ARM was about to change and then move into another house, making bank on the transaction. When the market steadied out and then began to decline, these people were stuck -- being put into homes they could not afford after the note-mandated rate adjustment. They could not live up to the terms of the deal after the teaser rate was over, so they lost their homes.

Then lenders were stuck with this "bad paper" in a declining housing market and had to deal with those consequences. It was not just "minorities;" indeed, (and I'm just guessing here) probably more of these suicide loans were made to non-minorities.

Barney Frank had the best of intentions. It's too bad that he did not understand the economics of the situation. Why should he, though? He's only the chairman of the Banking Committee....

 

[tmleadr03]

He caused this problem.

He is a kind-hearted man and a very hard worker. But he put ideology before economics. He insisted that lenders make home loans to folks who could not qualify if they had to show their tax returns, or had to pay the full amount it would take to satisfy the interest the notes were earning every month. This is a very sweet plan, in the spirit of helping those who don't earn a lot get their chance at the so-called "American Dream" -- home ownership.

As long as the market was going up, these folks could wait until their ARM was about to change and then move into another house, making bank on the transaction. When the market steadied out and then began to decline, these people were stuck -- being put into homes they could not afford after the note-mandated rate adjustment. They could not live up to the terms of the deal after the teaser rate was over, so they lost their homes.

Then lenders were stuck with this "bad paper" in a declining housing market and had to deal with those consequences. It was not just "minorities;" indeed, (and I'm just guessing here) probably more of these suicide loans were made to non-minorities.

Barney Frank had the best of intentions. It's too bad that he did not understand the economics of the situation. Why should he, though? He's only the chairman of the Banking Committee....

He is just the latest in a line of people who did that.

 

[lavender]

Good thing you're impartial...

Apparently Lance's American political leanings are like a bowl full of populism with a topping of perversion.

 

[Lancecastor]

Apparently Lance's American political leanings are like a bowl full of populism with a topping of perversion.

I think that pretty much defines the prevailing American mindset.

http://ca.youtube.com/watch?v=HnT9W0ONycc

 

[Karen Kraft]

He is just the latest in a line of people who did that.

Who are you thinking of?

 

[Beco]

Barney Frank had the best of intentions. It's too bad that he did not understand the economics of the situation. Why should he, though? He's only the chairman of the Banking Committee....

minor details...

 

[Karen Kraft]

minor details...

Soon the American taxpayers will know just how Lowell felt!

Oh, Barney!​

​

http://ecommunity.uml.edu/lhs/EnteringLowellMagnet.jpg​

 

[MeeMie]

Republican Position - Minorities Caused the Financial Crisis

I don't recall ever seeing that accusation made.

Rather, the fault of the financial crisis has been to give sub-standard mortgages to people who had no ability to pay. These mortgages were encouraged through organizations that cater to lower income groups, and were not feasible at origination ... no credit checks, no employment history, no income tax records ... some even advertised to appeal to illegal immigrants.

These unsound lending practices began during Carter's term in office and continued through out Clinton's. Over the past 6 years, any attempt to monitor and/or regulate Fannie & Freddie were overun by a Democratic majority. These are facts, not accusations, that can easily be substantiated. Unlike your claim.

Giving mortgages to those who cannot afford them is what caused the financial crisis of today.

 

[MeeMie]

Here's an interesting read from the NY Times in 1999.

You may wish to read to whom this leftest rag points fingers.

However Lav, you being in the tank for the liberals, I don't expect you to give even this article much credence.

That NYT article is a matter of record and proof of leniency culminating in unsafe lending practices.

I doubt any of the closed-minded liberals even read it. At least they can't argue that the source isn't credible this time. So, instead, they fault the messenger.

 

[lavender]

I refer you to post 15 of this thread. It includes a NY Times article from 1999.

As I have said in other threads - it was the packaging of mortgage backed securities and CDS's that caused the financial crisis. That article does not address either of these issues.

The desire to link this all to Fannie/Freddie and the CSR - is simply not accurate.

Moreover, as my post indicated - the real thing that pushed this was an ideology of complete deregulation. I think even your article demonstrates that my thesis is correct.

 

[tmleadr03]

As I have said in other threads - it was the packaging of mortgage backed securities and CDS's that caused the financial crisis. That article does not address either of these issues.

The desire to link this all to Fannie/Freddie and the CSR - is simply not accurate.

Moreover, as my post indicated - the real thing that pushed this was an ideology of complete deregulation. I think even your article demonstrates that my thesis is correct.

Fannie/Freddie and the CSR are just part of it. Unhooking the dollar from the gold standard started us down this path. Clintons push to tighten the regulations of the CSR are another part of it. Also his changing to the rules over Fannie/Freddie to lower the amount of capitol they needed to back the loans from 10% to 2.5%.

So no, it is not just any one person or item or legislation, you are correct about that. It is a systematic weakening of the system.

ETA: If regulation made this mess, if meddling of the government made this mess, why do we need more government involvement? Wouldn't it make sense to have less government involvement?

 

[Lancecastor]

the real thing that pushed this was an ideology of complete deregulation. I think even your article demonstrates that my thesis is correct.

Are you getting paid by the word where you work, Lav?

There's nothing wrong (from a classic macro economic theory standpoint) with deregulated financial markets.

But when they crash and burn...you're supposed to let them crash and burn.

Eat what you kill, that sort of thing.

It's standard small-C conservative economic theory.

The real trouble begins when you try to have your cake and eat it, too.

So far, nobody's ever come up with the right blend to produce predictable prosperity for everyone.

 

[firespin]

As I have said in other threads - it was the packaging of mortgage backed securities and CDS's that caused the financial crisis. That article does not address either of these issues.

The desire to link this all to Fannie/Freddie and the CSR - is simply not accurate.

Moreover, as my post indicated - the real thing that pushed this was an ideology of complete deregulation. I think even your article demonstrates that my thesis is correct.

As an economist, you make a good lawyer.

Mortgages have been packaged for resale to investors as mortgage backed securities for more than thirty years. It was not the packaging per se that caused the problem, but rather the type of mortgage that was written.

Thesis fails.

 

[Odd_ball]

wrong, wrong, wrong.

We had a real estate price bubble. Homes were insanely overpriced, and still are.

This led banks to give builders billions in loans for new home construction.

We had a new constrcution boom. Millions and millions of overpriced monster homes being built in the past decade.

Then there was a glut of unsold new homes. The builders had a hard time selling. inflation and stagant wages made it so that there was/is a massive inventory of new unsold homes.

So, the banks, in all their wisdom, begged Congress to relax lending regulations so they could fill all these new units they had financed the construction of.

It's a cycle, the banks lend momey to builders, and then have to lend money to consumers to buy the new homes.

 

[richard_daily]

wrong, wrong, wrong.

We had a real estate price bubble. Homes were insanely overpriced, and still are.

This led banks to give builders billions in loans for new home construction.

We had a new constrcution boom. Millions and millions of overpriced monster homes being built in the past decade.

Then there was a glut of unsold new homes. The builders had a hard time selling. inflation and stagant wages made it so that there was/is a massive inventory of new unsold homes.

So, the banks, in all their wisdom, begged Congress to relax lending regulations so they could fill all these new units they had financed the construction of.

It's a cycle, the banks lend momey to builders, and then have to lend money to consumers to buy the new homes.

This is all spot on, and it was all brought on by the repackaging of an old idea, with a new stainless steel and granite countertop finish; the condo.

Most of these sub-par units were built with very little sustainability in mind, very little thought put into longevity of the property, and very little thought put into urban planning. They were built for fast profit, and fast profit alone. Low cost, high profit. Grab the money and run... The very keystone of the free market.

The cities they were built in loved it... 3+ times the taxes by splitting the pin numbers... Developers loved it; a $60k build-cost unit was being sold for 300K+. Banks loved it because they were reaping in the profits from the thousands of new mortgages... how could it possibly be bad???

If the market hadn't crashed as hard as it had, you would have seen a huge increase in the price of co-op housing... the bubble bursting put the kibosh on that.

 

[firespin]

This is all spot on

Hmm. That should be a warning sign right there.

The problem wasn't so much that the new houses built from 2002-2006 didn't sell. Most of them did, at even increasing prices, which tells you there was no glut at the time. That wasn't what caused the market decline.

The biggest problem came when interest rates rose, and buyers couldn't qualify to buy them any more....AND...since many of the buyers bought the homes using ARMs, they couldn't keep up with payments adjusted. You could argue that the houses shouldn't have been sold, but that was the fault of the bankers, not the builders. They were just keeping up with demand. Builders couldn't make houses fast enough during the boom...that's why prices went up.

http://mortgage-x.com/images/graph/r_30_15_arm.gif

 

[Odd_ball]

This is all spot on, and it was all brought on by the repackaging of an old idea, with a new stainless steel and granite countertop finish; the condo.

Most of these sub-par units were built with very little sustainability in mind, very little thought put into longevity of the property, and very little thought put into urban planning. They were built for fast profit, and fast profit alone. Low cost, high profit. Grab the money and run... The very keystone of the free market.

The cities they were built in loved it... 3+ times the taxes by splitting the pin numbers... Developers loved it; a $60k build-cost unit was being sold for 300K+. Banks loved it because they were reaping in the profits from the thousands of new mortgages... how could it possibly be bad???

If the market hadn't crashed as hard as it had, you would have seen a huge increase in the price of co-op housing... the bubble bursting put the kibosh on that.

So true...and even when all the signs were pointing to a downturn in the economy they kept building and building.

They only finally slowed down in Aril of this year:

http://bigpicture.typepad.com/comments/images/2007/03/20/housing_starts.gif

 

[Karen Kraft]

As I have said in other threads - it was the packaging of mortgage backed securities and CDS's that caused the financial crisis. That article does not address either of these issues.

The desire to link this all to Fannie/Freddie and the CSR - is simply not accurate.

Moreover, as my post indicated - the real thing that pushed this was an ideology of complete deregulation. I think even your article demonstrates that my thesis is correct.

http://www.govtrack.us/congress/rec...x002Fmcrmx002Fms20060525-16.xmlElementm0m0m0m

-or-

http://thomas.loc.gov/cgi-bin/query/D?r109:16:./temp/~r109XSZQtm::


-full text-

http://www.govtrack.us/congress/billtext.xpd?bill=s109-190

 

[Odd_ball]

Hmm. That should be a warning sign right there.

The problem wasn't so much that the new houses built from 2002-2006 didn't sell. Most of them did, at even increasing prices, which tells you there was no glut at the time. That wasn't what caused the market decline.

Builders couldn't make houses fast enough during the boom...that's why prices went up.

Bullshit. 2006 article:

"Housing Starts plummeted today to the lowest level in 6 years, as builders continue to work out from under a massively bloated inventory of unsold property. "

http://bigpicture.typepad.com/comments/2006/11/stabilize_this.html


Massive inventory of unsold property in 2006. Yeah, "they just couldn't build them fast enough".

lol

 

[firespin]

So true...and even when all the signs were pointing to a downturn in the economy they kept building and building.

They only finally slowed down in Aril of this year:

http://bigpicture.typepad.com/comments/images/2007/03/20/housing_starts.gif

Your chart says they peaked in 06, not April of this year..?

 

[tmleadr03]

So true...and even when all the signs were pointing to a downturn in the economy they kept building and building.

They only finally slowed down in Aril of this year:

http://bigpicture.typepad.com/comments/images/2007/03/20/housing_starts.gif

Because people were still ordering more houses. Strangely enough, not everyone just knew there was an economic downturn coming.

 

[Odd_ball]

Your chart says they peaked in 06, not April of this year..?

My mistake, building peaked in April of 06.

Right about the time the price bubble burst.

But they still had massive inventories of unsold homes at that same time.

 

[tmleadr03]

Your chart says they peaked in 06, not April of this year..?

Man, I need to get my eyes checked again. I couldnt make that out with my glasses on and squinting.

 

[Odd_ball]

Because people were still ordering more houses. Strangely enough, not everyone just knew there was an economic downturn coming.

You means banks were still loaning money to builders. You think developers wait to build homes until they are ordered by customers?

And everyone knew the economy was heading south. It has been stagnant for 8 years.

 

[Odd_ball]

Man, I need to get my eyes checked again. I couldnt make that out with my glasses on and squinting.

Haha..same here...he's right it was April of 2006 when they finally started slowing down on new construction.

Which is kind of ironic, you would think lower prices would mean more potential buyers.