Obama Drowning Business in a Sea of Red Tape

[adoucette]

We have the richest industries from the richest nation in the world all supporting media outlets that are conspiring to fool the public into thinking that poor people took advantage of the biggest and most powerful corporations in the world and tanked the (world) economy all on their own. And it's all because they don't want a little extra tax to go towards helping build a middle class. The economic elites want a two class society, the poor wage slaves, and the super rich.

Hogwash.

Those industries you speak of sell primarily to the MIDDLE CLASS.

The poor aren't out buying those nice Suburban homes, filling them with expensive appliances and electronics, eating at those restauraunts, buying those two+ cars per family SUVs, running up those internet and cell phone bills, taking those vacations and spending money on entertainment.

open your eyes.

 

[adoucette]

Can you show us evidence of how depriving undeserved communities of loans would have clearly saved the US from its current financial difficulties? Do you have any numbers or analysis to support the argument that loans to such communities constitute a critical portion of the losses and liabilities?

We don't have to go so far as depriving the communities of loans, indeed the opposite is alleged to occurred, targeting these communities for these complex loan products with low below index initial rates but with balloons or rising rates that the borrowers would be hard pressed to afford.

So would have not doing so clearly saved us?

Probably not entirely, there were a lot of greedy white people as well, but still subprime loans went disproportionately to Blacks and Latinos (who were more likely to be an undeserved community) and then when the rise in unemployment happened (the trigger), the rise in unemployment also hit these areas the hardest.

So, YES, I'd say there is evidence to suggest that they were the initial snowball that started rolling down the economic hill.

Foreclosures Explode in South Florida; Poor, Minorities Hit Hardest

http://www.abajournal.com/news/arti...in_south_florida_poor_minorities_hit_hardest/

African-American and Latino borrowers are 76 percent and 71 percent more likely, respectively, than white borrowers to have lost their homes to foreclosure since housing prices started to tumble in January 2007.

Minorities Affected Most as New York Foreclosures Rise
the foreclosure crisis has swept through the New York region at an explosive pace in the past two years, destroying billions of dollars in housing wealth, according to a New York Times analysis of foreclosures filed since 2005 and federal mortgage data. ... But the storm has fallen with a special ferocity on black and Latino homeowners, the analysis shows. Defaults occur three times as often in mostly minority census tracts as in mostly white ones. Eighty-five percent of the worst-hit neighborhoods — where the default rate is at least double the regional average — have a majority of black and Latino homeowners.

http://www.nytimes.com/2009/05/16/nyregion/16foreclose.html?pagewanted=all

Latino borrowers experienced foreclosure rates 2.3 times that of non-Hispanic white borrowers. For African Americans, their foreclosure rates were 1.9 times higher than Caucasian borrowers.

Also, because so many Latinos took out loans during recent years, the Center for Responsible Lending said Latino borrowers accounted for almost half of all California foreclosures.

Part of the problem was that African-American and Hispanic families received a disproportionate number of expensive and risky loans, the study found.

http://www.signonsandiego.com/news/2010/aug/17/foreclosures-hit-states-minorities-hardest/

black and Hispanic borrowers helped fuel a multiyear housing boom, accounting for 49% of the increase in homeowners from 1995 to 2005, says Harvard's Joint Center for Housing Studies. But Hispanics and African-Americans were far more likely to leverage the American dream with subprime loans — higher-cost products for buyers with impaired credit — that are now going bad at an alarming rate.

About 46% of Hispanics and 55% of blacks who took out purchase mortgages in 2005 got higher-cost loans, compared with about 17% of whites and Asians, according to Federal Reserve data.

http://www.usatoday.com/money/economy/housing/2007-04-25-subprime-minorities-usat_N.htm


Then there is the corollary of the disparity of unemployment rates, which when they rose hit the minority communities much harder:

Black unemployment rates 
2006	8.9
2007	8.3
2008	10.1
2009	14.8
2010	16.0

Arthur

 

[spidergoat]

Hogwash.

Those industries you speak of sell primarily to the MIDDLE CLASS.

The poor aren't out buying those nice Suburban homes, filling them with expensive appliances and electronics, eating at those restauraunts, buying those two+ cars per family SUVs, running up those internet and cell phone bills, taking those vacations and spending money on entertainment.

open your eyes.

That's where the money is, it doesn't mean they support policies that create a middle class because they don't.

 

[adoucette]

That's where the money is, it doesn't mean they support policies that create a middle class because they don't.

It makes no sense at all.
The media makes its money from advertising products and thus they both need and want a large middle class with disposable income.

To claim, as you are, that: the media outlets that are conspiring to fool the public into thinking that poor people took advantage of the biggest and most powerful corporations in the world and tanked the (world) economy all on their own. And it's all because they don't want a little extra tax to go towards helping build a middle class.
Works totally against their business model of selling ever more advertising for ever more money because they have ever more viewers who have ever more disposable income.

Arthur

 

[quadraphonics]

Pretty funny how Greenspan is covering his ass by blaming everyone else under the sun and that NO BLAME is assigned to the BORROWERS.

You know, the people taking out the LIAR loans.

Indeed it paints the picture as if the millions of Bad loans occurred on their own.

They didn't.

There was a borrower at the end of each one of them and those borrowers didn't get forced into buying property they couldn't afford by the Mortgage brokers.

Except there's no need to heap blame on borrowers - they made a bet that they'd be able to afford the individual loans they took out, and those that couldn't got foreclosed upon. That's exactly as far as an individual homebuyer's responsibility goes - and those that were irresponsible have paid exactly the price for that already.

It's up to the banks to ensure that they aren't making so many bad loans that the resultant foreclosures will flood them with a bunch of distressed properties (which are now worth way less than the loans made for them, exactly because of the distortion of the markets induced by this stuff). It's up to the banks to properly price loans and verify income, and it's up to the ratings agencies to properly analyze and price the risk associated with various debt instruments. These are institutions with systemic responsibilities to get this stuff right - unlike individual homebuyers, whose responsibility begins and ends with what they can personally afford. And they abused the privileges of their systemic role ("too big to fail") to rake in easy cash and then leave others holding the bag.

Individual borrowers who overextended and got caught out were foolhardy and payed the price for it. Banks who abused their position to bilk the public were malign and did not pay much price for it. The policy response should focus on the latter - the former have already been chastized appropriately.

 

[adoucette]

Except there's no need to heap blame on borrowers - they made a bet that they'd be able to afford the individual loans they took out, and those that couldn't got foreclosed upon. That's exactly as far as an individual homebuyer's responsibility goes - and those that were irresponsible have paid exactly the price for that already.

It's up to the banks to ensure that they aren't making so many bad loans that the resultant foreclosures will flood them with a bunch of distressed properties (which are now worth way less than the loans made for them, exactly because of the distortion of the markets induced by this stuff). It's up to the banks to properly price loans and verify income, and it's up to the ratings agencies to properly analyze and price the risk associated with various debt instruments. These are institutions with systemic responsibilities to get this stuff right - unlike individual homebuyers, whose responsibility begins and ends with what they can personally afford. And they abused the privileges of their systemic role ("too big to fail") to rake in easy cash and then leave others holding the bag.

Individual borrowers who overextended and got caught out were foolhardy and payed the price for it. Banks who abused their position to bilk the public were malign and did not pay much price for it. The policy response should focus on the latter - the former have already been chastized appropriately.

Except that the problem starts with the borrower.

And I think we indeed do need to educate the borrowers.

And NO any bilking of the public would have been mainly by brokers, not bankers, and this was not remotely the cause of the problem because the high fees etc charged for these liar loans were all sucked up at the front of the loan. The problem with not being able to sustain the loans typically occurred years down the road.

And NO, not that many banks made that many bad loans. Only a few failed directly from making bad loans and none so bad that the FDIC didn't cover the losses. The biggest losses were by investment banks and/or investors who bought these mortgage backed securities (Bear Sterns, AIG etc)

You are right in that there were systemic errors made though out the mortgage system, mostly in the analysis of risk, but again, NONE of them even come into play without the home buyer starting the process.

During the bubble this was fostered by just run of the mill individual greed and the belief you could get something for essentially nothing.

 

[quadraphonics]

Except that the problem starts with the borrower.

How do you figure?

In the tautological sense that without people taking out loans, there can't be a mortgage crisis (because there can't be a mortgage industry)? Or... what? How is it the responsibility of borrowers to anticipate the future affordability and value of their homes, but not the banks making the loans, or the ratings agencies rating the securities, or the investors buying the securities?

I don't see where any homebuyer has any larger responsibility than worrying about the possibility of defaulting on his own loan - nor any means of avoiding the consequences of failing at that. The big, institutional players have systemic responsibilities far beyond that, and are also able to hold the economy hostage to get the public to save them from their failures.

And NO any bilking of the public would have been mainly by brokers, not bankers,

And yet, the public bailed out the bankers to the tune of hundreds of billions of dollars.

How much did we spent bailing out homeowners?

And NO, not that many banks made that many bad loans.

Apparently, enough banks made enough bad loans, to tank the entire global economy.

Conversely, if the problem isn't that banks made too many bad loans, then it also can't be that borrowers took out too many bad loans. If the loans aren't the fundamental problem, then the borrowers can't be the root of the problem.

Only a few failed directly from making bad loans and none so bad that the FDIC didn't cover the losses. The biggest losses were by investment banks and/or investors who bought these mortgage backed securities (Bear Sterns, AIG etc)

So, you are arguing that it is poor risk analysis of said securities - and the corresponding huge derivative market - that were the issue, and not the soundness of the actual first-order home lending. And so you agree that individual homebuyers bear essentially no responsibility for the crisis - it's the fault of ratings agencies and poor regulations.

You are right in that there were systemic errors made though out the mortgage system, mostly in the analysis of risk, but again, NONE of them even come into play without the home buyer starting the process.

Again, I don't see where that is anything but tautological, to the point of distraction. The fact that you can't have a mortgage crisis without first having a mortgage industry, doesn't imply that the individual homebuyers did anything improper, or could have somehow averted the disaster. And let's also note that individual borrowers are about the only players involved that have actually had to sleep in the beds they made.

If the risk is not being priced correctly, and you have a huge derivatives market based on that, then you're going to have a crisis no matter how scrupulous your retail borrowers are. Given that, pointing the finger at individual borrowers is a distraction - and pointing it at government incentives to make loans to minorities (as madanth has done) is racist distraction.

 

[adoucette]

How do you figure?

In the tautological sense that without people taking out loans, there can't be a mortgage crisis (because there can't be a mortgage industry)? Or... what? How is it the responsibility of borrowers to anticipate the future affordability and value of their homes, but not the banks making the loans

Because the Borrower is ALWAYS more knowledgeable about their individual financial situation, and their ability to pay back the loan than the lender could ever be.

 

[Repo Man]

 

[quadraphonics]

Because the Borrower is ALWAYS more knowledgeable about their individual financial situation, and their ability to pay back the loan than the lender could ever be.

But not about things like where housing prices will go, how risk in derivatives should be priced, etc. - all of the systemic effects that actually led to a full-blown global crisis, rather than a subset of borrowers getting foreclosed upon.

And, again, said borrowers were on the hook for the exactly right penalty for bad judgement: default and foreclosure. Is there some reason to think that such is an insufficient deterrent? We have a perfectly good system for deterring borrowers from taking on more than they can chew. What we don't have is a sensible way of regulating all of the other institutional players involved. And we need one, since we apparently decided that the free market wasn't an acceptable mechansim (since it would have meant obliterating all the ratings agencies, investment banks, etc.).

The problematic incentives are at the institutional levels: the incentive for ratings agencies to play ball, the incentive for brokers to make bad loans and dump them, the incentive for investment banks to over-leverage, etc.

 

[pjdude1219]

Hogwash.

Those industries you speak of sell primarily to the MIDDLE CLASS.

The poor aren't out buying those nice Suburban homes, filling them with expensive appliances and electronics, eating at those restauraunts, buying those two+ cars per family SUVs, running up those internet and cell phone bills, taking those vacations and spending money on entertainment.

open your eyes.

regulation and government interference created the middle class.

 

[Trippy]

And then there was the small matter of turnning the Gulf into an oil cesspool because regulators failed to adequately regulate the oil industry. How much damage was caused by the oil disaster in the Gulf? How much did that little disaster cost the nation and its citizens?

The fact is that even if your arguements are true, and that is a big if, what is the cost of failure to regulate and enforce? We have seen what Bush II era deregulation and enforcement brought - a world economy on the verge of collapse and unprecedented ecological disasters.

On this note:
http://www.telegraph.co.uk/news/new...-well-just-one-of-400000-abandoned-sites.html
http://www.guardian.co.uk/business/2010/jul/07/abandoned-oil-wells-gulf-mexico
http://www.nola.com/news/gulf-oil-spill/index.ssf/2010/07/27000_abandoned_oil_and_gas_we.html

 

[adoucette]

But not about things like where housing prices will go, how risk in derivatives should be priced, etc. - all of the systemic effects that actually led to a full-blown global crisis, rather than a subset of borrowers getting foreclosed upon.

And yet the balloon doesn't happen without the many millions of borrowers over-extending themselves.

You want to stop this from happening again, then that's one of the things you have to stop.

Consider the EXPLOSIVE growth of the Sub-Prime Market and the huge reliance on hybrid ARMS as a major contributing factor:

Year	FRM	ARM	Total
1998	51.3	48.7	 253,264 
1999	38.9	61.1	 369,424 
2000	32.6	67.4	 399,368 
2001	31.7	68.3	 498,494  <== ~5% of mortgage market
2002	28.4	71.6	 755,578 
2003	33.6	66.4	 1,265,769 
2004	23.8	76.2	 1,922,451 
2005	18.7	81.3	 2,266,502 <== ~25% of mortgage market
2006	20.0	80.0	 1,776,422 
2007	27.6	72.4	 330,901

Note the housing bubble burst (depending on the market, at the end of 2005 till the summer of 06) and yet even so there were so many out of the loop that still nearly 2 million people got these sub-prime loans, 80% of which were ARMS in mainly the first half of 06, which was well on it's way to producing about 4 million of these loans that year.

The name for it is Irrational Exuberance

http://en.wikipedia.org/wiki/Irrational_Exuberance_(book)

from 2001 to 2007, national mortgage debt almost doubled, and the amount of mortgage debt per household rose more than 63% from $91,500 to $149,500, even while wages were essentially stagnant.
When the housing downturn hit, heavily indebted financial firms and families alike were walloped.

http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_conclusions.pdf


August 27, 2005
US heading for house price crash, Greenspan tells buyers

In a pre-retirement speech to fellow central bankers at Jackson Hole, Wyoming, Mr Greenspan said that people were investing in houses as if they were a one-way bet, not allowing for the risk of price falls. He said “history had not dealt kindly” with investors who kept ignoring risks.

http://business.timesonline.co.uk/tol/business/economics/article559641.ece

Probably the simplest mechanism to prevent this in the future (besides the painful individual lessons just learned) is to take away the Mortgage Interest Deduction (and for sure removing it on more than one house).

That was a HUGE factor is setting up this balloon.

Many factors have contributed to the growth of subprime lending. Most fundamentally, it became legal. The ability to charge high rates and fees to borrowers was not possible until the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) was adopted in 1980. It preempted state interest rate caps.

The Alternative Mortgage Transaction Parity Act (AMTPA) in 1982 permitted the use of variable interest rates and balloon payments.

These laws opened the door for the development of a subprime market, but subprime lending would not become a viable large-scale lending alternative until the Tax Reform Act of 1986 (TRA).

The TRA increased the demand for mortgage debt because it prohibited the deduction of interest on consumer loans, yet allowed interest deductions on mortgages for a primary residence as well as one additional home. This made even high-cost mortgage debt cheaper than consumer debt for many homeowners.

In environments of low and declining interest rates, such as the late 1990s and early 2000s, cash-out refinancing becomes a popular mechanism for homeowners to access the value of their homes. In fact, slightly over one half of subprime loan originations have been for cash-out refinancing

http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

Remember, I'm not saying that lack of appropriate regualations wasn't also important to the crisis, but what I object to is not assigning appropriate blame to the millions of people who took out these risky loans.

Arthur

 

[spidergoat]

It makes no sense at all.
The media makes its money from advertising products and thus they both need and want a large middle class with disposable income.

To claim, as you are, that: the media outlets that are conspiring to fool the public into thinking that poor people took advantage of the biggest and most powerful corporations in the world and tanked the (world) economy all on their own. And it's all because they don't want a little extra tax to go towards helping build a middle class.
Works totally against their business model of selling ever more advertising for ever more money because they have ever more viewers who have ever more disposable income.

Arthur

It's not about a working business model, it's about making as much cash as possible and then getting out. You can still make money on the lower class with Wallmart and fast food.

 

[adoucette]

It's not about a working business model, it's about making as much cash as possible and then getting out. You can still make money on the lower class with Wallmart and fast food.

No dice.

You said it was the MEDIA that was doing this.

But they want just the opposite of what you are claiming they are trying to make happen.

Arthur

 

[joepistole]

And yet the balloon doesn't happen without the many millions of borrowers over-extending themselves.

You want to stop this from happening again, then that's what you have to stop.

Consider the EXPLOSIVE growth of the Sub-Prime Market and the huge reliance on ARMS as a major contributing factor:

Year	FRM	ARM	Total
1998	51.3	48.7	 253,264 
1999	38.9	61.1	 369,424 
2000	32.6	67.4	 399,368 
2001	31.7	68.3	 498,494  <== ~5% of mortgage market
2002	28.4	71.6	 755,578 
2003	33.6	66.4	 1,265,769 
2004	23.8	76.2	 1,922,451 
2005	18.7	81.3	 2,266,502 <== ~25% of mortgage market
2006	20.0	80.0	 1,776,422 
2007	27.6	72.4	 330,901

Note the housing bubble burst (depending on the market, at the end of 2005 till the summer of 06) and yet even so there were so many out of the loop that still nearly 2 million people got these sub-prime loans, 80% of which were ARMS in mainly the first half of 06, which was well on it's way to producing about 4 million of these loans.

The name for it is Irrational Exuberance

http://en.wikipedia.org/wiki/Irrational_Exuberance_(book)

August 27, 2005
US heading for house price crash, Greenspan tells buyers

http://business.timesonline.co.uk/tol/business/economics/article559641.ece

Probably the simplest mechanism to prevent this in the future (besides the painful individual lessons just learned) is to take away the Mortgage Interest Deduction (and for sure removing it on more than one house).

That was a HUGE factor is setting up this balloon.

http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

Immune to facts and reason I see. I think it is pretty obvious why the Republican Party has come to be known as the anti-science party. Facts and reason are not needed or wanted in Republican/Tea Party circles.

 

[spidergoat]

No dice.

You said it was the MEDIA that was doing this.

But they want just the opposite of what you are claiming they are trying to make happen.

Arthur

No they aren't. The US isn't their market anymore, we will become the cheap labor and the emerging markets are in China and South America.

 

[spidergoat]

...And THAT would be Fraud and yet I know of NO CASES in the works that suggests the Banks were doing so.



Show me a case that is being tried then (and involves the magnitude of dollars that actually matters).

Arthur

U.S. Is Set to Sue a Dozen Big Banks Over Mortgages

 

[adoucette]

U.S. Is Set to Sue a Dozen Big Banks Over Mortgages

Again, FRAUD is not alleged.

Your original claim:

The problem wasn't even the bad loans, but the fact that they were bundled with good loans, given fraudulent ratings, and sold as good investments.

BUT

The case is about SUB-PRIME loans, which are known in the industry to be riskier.

The fact that an independent company like Moodys might have rated the bundles of loans as AAA is not the fault of the banks, nor is a risk assessment, even if wrong, the same as Fraud.

Indeed, as your link suggests:

Fannie and Freddie had other reasons to buy the securities, Mr. Rood added. For starters, they carried higher yields at a time when the two mortgage giants could buy them using money borrowed at rock-bottom rates, thanks to the implicit federal guarantee they enjoyed.

In addition, by law Fannie and Freddie were required to back loans to low-to-moderate income and minority borrowers, and the private-label securities were counted toward those goals.

“Competitive pressures and onerous housing goals compelled them to operate more like hedge funds than government-sponsored guarantors, ” Mr. Rood said.

In fact, Freddie was warned by regulators in 2006 that its purchases of subprime securities had outpaced its risk management abilities, but the company continued to load up on debt that ultimately soured.

It's just sour-grapes by Freddie and Fannie.
They knew they were buying Sub-Prime loans.
They knew they were higher risk, which is why they paid higher yields.

Arthur

 

[spidergoat]

Why were bundles filled in part with sub-primes rated AAA?