Did you know...

[Biggs3535]

If you check in at 14 minutes or so - Gyourko will explain...

And that leads us back to this:  http://money.cnn.com/2011/02/11/news/companies/fannie_freddie_losses/index.htm

Mr. Gyourko was close with his $100+ billion estimate a couple years ago.  It's over $150B now.

[CBWx2]

While Michael Hudson isn't a Libertarian (which is apparently the only source material Biggs uses to support his arguments. Step outside of the bubble, buddy

CNN money is "Libertarian source material"?  That's a new one...

You should learn to read the fine print. This, about the author of the CNN article:

Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.

But this idea that the government more or less forced banks to go out and make sub prime loans just isn’t true, the facts just don’t support that.

What does Mr. Hudson think the point of the CRA was?

Mr. Hudson was referring to the numerous banks that were not subject to CRA regulations. In case you missed that part:

The truth is that most of the lenders that were making sub prime loans were not covered by the Community Reinvestment Act. And the reason that big banks and other lenders were making these kind of risky abusive loans, was because they could make lots and lots of money from them and because Wall Street was bank-rolling the whole thing. As long as the pipeline of money was flowing from the big Wall Street firms, everybody wanted to get in on the game.

The truth is that most of the lenders that were making sub prime loans were not covered by the Community Reinvestment Act. And the reason that big banks and other lenders were making these kind of risky abusive loans, was because they could make lots and lots of money from them and because Wall Street was bank-rolling the whole thing. As long as the pipeline of money was flowing from the big Wall Street firms, everybody wanted to get in on the game.

If this was true, why did the banks wait for Congress to require them to lend to risky individuals to start offering subprime loans?  Why weren't they doing it all along?

What a strange coincidence that risky lending practices coinciding with legislation that forced risky lending...

A: There was no housing bubble until the 90's, or rather, until Alan Greenspan became Fed Chief and created one.
B: Glass-Steagall wasn't repealed until 1999. Prior to that, it wasn't legal for banks to package and sell commodities.

[CBWx2]

What Hudson is saying is that the lending to risky individuals was not the problem. The packaging and selling of these mortgages is what fueled the collapse. When the banks were limited to just lending, before the Greenspan housing bubble, while Glass-Steagall was still in place which restricted them from selling these assets, the mad rush to obtain sub-prime loans was non existent. You can try all you like to blame it on Jimmy Carter, but if neither of those things had happened, we wouldn't be here. Those are called facts.

[Biggs3535]

Mr. Hudson was referring to the numerous banks that were not subject to CRA regulations.

Which banks weren't subject to the CRA?  I'm sure they would like to have known, so they could have told the FRB, the FDIC , the OCC, and the OTS to GTFO of their office when they started enforcing the act.

A: There was no housing bubble until the 90's, or rather, until Alan Greenspan became Fed Chief and created one.

You don't say...

I wonder if the legislative and regulatory changes to the CRA in 1989, 1991, 1992, 1994, 1995 and 1999 had anything to do with that?

B: Glass-Steagall wasn't repealed until 1999. Prior to that, it wasn't legal for banks to package and sell commodities.

So Congress was doubly duplicitous.  Sounds good.

What Hudson is saying is that the lending to risky individuals was not the problem. The packaging and selling of these mortgages is what fueled the collapse

How do you package and sell mortgages that do not exist?

When the banks were limited to just lending, before the Greenspan housing bubble, while Glass-Steagall was still in place which restricted them from selling these assets, the mad rush to obtain sub-prime loans was non existent.

Can't it also be said that when the banks weren't forced to make risky loans to risky individuals, that mad rush was also non-existent?  There has to be a starting point to the problem.

You can try all you like to blame it on Jimmy Carter, but if neither of those things had happened, we wouldn't be here.

I haven't mentioned Jimmy Carter.  I blame it more on Congress and organizations like ACORN.   

Those are called facts.

Facts, while ignoring the precursors.

[dbucfan]

What Hudson is saying is that the lending to risky individuals was not the problem.

He surely does, but if lending to risky individuals hadn't occurred there would never have been such a bubble. 

[CBWx2]

What Hudson is saying is that the lending to risky individuals was not the problem.

He surely does, but if lending to risky individuals hadn't occurred there would never have been such a bubble.

This is incorrect. Sub-Prime mortgages didn't create the bubble. Greenspan's monetary policy created the bubble. Sub-prime mortgages were an instrument used by banks to take advantage of the bubble. Blaming sub-prime mortgages themselves for the way in which banks chose to abuse them is like blaming gun manufacturers for drive-by shootings.

[dbucfan]

So - you are now saying that if the risky loans hadn't been made there would have still been a bubble?  Absent the loans to create the instruments ... well it never occurs - regardless of whom one wishes to blame.  The idiots who took the loans, the idiots that sold them, the resellers, packagers into derivatives, the buyers of ill founded products - all have a piece of the credit/blame - even those who shaped investment packages predicting the failure...

As to the metaphor - it more like blaming the shooter... just sayin' - bad metaphor.

[CBWx2]

So - you are now saying that if the risky loans hadn't been made there would have still been a bubble?

Yes. Sub-prime loans had no effect on real estate prices. The CRA was initiated in 1977. The housing bubble began in 1997. I would think that it would take less than 20 years for a law such as this to have an effect on the economy.

Absent the loans to create the instruments ... well it never occurs - regardless of whom one wishes to blame.  The idiots who took the loans, the idiots that sold them, the resellers, packagers into derivatives, the buyers of ill founded products - all have a piece of the credit/blame - even those who shaped investment packages predicting the failure...

As to the metaphor - it more like blaming the shooter... just sayin' - bad metaphor.

The CRA was created as a means to combat redlining and give individuals of a lower income bracket access to money. Guns are sold to the public for the use of hunting and self defense. It is not the governments fault that banks were writing sub-prime loans to individuals that qualified for regular loans because they would yield a higher profit. That is not what the intent of the loans were, just as gun manufacturers do not make guns expressibly for the use of drive-by's and bank robberies, but it still happens. The government was surely culpable in other ways, mostly in terms of deregulation and lack of oversight. But blaming the CRA for this is like blaming Smith & Wesson for bank robberies. The metaphor is an accurate one.

[dbucfan]

You're cracking me up.

[John Galt?]

The guy who bought the house next to my sister worked at the Burger King drive through.   No way he should have gotten that loan, and he lost the house.

Yep. And its all his fault, right? It's not the bank's fault at all? I mean the bank gives a guy what....a $300,000 loan and he works at a Burger King drive-thru. Im sorry but this is bank's fault. The loan should have never been approved. What moron lends $300,000 to a Burger King cashier? Just like the old saying, "a fool and his money are soon parted."

What is it that in this country where if the rich lose money, it is someone elses fault? Just like with the NFL lockout, most of the stupid fans are trashing the players even though it's the owners that caused this mess. They agreed to the 2006 CBA by a 30-2 vote. But it's the player's fault that was a bad deal for the owners.

Give me a break. This country is turning into a joke. Companies default on loans ALL THE TIME! They foreclose all the time. No one seems to care when a company fails to pay its financial obligations. Yet when someone walks away from their mortgage people act like its the worst crime in the world.

Who said a "bank" gave him the loan? Most of the subprime loans were NOT issued by banks, but by subprime lenders like Countryside and HHF and HFC (which was acquired by HSBC, an actual bank).

Feel free to substitute lender in place of bank - which I suspect you knew.  I used bank as it was offered in the prior post.  Lender works just fine

I posted this for a reason. Prior to the repeal of the Glass–Steagall Act, banks were specifically prohibited from engaging in subprime loans. But with Clinton repealing Glass-Steagall, the big banks were free to invest into the subprime market, suddenly Wells-Fargo, BoA,  and Chase were free to invest in the temporarily lucrative subprime market. Without the big banks diving headfirst into the subprime market, the capital wouldn't have been there to finance the bubble that would collapse.

[dbucfan]

I understand JG?, and banking  industry taking part of the sub prime mortgages was enabling.  The products are a part of the issue, the removal of so much of the qualification processing and borrowers to enamored with the idea of home ownership and blind to having to pay for the homes for an extended period of time area all at issue.  For me - picking one portion of the mortgage mill that occurred and saying 'that' is the cause is not something I believe should be done -

[spartan]

So - you are now saying that if the risky loans hadn't been made there would have still been a bubble?

Yes. Sub-prime loans had no effect on real estate prices. The CRA was initiated in 1977. The housing bubble began in 1997. I would think that it would take less than 20 years for a law such as this to have an effect on the economy.

Absent the loans to create the instruments ... well it never occurs - regardless of whom one wishes to blame.  The idiots who took the loans, the idiots that sold them, the resellers, packagers into derivatives, the buyers of ill founded products - all have a piece of the credit/blame - even those who shaped investment packages predicting the failure...

As to the metaphor - it more like blaming the shooter... just sayin' - bad metaphor.

The CRA was created as a means to combat redlining and give individuals of a lower income bracket access to money. Guns are sold to the public for the use of hunting and self defense. It is not the governments fault that banks were writing sub-prime loans to individuals that qualified for regular loans because they would yield a higher profit. That is not what the intent of the loans were, just as gun manufacturers do not make guns expressibly for the use of drive-by's and bank robberies, but it still happens. The government was surely culpable in other ways, mostly in terms of deregulation and lack of oversight. But blaming the CRA for this is like blaming Smith & Wesson for bank robberies. The metaphor is an accurate one.

Couple of points here.

1. You stated in the thread start and re-iterated here that people were given sub prime loans when they would have qualified for regular loads. I read the article you referenced twice and I did not see that mentioned at all. Please show me where they say that otherwise the premise of your argument is baseless. As I get older my eyesight is going down the toilet so I will accept that I might not have seen it and would welcome the assistance.

2. The housing bubble burst because people could not pay their mortgages. It does not matter if their mortgage was held by a bank or had been packaged and sold, it did not effect their inability to pay. What the derivatives did was just shuffle the loss onto somebody else. The core question is therefore, why could these people not pay their mortgages? By and large the answer is they bought a more expensive house than they could afford, due to being afforded sub prime mortgages which did not exist (to my knowledge) until the CRA.

[Biggs3535]

1. You stated in the thread start and re-iterated here that people were given sub prime loans when they would have qualified for regular loads. I read the article you referenced twice and I did not see that mentioned at all. Please show me where they say that otherwise the premise of your argument is baseless.

It is a baseless claim - along with the claim that "numerous banks were subject the CRA regulations."  I'm still waiting for a list of those banks.  It's going to be a pretty short list, because all banks that receive FDIC insurance were subject to the CRA.  As of March 24, there were over 7,600 of these banks.

[John Galt?]

Yes. Sub-prime loans had no effect on real estate prices.

Wow! 

[dbucfan]

Yes. Sub-prime loans had no effect on real estate prices.

Wow! 

And being in the sun doesn't lead to sunburn... yea, there is a lot of learning going on.