Most of these 'junk loans' that were made to borrowers with bad credit were resold on the stock market to third parties. The fact that lenders 1) didn't have to suffer the consequences of making bad loans and 2) financially profited from making those bad loans suggests that they had an interest in seeing relaxed underwriting standards. For this reason, I can't help but think that the author is pointedly ignoring the main contributing factor to the mortgage disaster.
depends on what you mean by sell. But the way I understand it, it's way easier to sell loans without caring if they get paid back. Because then your essentially expanding your market to include 'people who won't pay back'. Bigger market means more sells. Normally you would exclude those people because you eventually want your money back with interest, but the sellers in this particular story didn't care about that. (It wasn't their money)
It doesn't matter if the morgages are repaid and it may even be beneficial to bankers if there is a small level of defaulting. Unlike junk bonds, resold mortgages have an underlaying value in property. Unfortunately, beyond a small level of defaulting, a glut of unsold property decreases property prices, decreases the value of already resold mortgages and make property more affordable to nieve investors.
Where does education and personal responsibility come into play? Just because one qualifies for a loan doesn't mean one should enter into a loan, no matter what the means of qualification. It doesn't really matter if one qualifies by some government mandate or by the lender's willingness to accept more risk, responsibility still lies with the borrower to honestly analyze whether or not they will be able to make good. In my mind, the real failure lies with our nation's inability to educate it's citizens on how to manage their own finances effectively.
I knew that a lot of the 'handlers' of corporate bigwigs would have them out angling for a defense at the trials that are looking increasingly likely, but this one just reeks of desperation. The current mortgage crisis was fueled by a myriad of reasons, but believe me, the idea that billionaires were sitting around thinking about ways to get money into the hands of poor black guys was hardly one of them.
I can see now that one of their strategies will be to play the race card. Their aim will be to ensure the jury thinks about something other than the mountain of documents, emails, and other internal and external communications and directives. All of which will point to the inescapable conclusion that their cases are really about garden variety fiduciary negligence on an unprecedented scale. The race card is how many of the wealthy, from OJ to the CEO of HealthSouth manage to escape justice. It behooves us all to hold our wallet and our will a little closer when the wealthy start to talk about racism, or the dangers thereof.
Middle America you are being conned. Just today the CEO of Bear Stearns unloaded what used to be over a USD1 billion stake in Bear for USD60 million, under the terms of the original deal with the government that his stake was only to be USD15 million. Poor him you say? He lost so much money you say? Consider the fact that Bear's stock price is being propped up by a USD30 billion guarantee from the US. Then ask yourself where the money for that guarantee comes from. Even better research it. Did you know several such guarantees are being made?
Consider some news that the government would have us believe is completely unrelated. It just got a whole lot harder for poor and middle class college students to get student loans, because the government has found it necessary to materially decrease the levels of subsidy it provides to student loans. Now a cynic would say that the CEO of Bear just raided the US college fund for USD60 million. An optimist would say the government is simply making financially prudent cut backs in its spending. The truth is somewhere in the middle, but I think we'd all agree that these types of financial machinations are sub optimal. Giving anti-capitalist guarantees of security is how we got here in the first place.
WOW . . . I'm ranting . . . I gotta stop working so late.
At least I caught myself.
The short version is this article insults my intelligence, and assumes that I am uninformed. All of which would trouble me a good deal less if the aim of this article was something other than keeping a scumbag out of Club-Fed.
The article doesn't claim that billionaires were "sitting around thinking about ways to get money into the hands of poor black guys was hardly one of them."
It claims that changes to the law, promoted by ACORN, made it legal to write bad loans.
A quick look at Wikipedia suggests that this might be the case:
>The [1995] revisions [to the Community Reinvestment Act] allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997
That is EXACTLY my point. This article would have me believe that writing bad loans caused the credit crisis.
As a former quant, I can tell you that my belief is that the practice of improperly securing bundled debt is the cause of the credit crisis. When everyone began to realize that their risk analysis was off, they discovered that they held bonds or other more exotic instruments that were improperly hedged. The entire world asked for the same CDS's at the same time. That's when EVERYONE knew the game was up.
BTW, if you are a quant, or if you know your finance, I would be happy to explain why I believe the collapse in the bond market is caused by the asymmetric nature of a lot of the hedging that was going on. Or rather the total lack of hedging, and by implication, proper risk management. CDS's, CDO's and indeed derivatives in general are going to have their problems, but that is BECAUSE of improper securitization practices. We have a USD500 trillion, yes I said TRILLION, house of cards out there because of rampant misuse of these instruments. The mortgage bond market is just the place where the problems cropped up first.
I would be happy to listen to your explanation of how bad loans were the cause, but you will have to have a good explanation for two things. Firstly, explain why the bundles containing these loans were improperly secured in the first place, given that the lenders, according to the article you are citing, freely admit that they knew these to be bad loans? Could it be fiduciary negligence? Secondly, why is there so much trouble in the Jumbo market, (mortgages higher than USD417000), where CRA is not an issue at all, if CRA is the problem they are making it out to be?
I stand by my belief that fiscal negligence, and by implication, a failure to exercise the proper fiduciary duty to the companies, lies behind the collapse of ALL of these enterprises. If you have evidence to the contrary, submit it.
The owner of a foreclosed house becomes the bank, or more precisely, whoever the bank sold the bond to. In answer to your question, yes they can hold it, but there are a lot of very complicated reasons not to. They involve liquidity ratios and the like. So selling makes since in a great many instances. In short, what a bank, or financial institution does with it will depend on their fiscal position. Or it SHOULD. This mess has shown us that they can behave irrationally.
OK, fair point, the NYPost is not the gold standard in economic analysis.
On the other hand
1. The author, Stan Liebowitz, is "the Ashbel Smith professor of Economics in the Business School at the University of Texas at Dallas"---not exactly unqualified to speak on the subject.
2. The New York Post may run a lot of salacious pieces, but how often does the NYPost run an overtly discriminatory and salacious piece?
Remember, this is the paper your New York workers read on the train on the way to work. That's about as mixed a bag as you can get. The New York Post, like every other New York paper, does its damnedest to appeal to the widest possible spectrum. The Post is a liberal paper. You can call it conservative, but only when you're comparing it to the NY Times. This makes the article interesting, and it should at least give you pause.
It's easy to take a snotty attitude against reading something like the Post, but the article, which admittedly isn't that great, raises an interesting point. In America we purposefully overlook a lot of things in the name of equality. In underwriting you don't want overlook anything.
The financial analysts who failed to analyze this situation are responsible for the crisis. So are the former home owners who defaulted on their loans. And the people who issued them those loans. But when good analysis is restricted by federal law, and bad analysis is incentivized, how much blame can you place on analysts before next placing it on legislation? Regardless of how much blame you assign to the legislation, you must now multiply that manyfold. This is a little thing that has made a big difference.
The point is that we have to ask ourselves what level of abstraction we are willing to force onto the notion of a person. Are we willing to turn so much of a blind eye that it throws us into economic recession?
This recession is likely to be mild, but deep recessions are a time of great uncertainty. You don't have to read very far back in history to learn that people tend to stop overlooking things when their pocketbooks are empty. Equality, in other words, is a luxury item, and like many of the things we enjoy in America, it's contingent on our economy not exploding.
> The New York Post, like every other New York paper, does its damnedest to appeal to the widest possible spectrum. The Post is a liberal paper.
No it's not. It's owned by Rupert Murdoch (also the owner of Fox News), and it's considered a conservative paper. The Daily News is a more liberal paper. Wikipedia confirms this, though I'm sure you could look for more definitive sources if you want to surf around.
Frankly, I would fully expect the Post to try to scapegoat liberal activist groups.
> The author, Stan Liebowitz, is "the Ashbel Smith professor of Economics in the Business School at the University of Texas at Dallas"---not exactly unqualified to speak on the subject.
The author is certainly qualified. On the other hand, it's apparent from reading his piece that (rightly or wrongly), he's had this axe to grind about redlining that has left him out of the mainstream consensus for quite a long time. It could be that this makes him uniquely qualified to make an assessment that no one else needs to hear, or it could mean that he's a kook that no one with any sense listens to.
Personally, I'm certainly not qualified to say that the article is wrong, because it may be 100% correct. However, I would like to see more evidence than the word of a guy who's been arguing a minority position for 15+ years in a newspaper that is not known for its commitment to balance.
We would classify the the Village Voice as a very liberal paper, but send it to someone in Nebraska and they'll tell you it's pornography.
Political ideals may draw on universal principles, but the line of scrimmage is different in every district. Murdoch is a businessman first, and he likes to own news companies. He happens to prefer to play one side of the line of scrimmage. The combination means his mouthpieces say different things in different areas. In some areas they endorse Hillary Clinton for re-election to the senate...
I tried to sidestep this criticism, but I was wrong to even sound the terms. The point is that the NYPost doesn't usually run articles like this---otherwise I wouldn't have read it. This tidbit is so salacious it even got my attention.
>He happens to prefer to play one side of the line of scrimmage.
Or at least prefers to play on the side he feels is an underserved market.
Most people want a news source that agrees with them. If a fact doesn't support your views, it must be a lie, right?
In the TV news market, this means that left wing types are split between CNN, CBS, NBC, etc. Murdoch figured this out, and right wing types all watch Fox.
If you're going to impeach what you believe to a a secondary source of questionable veracity, it might behoove you to use something other than baldfaced assertions yourself.
Well, for starters, the author's baseline claim that there was no factual basis for redlining, which he freely admits is the minority opinion in the matter.
More importantly, the claim that the government and the liberals hounded banks into offering subprime loans, and that it wasn't just the dollar signs in their eyes that made them do it.
These things may be true or may not, but I would like to see better evidence before I simply accept them as facts.
This article uses a classic diversion tactic - focus on a singular issue, which may have contributed, and attribute all of a complex issue to the single issue that fits the agenda.
No mention of how lending agencies, given incentives to close as many mortgages as possible, had no incentive to make sure those lenders could actually pay. The article gives no mention to how the Fed's lax monetary policy dropped interest rates and created a frenzy in housing that blocked a lot of people out unless they used non-traditional instruments.
The author doesn't say that the "anti-racist" policies are one factor (which may be true) but that these policies are the direct cause. As someone who purchased a home two years ago, I became personally aware of how low short-term interest rates combined with a housing frenzy that drove prices up over 20% a year can easily push a lot of people to get low-interest ARM mortgages instead of more stable 30yr mortgages.
I just think this article takes on a straw man because it suits an anti affirmative action agenda.
I swear that I remember a quote from Greenspan saying that low interest rates would cause a housing bubble but I can't find it anymore. Anyone have any idea what I am thinking of?
I don't know if this what you're looking for, as Greenspan was not prognosticating, but speaking in hindsight.
"Greenspan said in an interview with Austrian magazine Format that low interest rates in the past 15 years were to blame for the house price bubble, but that central banks were powerless when they tried to bring it under control."
That's just one factor among many, but symptomatic of our underlying belief that money should go to where it is "deserved" rather than where it is effective....
