At one time banks never made these kind of loans. The government is behind that scheme. Not to absolve those in the industry who are scumbags!

"Had most Americans lived by the old adage that one must save at least 6 months of income, we would have never gone down the tubes.

Had banks lived by the old adage of lending to those who could afford it, maybe people wouldn't grope at the blame game"


So when we go to SEARS all wide eyed and we buy a big screen TV and home movie system plus all new kitchen appliances... it's also SEARS' fault for selling us stuff that we actually couldn't afford (but were kind of in denial about)? Not letting the bankers (or any other fast-talking salesmen off the hook totally) -- but are we the consumers, buyers, borrowers adults or not?

Smokers clamoring for big bad tobacco to compensate them...
Fat ass eaters blame McD
And yeah, folks who lost their homes now say it ain't their fault...

Yes, generalizing and focusing on the macro here -- but whatever happened to taking personal responsibility for our own decisions? Ties back to my earlier posts about a bunch of "angry" brats!

Edited by ben2world on 10/17/2011 19:18:14 MDT.

At one time banks never made these kind of loans. The government is behind that scheme. Not to absolve those in the industry who are scumbags!

the Fed never made them define the loan types with that idiocy

So when we go to SEARS all wide eyed and we buy a big screen TV and home movie system plus all new kitchen appliances... it's also SEARS' fault for selling us stuff that we actually couldn't afford (but were kind of in denial about)? Not letting the bankers (or any other fast-talking salesmen off the hook totally) -- but are we the consumers, buyers, borrowers adults or not?

Smokers clamoring for big bad tobacco to compensate them...
Fat ass eaters blame McD
And yeah, folks who lost their homes now say it ain't their fault...

Yes, generalizing and focusing on the macro here -- but whatever happened to taking personal responsibility for our own decisions? Ties back to my earlier posts about a bunch of "angry" brats!

great. and while were handing out accountability, I'll take advantage of some social energy to try and bring focus to it. you?

While handing out accountability? Nice if that were the case, except I'm just not seeing much of that at all.

Social energy? My two cents -- social hot air --' different but same' as them Tea Party hot air earlier in the year. And why do I say that? Because I see both sides equally hell bent on blaming others but themselves. Sigh...

Edited by ben2world on 10/17/2011 19:56:35 MDT.

While handing out accountability? Nice if that were the case, except I'm just not seeing much of that at all.

cool, glad I am not big enough to hold that kind of distinction up for final judgement. guess it is easier to say there is not enough of something rather than try and help make it more... no worries, someone else will make the effort

how terribly cliche (but, fits right in at OWS? lulz)

"the Fed never made them define the loan types with that idiocy"

I am not a big fan of most banks, and they often behave poorly. Even if a bank sells a loan to Fannie Mae, a default is going to cost them money.

The sub prime loan problem has been 30 years in the making. You would have to look at the Community Reinvestment Act of the late 70's. The lobbying for this came from the extreme left, with people like ACORN pushing hard. The act requires banks to make loans to low income borrowers. And since many low income borrowers are concentrated in demographic communities, not making the loans puts banks at risk for discrimination suits. Also if banks do not make the loans, then they face additional regulatory sanctions.

To me the bottom line is that people need to keep their word. If they say they will pay back a loan, then they need to do so. Before signing a loan, it is their responsibility to put a budget together and ensure they can actually make the payments. No one forces us to take out a loan. It is purely voluntary.

BTW, at one time Countrywide originated something like 20% of all home mortgages. They were not a bank, but a mortgage company. And they generated a lot of sub prime loans. This was a truly scummy company. They treated their borrowers and employees like crap.

To me the bottom line is that people need to keep their word. If they say they will pay back a loan, then they need to do so. Before signing a loan, it is their responsibility to put a budget together and ensure they can actually make the payments. No one forces us to take out a loan. It is purely voluntary.

to me the bottom line is that bad banking finds it roots in creating toxic waste from the very loan definition it offers. commissions and bundled sales became a higher priority than smart, old-school banking. you know it

"to me the bottom line is that bad banking finds it roots in creating toxic waste from the very loan definition it offers. commissions and bundled sales became a higher priority than smart, old-school banking. you know it"

--------

In the late 70's banks and savings & loans accounted for around 70% of all home loans. In 2006 they only accounted for 43% of home loans.

In 2006 84% of sub prime loans were made by private lending institutions, not banks or savings & loans. 83% of these sub prime loans were made to low and moderate income borrowers.

Historically sub prime loans were 10% or less of all home loans. In 2004 - 2006 sub prime loans went up to 20%.

“Our aim is not to do away with corporatio­­­­­­ns; on the contrary, these big aggregatio­­­­­­ns are an inevitable developmen­­­­­­t of modern industrial­­­­­­ism, and the effort to destroy them would be futile unless accomplish­­­­­­ed in ways that would work the utmost mischief to the entire body politic. We can do nothing of good in the way of regulating and supervisin­­­­­­g these corporatio­­­­­­ns until we fix clearly in our minds that we are not attacking the corporatio­­­­­­ns, but endeavorin­­­­­­g to do away with any evil in them. We are not hostile to them; we are merely determined that they shall be so handled as to serve the public good. We draw the line against misconduct­­­­­­, not against wealth.”

Teddy Roosevelt, State of The Union Address in 1902


"I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."

Thomas Jefferson

"The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism—ownership of government by an individual, by a group, or by any other controlling private power."

Franklin D. Roosevelt, April 29, 1938

Edited by MAYNARD76 on 10/18/2011 01:02:14 MDT.

In the late 70's banks and savings & loans accounted for around 70% of all home loans. In 2006 they only accounted for 43% of home loans.

In 2006 84% of sub prime loans were made by private lending institutions, not banks or savings & loans. 83% of these sub prime loans were made to low and moderate income borrowers.

Historically sub prime loans were 10% or less of all home loans. In 2004 - 2006 sub prime loans went up to 20%.

in 2000 we had a fixed income securities market double in size to 70 trillion dollars. about that time, one mr. greenspan announced that us treasury bonds would stay at 1%. boom! a gigantic push from a fleet of investment managers to find low-risk investments to grow that 70 trillion. the backed mortage securities market exploded, quickly to follow was ridiculous loan types that had every warning sign of default... creating toxic waste from the gate

the fed never told banks, or otherwise, to give out half million dollar loans to people that didn't even need to show income, job nor assets. the subprime loan rate went up from a drive on the free market to find new loans to bundle and shoot back up to the CDO companies.

Craig,

You and I agree 100% that many in the mortgage industry behaved irresponsibly, unethically, immorally, and illegally. I mentioned that earlier along with all the other people in the mortgage chain that acted similarly.

In 2000-2005 demand for housing increased. And the housing market reacted as it should in a free market. Supply is rather fixed and demand increased. That is why prices accelerated at a rate of 12 - 20 percent a year. Probably at least 50% of the demand was fueled by low interest rates, and that was an artificial market event.

As demand for loans increased then interest rates should have gone up too, but instead they went DOWN. Interest rates should have probably been at 12%, not 3 or 5 percent. But alas, at 12% low and moderate income families would not be able to own a house. The government and other advocates feel that low and moderate income people have a right to purchase a house, and whether they can afford it is immaterial. That is why they manipulated the interest rate. And why they manipulated the money supply. And of course some in the mortgage industry manipulated the government, which is what happens in a mixed economy. In a free market economy there is no one to bribe or influence, because the government is "hands off" when it comes to the economy. Prior to Freddie MAC, the amount of money available to lend was limited to a percent of assets on hand at banks. The government and FDR felt this was totally unacceptable, because people who could not afford a house could not buy one. That makes sense to me that people who cannot afford a house cannot buy one. So they (the government) created the secondary mortgage market in the 1930s with the creation of Freddie Mac. And it got worse when the government created the other "MAEs" in later decades. Because they took us off the gold standard, the money supply was no longer finite. If the government felt we need more money, they just printed it. Almost anyone can become a mortgage broker. No assets needed. They originate the loan and the government buys it. It is a sweet corporate welfare system for the incompetent, the unethical, and the immoral. So now that you have eliminated a free market, which naturally weeds out the incompetent, you have created a system that invites the incompetent and dishonest people to make money they have not earned. Now if government gets out of the economy completely, there is no one to lobby, no reason to gain political favors, no special franchises to be bought.

My parents and my grand parents generation learned their lesson from the depression and they behaved responsibly. They had little or no consumer debt. They only borrowed to buy a house or a car, and they paid off the house in 20 or fewer years, and the car in 3 or less years. They typically made a down payment of 20% or more. And many did not borrow money at all. They just saved their money and paid cash. The subsequent generations bought, bought and bought with money they did not have. During the past few years we should have just let the poorly run financial institutions, car companies, and others simply go bankrupt. In a free market that is what happens. Incompetent companies go broke. That would have hurt all of us, but we would have learned our lesson once again. When these companies know the government will bail them out, they behave poorly. And you cannot blame capitalism, because it does not exist. You can blame incompetent, dishonest people who manipulated a mixed economy, and who could not make a dime in a free economy.

whoa, nick. it's great reading all this insight, but the wall of text won't change that manipulated interest rates were barely a blip on the radar of driving forces that made investors look to subprime to begin with. the combination of a frenzied energy behind a 70 trillion dollar market that had doubled in record time & investors of said market demanding low-risk... I'll blame greenspan for driving interest away from traditional low-risk investment (treasury bonds), but not really

Investing entails risk. I would never invest in MBS. But investors know the government has a tendency to bail them out. We should have let them all go bankrupt. If everyone knows they are on their own, their behavior will change.

US bitching about China's currency manipulation is 100% sorry ass excuse for US' inability to compete in manufacturing. Period.

Wait, am I saying China isn't manipulating its currency? Actually, China is, and NO ONE likes a cheater. But the fact is simply this: even if China were to let its currency float right now, that will do almost nothing for US manufacturing. Why? Because Wal Mart will simply steer away from expensive Chinese goods to cheaper alternatives in Vietnam, Cambodia, Dominican Republic, etc., etc. And the reverse will be true as well -- sure, American good would be cheaper to the Chinese, but they still have a very long way to go to compete with goods made in Korea and Taiwan, etc., etc. which are also flooding the Chinese domestic market.

US can forget about manufacturing shoes and textiles (except in niche markets). But notice how NO Asian companies can compete with Boeing -- regardless of currency fluctuation? Think about that and why it is.

Powerful macroeconomic forces are at work, folks. And neither protectionism nor bitching at China (or our government) is the answer!"

Canada just had it largest sales year of lumber to China, not whole logs, lumber.
Because they made that deal. They made a better deal than the US as the US is barred
to shipping only whole logs in many cases.

Just because you think labor would flow to other countries if the Yuan floated free
doesn't mean it wouldn't make a significant difference in the US manufacturing base.
China would now more of a market, and a very big one, to US made goods.

Who is at fault all of us but we had a lot dishonest people in the banking, mortgage,appraisers, realtors,tract home builder industry were doing a lot of illegal activities just to make sale and move product and sky rocket home price to all time highs. Knowing very will that all the homes they were selling would be only worth half that price in the next 4 to 8 years. The buyer would then have a house or property they would be upside down on the loan.
Also city council were voting in large growth plans in home real estate and commercial buildings instead of moderated or slow growth in order to line their pockets with more tax revenue.

Condominium laws were relaxed in California to allow apartment owners to convert each unit to a condo and sell each unit some no more that 500 sq. feet for $250,000.00 to people and some were piece of junk apartments. I Use to sell appliances to when I was in the apartment industry

Their were even television and radio advertising why rent when you can own a house for the lower payments or the same payment. It was like they were used car salesman or con men with deals that were to good to true. And the people bit in to the apple.

With theses tactic they became very rich and now have caused the american public and lots of young and old families great financial problems, heartache, homelessness, some citizens murder suicides of whole families because they are at the end of their rope and lost their minds. This also caused most people to walk away from their home loan obligations and default on credit card payments.

The same thing that is happening now happened through out southern California predominately in riverside county ,inland empire,bay area in the early 90's. Then the people who saw this coming and had money to invest, bought home at bargain prices and turning homes around selling them at when housing prices started to over inflate again and make large profits in late 1990's in to the early 2000's.

This happenes almost every 10 years just like the economy self corrects. This time around for self correction it hitting hard because the banking, mortgage,appraisers, realtors,tract home builder industry ,city councils got greedy and marching lock step together caused this problem. Now their problem is spinning out of control like a car on icy mountain road that may careen over a 5000 foot cliff.

Credit card,banking industry companies also have hand in this with way to easy credit tactics also they figured the more they can get people in debt the more money they make interest on. Credit card companies did not even call them credit cards behind closed they called product and the more product they sold meant more profits for the company.

Where I worked the company forced us to sell company credit card/product financed by GE capital visa cards to our customers at 90 days same as cash and after that 23% interest rate to shore up more profit for the company on the initial sale of the card.If you did not meet the quota you could get terminated or lower raise for the year.

I used to get a least 10 to 12 credit card application a week. I remember when my parents were forced to go bankrupt they had credit card applications coming in to them in less than a month. They applied for a couple of cards they were approved to get credit cards they were back on hell train of credit card debt again.

To tell you the truth everybody from general consumers who wanted to get ahead in life own a home and buy nice things for their families,the banking, mortgage,appraisers,realtors,tract home builder industry , local,state,federal governments all have a hand in this mess were in.
Terry

Edited by socal-nomad on 10/18/2011 11:21:04 MDT.

"to me the bottom line is that bad banking finds it roots in creating toxic waste from the very loan definition it offers. commissions and bundled sales became a higher priority than smart, old-school banking. you know it"

I agree.

Keynes famously stated that “The market can stay irrational longer than you can stay solvent." For awhile, any competitive investor had to resort to these high-risk, high-profit assets or their shareholders would migrate somewhere with better returns, all because of the frenzy you mentioned in another post.

Nick, like you said, demand was artificially heightened by a chain of decisions and policies. Everyone's desires for a perpetual boom and a new economy led us to believe the classic economic lie that 'This Time is Different".
I suspect if you had sold your house early on, you'd have regretted it as you saw prices continue to rise well past what you received. In fact, just like Sir Isaac Newton with South Sea Company stock, you might have been tempted to jump back into the market, expecting prices to continue to rise without an end in sight.

Ultimately, I think the blame game has its productive uses, in that a proper blame game includes proper analysis. A proper analysis aids prevention of future repetitions of the present circumstances. Further, it may provide some clue as to how to get out of this mess effectively, without digging deeper; I find it doubtful that the same type of behaviors that got us here will get us out.

I had the good fortune to see Nobel laureate Vernon Smith speak a couple times this spring. He's considered to be the father of experimental economics and remains a leader in the overlapping field of behavioral economics.

He developed an experiment called the "Asset Market" which is able to replicate --in a lab with perfectly informed agents given full knowledge of fundamental value-- bubble-type behavior closely mirroring the housing bubble, the tech stock bubble, and all those other bubbles we forget all too quickly.

Juxtaposing the tech bubble, which erased about 10 trillion of wealth but only caused a very minor recession, with the housing bubble, which erased (if memory serves) about 3 trillion but has launched our country into a lasting recession, he asserts that the primary difference is ownership of the money. When the tech stocks dropped, portfolio owners lost their own money and had a terrible time of it; when the housing market fell, the money and debts and obligations had been so interwoven that it caused the major crash with lasting consequences that it did.

Here's a transcript from a talk he did in '09, which I feel is relevant. Vernon's Talk

Terry,

As you know, I live in the Inland Empire. In my neighborhood housing prices have fallen around 70% since 2005. So theoretically I have lost several hundred thousand dollars on my home, but in fact it is only a paper loss. But the poor guy down the street who paid over $500K and now has to re-locate for his job is screwed.

Several years ago my wife suggested that we buy some income properties, which is something I have done in the past, so I am not a novice when it comes to these types of investments. I told her absolutely not, as the housing market was setting itself up for a crash. Also many "experts" were predicting a severe down-turn. My self-funded retirement holdings have suffered loses in the 6 figures, so I am in the same boat as everyone else.

Yes, all segments of the housing and mortgage industries had a lot of unscrupulous players. And we can discuss all the "predatory" tactics they used. But ultimately millions and millions of us could have simply said "No." To me it is the responsibility of each person to research any major purchase or investment, and not go blindly into any transaction thinking that "someone" will protect them if they make a bad decision.

If we think sub prime mortgages was a huge problem, the number of new car purchases made by people who needed sub prime car loans overwhelms the mortgage problem.

And the interest rates for sub prime car purchases were astronomical. Another typical problem are sub prime consumers who already have a high interest loan, their car is not paid off, and they emotionally need a new car. So the negative equity is rolled into the new car at a high interest rate. So you have someone who purchases a new car for $20,000, $10,000 of negative equity is added to the new loan with a new principle of $30,000 for a $20,000 car. Keep in mind that these high interest car payments are not amortized on car loans as they are on home loans but use the Rule of 78 which most people do not even know about, so these people pretty much paid all interest on the time they owned the car they are trading in. And there was probably no down payment. Now add sales tax. Should the sub prime borrower make all the payments for 6 years, the total paid is $57,105 assuming 7.75% sales tax and an interest rate of 21%. I have seen interest rates at 28% - 31%!! But the car purchaser is happy because his monthly car payment is only $793.13 per month. And the purchaser ends up paying almost $60,000 for a $20,000 car. Many car dealerships made very good money selling cars to sub prime purchasers. Bottom line, these people could have said "No." But emotionally they needed a new car. And this is the problem, consumers do not act in their own best interest.

this is the problem, consumers do not act in their own best interest.

and lenders know it