Before Obama: The Socialism of Bush and Paulson

[_ldsfaqs]

Inadequate regulation did not cause the crash, liberal regulations did, which forced banks to lower their loan standards so "everyone" could get a home, namely the poor, those who couldn't actually afford homes or where stable enough to keep affording them. And because banks were forced to do this, they had to come up with ways to deal with the bad loans, but because they were dealing with CRAP already, you can't make crap smell better, and ultimately it's going to get all over you.

That is a bigoted Right Wing myth that was refuted as quickly as it was created. We now know that banks for not "forced" to do any such thing. As usual, the Right is always looking to blame those lazy poor folks. It seems your education on this subject is no better than your education in Mormonism.

Kevin, you should learn not to confuse your left wing fantasy's with actual facts and reality.
It's an actual FACT what the Left forced banks etc. to do. There are videos on Youtube from CSPAN etc. of Bush and Republicans trying to fix the problem they saw coming, and people like Barny Frank on video saying "NOTHING IS WRONG WITH or needs to be fixed with Fanny/Freddy, and the other instituted regulations".

You're a complete brainwashed zombie Kevin.

[_Kevin Graham]

Why don't you support your claim with references if it is such a "fact"?

Because you know you heard this from idiots like Sean Hannity, and you can't back up anything you say from legitimate sources. No ldsfaqs, no one "forced" banks to do anything. You simply don't know what you're talking about.

I can quote you economists who have dismissed it as a myth created by Right Wing bigots. All you can do is claim I'm a brainwashed Leftist, which is what Droopy is always left with because he cannot substantiate his BS either.

I outlined all the facts here, just two years ago. You're really not up to speed are you?

viewtopic.php?f=5&t=12524

[_MeDotOrg]

Inadequate regulation did not cause the crash, liberal regulations did, which forced banks to lower their loan standards

Please tell me SPECIFICALLY what regulations caused the crash. Please tell me SPECIFICALLY how banks were forced to lower their standards and how this led to the crash.

You are looking at the symptoms, instead of the actual causes, as all liberals do, not thinking deep enough to see the actual truth.

Well, I'm going to tell you SPECIFICALLY what I think the causes were, and why deregulation and lax regulation were contributing factors. Then you can do the same.

f you want to understand the housing bubble, ask yourself what the police ask when they visit a crime scene:

CUI BONO? Who benefits?

Not the homeowners who got loans they couldn’t afford. They lost what little equity they had when they defaulted on their payments.

What kinds of loans to poor people get? Sub-prime mortgages. What kind of loans do Mortgage Brokers love? Sub-primes, because they make the highest commissions, because they pay the most interest. Mortgage brokers LOVE sub-prime mortgages.

In the Bad Old Days, when we lived under the tyranny of Too Much Regulation, home buyers went to a Savings & Loan.The S&L did due diligence (checked your credit thoroughly). If you qualified, you paid your monthly payment, and in 20 years you paid pack the principle and the interest. Default rates were low, because S&Ls took the loss if you didn’t repay your loan, so they were sure to practice due diligence. This was a classic example of ‘moral hazard’ working in the marketplace.

Somehow America limped through this Stalinist Era with no stock market crashes, a low bank failure rate and a low mortgage default rate.

With the dismantling of different regulations (Starting with the Depository Institutions Deregulation and Monetary Control Act ogf 1980, and culminating with the Gramm–Leach–Bliley Act of 1999), home loans now were the cannon fodder for ‘financial instruments’. You now could get a loan with a home loan broker (Like Countrywide), who would sell it to a bank. The bank would then package your loan (or any PART of your loan) with other loans or parts of loans (including student loans, car loans and credit card debt) into a financial instrument called a derivative. (Because of the objections of the financial services industry, derivatives were unregulated). This particular type of derivative was called a Collateralized Debt Obligation. That CDO could in turn be sold to an investor anywhere in the world.

The problem was that the people making the loans were getting paid when they SOLD the loans, NOT for making sure the money was REPAID. They had no interest in whether or not the person getting the loan could repay it. They didn’t care about due diligence. They began making riskier and riskier loans. When someone couldn’t afford to make payments, they would LOAN them the money for the down payment, with very small payments for the first 5 years, then a HUGE balloon payment would kick in. The people making the loans knew this. They just didn’t care. They wouldn’t OWN the loan in 5 years, it was somebody else’s problem. In the parlance of the free market, there was no moral discipline.

Who benefits?

Everyone who gamed the system. Loan Brokers targeted new immigrants, because even though they were poor their credit scores were higher than poor people who had lived in the U.S. all their lives.

Investment banks bundled the loans of poor people with the loans of rich people, so that the AVERAGE credit score would be decent, even though the average score was not a good indicator of how many loans would fail. The rating companies were happy to help them with this deception, giving virtually all CDOs a AAA rating This meant these securities could be sold to pension funds.

In 2005 Henry Paulson, soon to be Treasury Secretary and then President of Goldman Sachs, lobbies the government to relax regulations on Investment Banks. The Government complies. Some Investment Banks are now leveraged as high as 33:1. (Which means they have more money to play around with, but if the value of their investment drops more than 3%, they're screwed.)

Another financial instrument helped the Banks game the system further. A credit default swap is an insurance policy you buy against the failure of a security. But unlike most insurance, you can buy a policy insuring the failure of a security YOU DON’T OWN. Imagine if there was a meth lab in your neighborhood and all of the homeowners around it took out fire insurance policies on that house. Bankers were, in effect, taking out insurance on their own meth labs.

The S.E.C., in its infinite free-market wisdom, decided that Credit Default Swaps were a good idea, and didn’t need to be regulated. A.I.G. started selling credit default swaps to anyone that wanted them. Because they weren’t regulated, they didn’t have to set any money aside in case they ever had to pay off. The brokers who sold the policies made millions.

Who benefits?

The banks started taking out policies on not only their own securities, but on other banks’ securities they thought would fail. When Lehman Brothers failed, they had over 400 BILLION dollars in CDS insurance from AIG. (AIG had over 6 TRILLION dollars in total Credit Default Swap insurance.) Treasury Secretary Paulson made sure that all of AIG’s insurance claims were paid off, including tens of billions to his former employer, Goldman Sachs. And the pension funds and private investors who actually bought the drek that Goldman and Lehman Brothers were selling? Not so lucky. They got nothing.

CUI BONO?

When the first group of sub-prime loans that had balloon payments came due, the default rate for mortgages spiked alarmingly. That is what precipitated the market panic, and caused Lehman Brothers (highly leveraged due to the lax regulations proposed by Paulson) and subsequently AIG to fail.

But if each bank or S&L owned each mortgage the way they did in the bad old days before deregulation, it would have been a relatively simple thing to say "Well just devalue the mortgages with balloon payments and isolate the problem loans. But THE OPACITY of CDOs made their value impossible to to accurately judge how badly a single CDO was infected. So ALL CDOs became suspect, and ALL CDOs lost vailue. (This has contributed greatly to the chaos of foreclosure hearings. When someone defaults, where is the mortgate? Part of it can be in one CDO and another part in another. )

Any decent cop looking at this crime scene would quickly figure out that the recent immigrant who took out the balloon payment mortgage was not the perp. He was the dupe, along with the person who ended up owning any part of his mortgage. The perps were the people who brokered the mortgages. the people who securitized the mortgages, the ratings agencies who profited from the fees they got for absurdly optimistic ratings

And they were aided and abetted by Congressmen, Senators and Presidents from both sides of the aisle, the SEC, Treasuy Department and all those didn't regulate adequately and didn't adequately enforce regulations.

That's the way I see it. Now let's hear, ldsfaqs, SPECIFICALLY which regulations forcing banks to lend to poor people caused the market to crash. Don't point me to another website. See if you can make your own argument yourself.

[_Kevin Graham]

In 2004 the FBI warned of an epidemic in white collar crime with respect to mortgage lending. It concluded that 80% of the fraud was perpetrated by the lenders, not the borrowers. But the FBI didn't have the man power to address this problem because the Bush Administration had diverted attention to Homeland Security

http://articles.latimes.com/2008/aug/25 ... agefraud25

[_Kevin Graham]

MeDotOrg has it right.

We came back to the USA in 2010 and bought a home in 2011. I heard all the horror stories about the housing collapse and how lenders were using ambiguous contract language to screw people out of money, so I was careful in what I was doing.

However, thanks to GOVERNMENT REGULATIONS that took effect that year, the contracts were very clear and coherent. In fact, an entire page was dedicated to one important detail. It said in large bolded font, this is not an adjustable rate Mortgage, this is a fixed-rate mortgage, explaining in very clear terms that there would never be a change in my interest rate.

It repeated this on a number of pages where I would sign, because what was happening in the recent past was private lenders were trying to get people to sign up for ARM loans because it paid them higher commissions. They would hide this important detail in a mountain of contract lingo and fine print. There have been documentaries that expose these practices for what they are. Some lenders would actually change the contract to an ARM loan without the buyers consent, but by the time anyone figured out what was going on, the loan had already been sold to a bank and the original lenders had already been paid its commissions.

Three weeks after we bought our home, we discovered that the private lender sold our mortgage to Wells Fargo bank. They repacked the loan as a mortgage back security as was the plan all along.

[_Droopy]

You're a complete brainwashed zombie Kevin.

Kevin Graham is a complete and utter tool. He wouldn't know what a "fact" was if it hit him at supersonic speed. This man has never, based upon years of his posting, so much as approximated, in his entire adult life, what most serious thinkers would understand to be serious reading and study. He cannot in the remotest sense be understood as "educated" in any salient way. He lunges from activist website to activist website and from mainstream media propaganda mill to mainstream media propaganda mill, seeking Democrat party/MoveOn.org/Media Matter/Shadow Party talking points, slogans, tropes, and urban political legends, and then comes in here and poses as if he's educated and erudite.

He calls names, speaks on subjects and topics of which he knows little to nothing (but with a fiery verbal dexterity and passion that might well pass as evidence of knowledge to the unwary), and throws tantrums in defense of his Lord, God, and Savior, the state.

Graham is a pop-leftist blowhard who, despite what you may have seen him say, has only a surface film understanding of what socialism actually is and what its theories and concepts imply for actual governance. He has virtually no understanding of social and political history, and his knowledge of economics is an abyssal void.

The only kinds of people who take Kevin seriously on matters of economic policy, whether housing, tax policy, or anything else, are people like Hugo Chavez. And Graham's likely farther to the left than he is.

In point of fact, Kevin lurched, some years ago, almost overnight, from a stanch conservative to a flaming useful idiot and anti-liberal quasi-totalitarian leftist, which leads me to believe that his present leftism probably isn't any deeper or authentic than his conservatism was.

Its just one of the masks he wears when he's onstage playing the part he's chosen for himself.