Obama Drowning Business in a Sea of Red Tape

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.

 

Log in or Sign up to hide all adverts.

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/

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

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

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:

Code:

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

Arthur

 

Log in or Sign up to hide all adverts.

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

 

Log in or Sign up to hide all adverts.

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

 

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.

Please Register or Log in to view the hidden image!

 

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

How much did we spent bailing out homeowners?

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.

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.

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.

 

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.

 

Please Register or Log in to view the hidden image!

 

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.

 

regulation and government interference created the middle class.

 

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:

Code:

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)

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

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

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

 

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

 

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.

 

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.

 

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:

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

 

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