Question about the subprime mortgage mess

[SocialD]

So I was a passenger in a carpool to a seminar today, where the driver was listening to Rush. He was talking about how Hillary was worried Trump would deregulate banks too much and possible create another subprime mortgage-esque mess. Limbaugh then stated how the people most to blame for that happening in the first place were Bill Clinton and Jimmy Carter. Now I'd put my understanding of the subprime mortgage mess and subsequent bank bailouts and about a 6 out of 10...more knowledgeable than the average Joe but certainly not an expert. However this is the first time I've heard someone bring up Carter as a responsible party. So my question is 2-fold. 1.) Is there any accuracy to the statement that Carter should bear some responsibility for the events (please disregard the fact that the statement came from Limbaugh, a persons feelings on him are irrelevant to this question) and 2.) Which specific actions/polices of Carters administration made it so he is correctly named as a responsible party (assuming the answer to question 1 is "yes")

Thanks in advance!

A lot of varied opinions on here.
The reason this was brought up is the roots of it are with the Community Reinvestment Act. It has been modified several times but was initially passed in 1977 under Carter.

The purpose of it was to "encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods." and "The CRA was passed as a result of national pressure to address the deteriorating conditions of American cities—particularly lower-income and minority neighborhoods." ~ Bernanke

It was modified as stated, several times beginning in 1989 by G HW Bush after the S&L crisis. the changes then were to make banks more transparent.

It was modified then 5 times Under Clinton. in 1992 it was amended to require Fannie and Freddie to dedicate a percentage of their lending to low income
The next year Clinton appointed now Gov of NY Andrew Cuomo to of Housing and Urban Development. and along with him and Robert Rubin ( Pres Economic Policy Advisor) and Lloyd Bentson ( Sec of Treasury ) pushed through regulatory and legislative changes.
I think the real in this era I don't personally think the CRA in and of itself was destructive although it had the potential for it.

 

[JasperL]

The GSE's were the one's bundling those Subprime mortgages, so yes, it sort of was a " Government mandate ".

They were far from the only ones bundling 'subprime mortgages' and in fact were bit players in subprime until the end of the bubble. And it wasn't a government mandate but the opportunity to reap huge fees, profits, and 7 and 8 figure bonuses that "forced" banks to make loans to anyone with a pulse, many times committing fraud to get the loans to meet guidelines, which no one cared about because the loans were offloaded to the public as fast as they could bundle them together.

Banks were forced but hey, you dont have to take it from me. Here's Janet Reno bragging about forcing banks in 1998....

Look at the biggest areas of the bubble - NOT CRA REGIONS.

And I'm not going to spend much time because we've been through it before, but you do know Janet Reno was well out of office before the bubble blew up and burst. So why didn't her successors undo what she put in place? Not that I expect a rational answer - you're the guy who blames democrats, the minority party, in the House (like Barney Frank) during the Bush era for the GOP led house failing to pass rules reining in the GSEs. You're the guy who ignores that when the states tried to clamp down on fraudulent subprime lending, the Bush administration cited an 1800s era law to PROHIBIT states from regulating those lenders. For you the world stopped when Clinton left office, and none of the blame can be heaped at the feet of bankers who made record profits and bonuses while the evil Clinton and Reno, not in office at the time, FORCED them to make hugely profitable loans!

Yes we know, your'e too overwhelmed by world events to the point of confusion when it comes to the Subprime crisis but dont assume everyone else is.

Believe it or not, its possible through a thorough and well researched analysis to explain exactly what led up to the 2008 Financial crisis.

I'm not overwhelmed at all by world events surrounding the worldwide credit and housing bubble. It's you who cannot explain how Reno, Clinton, and CRA forced lenders in Europe to make bad loans to deadbeats and blow up bubbles in their country. If you've stumbled on an explanation, please share it!

And I've read plenty of thorough ad well researched analyses of the 2008 financial crisis, and it's you who needs to read them, not me.

The incredible thing to me about your 'account' of the crisis is it assumes that people acting on behalf of poors and blahs and browns in the inner city somehow had more clout than Wall Street and forced lending rules on the most powerful industry on the planet, served by the most powerful lobby on the planet, that spent $billions lobbying Congress for the rules they wanted and got their entire wish lists crossed off, through multiple administrations, except for the CRA and related which is what brought them down! It's so fantastic that I can't believe an adult following the debate can believe it. And no one needs to - all they need to do is look at bank profits and bonuses and see what motivated them to make those loans - greed. Not force.



Look at that line straight up. It coincides with the lending and housing bubble. Are you REALLY suggesting that banks making record profits, paying out record bonuses, were doing so under "force" from Uncle Fed? LMMFAO. :lamo

 

[JasperL]

3 REPUBLICAN Senators. Yes, obviously Clinton deserves some blame for signing the bill. But the Republicans were falling over themselves trying to deregulate Wall Street. Especially Phil Gramm.

If people look at what happen without partisan glasses on(something that Fenton especially does NOT do) they'll see BOTH parties were the blame for the bubble and crash. Clinton, Bush, both Congresses, etc. Along with the banks, Wall Street, the rating agencies who were happily stamping the garbage mortgage packages with AAA ratings, the mortgage banks like Coutrywide, (read up on what they were doing, amazing), and yes the borrowers too.

Jimmy Carter. nah.

Right, and the big 'takeaway' for me is the banks got exactly the regulatory environment they wanted, and we can be fairly confident of this because they made money hand over fist throughout the bubble, and when it crashed were bailed out. So the banks own both parties, Clinton had his former GS CEO on staff and so did Bush the II, and most of the relevant people in both parties in Congress take their orders from Wall Street and do what they're paid to do. So it's always a mystery, first, when partisans want to blame this all on democrats for acting with rare bipartisan vigor to grant Wall Street their entire wish lists and then getting a few crumbs for the poors and inner city blahs through CRA. And second, when partisans want to absolve the banks who bought exactly the rules they wanted from any blame, then got bailed out after they crashed. It's something.

 

[JasperL]

Clinton did what every lame duck President does when the other party wins. He signs their parties bills as a courtesy to the incoming President. Bush would have signed it anyway so it made no difference.I already outlined what Bush personally did and without those the scam would have failed.

Could be, but if it made no difference, Clinton should have vetoed it. Sorry, but I can't give Clinton a pass on legislation he signed and gave no indication at the time was something he opposed in any way.

 

[Aberration]

Hell no they weren't forced. They know full well that when the government guarantees something, more people will want it. All they want is a hedge from the risk. Which is what they thought they had.

 

[Fenton]

It wasn't my intention to retread anything, I just heard something that was a point I had never heard before and wanted some feedback from some people on here who assuredly know more about this subject than I do. Mea Culpa.

No, I wish there were more posters like yourself. Open minded and intelligent individuals who just want a honest and accurate account of what led up to the 2008 Financial crisis.

Its a refreshing change from the usual drivel that posters like Eric and myself have had to put up with when it comes to the Subprime crisis.

We have members here who actually believe everything started after 2004. That Bush was single handedly responsible for all of it.

They're aren't motivated by the truth or being informed on the issue. Nope, their motivations lie in some wierd unhealthy and unrelenting obsession that involves our last President

Im sure at least one of them will stop in eventually and peddle his version of events.

 

[Johnson]

No, I wish there were more posters like yourself. Open minded and intelligent individuals who just want a honest and accurate account of what led up to the 2008 Financial crisis.

Its a refreshing change from the usual drivel that posters like Eric and myself have had to put up with when it comes to the Subprime crisis.

We have members here who actually believe everything started after 2004. That Bush was single handedly responsible for all of it.

They're aren't motivated by the truth or being informed on the issue. Nope, their motivations lie in some wierd unhealthy and unrelenting obsession that involves our last President

Im sure at least one of them will stop in eventually and peddle his version of events.

I watched the documentary on the subprime mortgages (the one Matt Damon narrated but I can't remember the name) they did a decent job keeping partisanship out of it and just listing the facts. In my opinion yes, some politicians may have laid tbe groundwork to make the actions of the lenders/debt buyers/credit raters possible, but the responsibility lies more on the people who exploited the system for thier own gain not considering the consequences that thier actions would have on the people who bought the mortgages, in my opinion. So there's plenty of blame to go around, to be sure, but trying to see the whole picture is a lot harder and takes more work than just pointing your finget at a political figure from the opposing party and just saying "thier fault!"

Edit - that film did bring up actions of several presidents from Reagan to Clinton To GWB to Obama, but they didn't cast aspersions on any one of them in particular, just listed the pertinent legislation and whichever appointees they made to positions relating to the financial systems.

 

[iguanaman]

No, I wish there were more posters like yourself. Open minded and intelligent individuals who just want a honest and accurate account of what led up to the 2008 Financial crisis.

Its a refreshing change from the usual drivel that posters like Eric and myself have had to put up with when it comes to the Subprime crisis.

We have members here who actually believe everything started after 2004. That Bush was single handedly responsible for all of it.

They're aren't motivated by the truth or being informed on the issue. Nope, their motivations lie in some wierd unhealthy and unrelenting obsession that involves our last President

Im sure at least one of them will stop in eventually and peddle his version of events.

If we can agree that subprime mortgages were the source of the defaults that caused the meltdown this chart will give you the years that most of them were written. I wonder who was President in those years?

 

[JasperL]

Hell no they weren't forced. They know full well that when the government guarantees something, more people will want it. All they want is a hedge from the risk. Which is what they thought they had.

But it wasn't just GSE guarantees - it was the derivatives, in many cases bets on bets on bets, hundreds of $trillions (with a T) of them, that provided what the lenders thought were the real hedges. And the problem is those derivatives, being unregulated, were just bets, not hedges and the market collapsed and threatened the world financial system with it.

And the thing is derivatives were (and are) a world wide phenomenon, and unlike CRA and/or GSEs, do nicely to explain a world wide credit and housing bubble.

 

[Aberration]

But it wasn't just GSE guarantees - it was the derivatives, in many cases bets on bets on bets, hundreds of $trillions (with a T) of them, that provided what the lenders thought were the real hedges. And the problem is those derivatives, being unregulated, were just bets, not hedges and the market collapsed and threatened the world financial system with it.

And the thing is derivatives were (and are) a world wide phenomenon, and unlike CRA and/or GSEs, do nicely to explain a world wide credit and housing bubble.

https://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

 

[JasperL]

No, I wish there were more posters like yourself. Open minded and intelligent individuals who just want a honest and accurate account of what led up to the 2008 Financial crisis.

Its a refreshing change from the usual drivel that posters like Eric and myself have had to put up with when it comes to the Subprime crisis.

We have members here who actually believe everything started after 2004. That Bush was single handedly responsible for all of it.

They're aren't motivated by the truth or being informed on the issue. Nope, their motivations lie in some wierd unhealthy and unrelenting obsession that involves our last President

Im sure at least one of them will stop in eventually and peddle his version of events.

And you'd have a bit of credibility on the issue if you didn't completely ignore any republican's role in this crisis. All your narratives begin and end with someone with a D following his name, and you never mention anything happening post Clinton. It's as if the Bush era didn't happen, that Clinton regulators and Congressional democrats had the power to force through all these rules that sank the markets, but Bush and a GOP Congress were helpless to act.

 

[iguanaman]

Could be, but if it made no difference, Clinton should have vetoed it. Sorry, but I can't give Clinton a pass on legislation he signed and gave no indication at the time was something he opposed in any way.

Fair enough but you have to remember that at the time Greenspan was going around telling everyone that financial deregulation was the best thing since sliced bread. He was a pretty powerful Fed chairman and Clinton pretty much relented because of him. Still it was not nearly enough for the banks to pull off this scam on their own under Bush's and a GOP Congress's nose. You are not that naive are you?

 

[JasperL]

If we can agree that subprime mortgages were the source of the defaults that caused the meltdown this chart will give you the years that most of them were written. I wonder who was President in those years?

But didn't you know - Bush and his regulators were powerless, unlike the all powerful Janet Reno and democratic regulators and Congressmen! They were held hostage by the awesome lobbying power of the poors in the innner cities!

 

[iguanaman]

But didn't you know - Bush and his regulators were powerless, unlike the all powerful Janet Reno and democratic regulators and Congressmen! They were held hostage by the awesome lobbying power of the poors in the innner cities!

Actually it was all Barney Franks fault according to Fenton. He'll post the video in a minute.

 

[SenorXm/Sirius]

It is telling that most Dems and moderates here will ADMIT the bubble and crash were BOTH parties fault. Both parties were in WS's pocket and passed legislation that deregulated WS and paved the way for the bubble and the crash.. And they also blame the rating agencies, banks, borrowers, etc.

But the Republicans and cons here refuse to blame Phil Gramm, or Bush or ANY Republican for the crash and the mess. In their partisan eyes it was all the Dems and the borrowers fault. ONLY!!!

Telling.

 

[JasperL]

Fair enough but you have to remember that at the time Greenspan was going around telling everyone that financial deregulation was the best thing since sliced bread. He was a pretty powerful Fed chairman and Clinton pretty much relented because of him. Still it was not nearly enough for the banks to pull off this scam on their own under Bush's and a GOP Congress's nose. You are not that naive are you?

That's a good point. If there is any one man responsible for the bubble, it was Greenspan, and he was a powerful force from Reagan through Bush the II.

 

[Fenton]

If we can agree that subprime mortgages were the source of the defaults that caused the meltdown this chart will give you the years that most of them were written. I wonder who was President in those years?

First,
Homeownership rates in 1993 were 63%.
Homeownership rates in 2000 were 68%
A 5 % increase under the Clinton administration

Homeownership rates increased another 1% under Bush.

Next......
1999
Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com

Next, Subprime started well before Bush ever entered into office.
2000.....
Franklin Raines Celebrates Fannie Mae reaching its 7 year 1 Trillion dollar " Affordable Lending Goal " early
http://www.prnewswire.com/news-rele...gaps-and-strengthen-communities-73104592.html

In 1993, James Johnson, then FNFMA CEO commited the GSEs to 1 Trillion dollars in " Affordable lending " purchases.

In 2000, Franklin Raines celebrated Fannie Mae reaching its 1Trillion dollar goal early.

2000....
Andrew Cuomo as head of HUD commits the GSEs to 2.4 Trillion dollars in Subprime purchases. He called " affordable lending " loans " affirmative action loans "
HUD Archives: Cuomo Announces Action to Provide $2.4 Trillion in Mortgages for Affordable Housing for 28.1 Million Families

 

[JasperL]

First,
Homeownership rates in 1993 were 63%.
Homeownership rates in 2000 were 68%
A 5 % increase under the Clinton administration

Homeownership rates increased another 1% under Bush.

Next......
1999
Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com

Next, Subprime started well before Bush ever entered into office.
2000.....
Franklin Raines Celebrates Fannie Mae reaching its 7 year 1 Trillion dollar " Affordable Lending Goal " early
Fannie Mae to Meet $1 Trillion Goal Early; CEO Raines Launches Ten-Year $2 Trillion ?American Dream

In 1993, James Johnson, then FNFMA CEO commited the GSEs to 1 Trillion dollars in " Affordable lending " purchases.

In 2000, Franklin Raines celebrated Fannie Mae reaching its 1Trillion dollar goal early.

2000....
Andrew Cuomo as head of HUD commits the GSEs to 2.4 Trillion dollars in Subprime purchases. He called " affordable lending " loans " affirmative action loans "
HUD Archives: Cuomo Announces Action to Provide $2.4 Trillion in Mortgages for Affordable Housing for 28.1 Million Families

Huh, who could have guessed it? Your narrative mentions only people with D's by their names and ends in 2000.

 

[Fenton]

Huh, who could have guessed it? Your narrative mentions only people with D's by their names and ends in 2000.

Sorry, the NARRATIVE that Sub-prime origination's started under Bush needs to be debunked. Sorry if the truth rattles you.

The fact is there was little distinction between Sub-prime made prior to 2000 and Subprime made after 2000. Here's a excerpt from a relevant 2000 HUD study that explains how loans that once would be considered Sub-prime could eventually be characterized as risk free prime loans..

http://www.huduser.gov/publications/pdf/gse.pdf

Because the GSEs have a funding advantage over other market participants, they have the ability to under price their competitors and increase their market share. This advantage, as has been the case in the prime market, could allow the GSEs to eventually play a significant role in the subprime market. As the GSEs become more comfortable with subprime lending, the line between what today is considered a subprime loan versus a prime loan will likely deteriorate, making expansion by the GSEs look more like an increase in the prime market. Since, as explained earlier in this chapter, one could define a prime loan as one that the GSEs will purchase, the difference between the prime and subprime markets will become less clear. This melding of markets could occur even if many of the underlying characteristics of subprime borrowers and the market’s (i.e., non-GSE participants) evaluation of the risks posed by these borrowers remain unchanged "

2000........Statement from the Fannie Mae Foundation


" Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …
When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs "


Here's a 1996-2003 hud chart that shows the number of qualifying " affordable lending " loans purchaser by the GSE's


As you can see Sub-prime lending started well before Bush stepped into office

 

[Hypothetical]

Yes, the investment Banks weren't blameless, but without Governments unprecedented intervention we never would have had a Subprime mortgage crisis.

This intervention included co-opting the GSEs into purchasing Subprime loans

The Clinton administration fist declared that the decades old standards used by Banks to vet the ability of a borrower to pay back their loan were inherently racist.

Banks that refused to lower their standards were targeted by the DoJ, HUD and Community activist groups like ACORN.

Janet Reno bragged about suing lenders in 1998 in a speech she gave before the Community Reinvestment Coalition and counted 13 successful DOJ lawsuites and vowed to target more lenders.

And the DOJ wasn't the only one suing Banks. HUD sued Banks and so did groups like ACORN. Obama, when he was a Chicago Plaintiffs attorney sued CitiBank for " discriminatory lending practices ".

Banks HAD to make a certain amount of risky loans or else

The GSEs purchased these subprime loans and then turned them into MBSs that were sold off to investment Banks and Capital markets all over the world as " AAA " rated securities

Since US Treasuries had a " AAA " rating at the time so did Agency debt. People think Banks created the majority of these MBSs.

Not so, Fannie and Freddie were the primary issuers of MBSs backed by Subprime loans and the primary consumer of lower tranche MBSs and essentially created demand for a toxic product that made its way out to Capital markets all over the world

In 1999, Fannie Mae started its partnership with CountryWide Financial when CountryWide created a loan process exclusively for Fanie Mae called the " Fast and EZ " loan

In 2000, Fannie Mae started using " Desktop Underwriter", which was their new automated underwriting software

In 2004 Fannie Mae was buying up close to 50 % of all of Country Wide financials no doc loans. These loams were being bundled and sold off as " AAA " rated agency securities. And the GSEs weren't just buying Country Wides trash loans.

In 2008 the GSEs were declared insolvent holding over 5 Trillion dollars in Securities and Subprime loans. Thats just what they had on their books.

That doesn't include all of the GSE " AAA " rated MBSs that had made its way out to Capital markets and investor portfolios

In 2011, the SEC started a investigation into unprecedented securities fraud at the GSEs. Prior to 2004, the GSEs were exempt from SEC quarterly fillings laws. All publicly traded Corporations have to submit their quarterly reports to the SEC.

As a consequence of the 2004 SEC investigation into Fannie Maes corrupt accounting, the GSEs, as a show of good faith agreed to start submitting their reports to the SEC

According to the 2011SEC filings, from 2004-2008 both Fannie and Freddie ommited hundreds of Billions of dollars in worthless Subprime debt for their reports.

Hundreds of Billions of dollars in No-doc loans were simply left out of their SEC reports. This is while the two agencies were the primary consumer and issuer of MBSs

very nicely explained. my only thought otherwise is that people should have gone to jail over this, on either side.

 

[JasperL]

Sorry, the NARRATIVE that Sub-prime origination's started under Bush needs to be debunked. Sorry if the truth rattles you.

As you can see Sub-prime lending started well before Bush stepped into office

I've never asserted that sub-prime lending started post 2000. It's a ridiculous straw man.

Still wondering how CRA, Cuomo, Reno and Clinton (of course) caused a worldwide credit and housing bubble that exploded and burst under Bush the II.

BTW, here's Bush touting all his administration did to expand home ownership for the poors.

https://georgewbush-whitehouse.archives.gov/infocus/achievement/chap7.html

Since your history ends in 2000, you keep ignoring this stuff.

 

[iguanaman]

I've never asserted that sub-prime lending started post 2000. It's a ridiculous straw man.

Still wondering how CRA, Cuomo, Reno and Clinton (of course) caused a worldwide credit and housing bubble that exploded and burst under Bush the II.

BTW, here's Bush touting all his administration did to expand home ownership for the poors.

https://georgewbush-whitehouse.archives.gov/infocus/achievement/chap7.html

Since your history ends in 2000, you keep ignoring this stuff.

Not only does he ignore it he actually says that Bush's "Minority Housing Initiative" was an honest effort to boost home ownership by minorities. Like that is something a Republican like would be normally concerned with.

 

[Vern]

Fair enough but you have to remember that at the time Greenspan was going around telling everyone that financial deregulation was the best thing since sliced bread. He was a pretty powerful Fed chairman and Clinton pretty much relented because of him. Still it was not nearly enough for the banks to pull off this scam on their own under Bush's and a GOP Congress's nose. You are not that naive are you?

That's a good point. If there is any one man responsible for the bubble, it was Greenspan, and he was a powerful force from Reagan through Bush the II.

Greenspan was an ideological stooge. the man was an ayn rand fan for crissakes but he did start raising interest rates before the Bush Mortgage Bubble started. This is Nevada and Arizona (hot beds of CRA lending) home prices vs interest rates (I multiplied interest by 75 to get it about the same scale).



There is no doubt he could have done more to stop the Bush Mortgage Bubble but his policies didnt cause it.

 

[JasperL]

Greenspan was an ideological stooge. the man was an ayn rand fan for crissakes but he did start raising interest rates before the Bush Mortgage Bubble started. This is Nevada and Arizona (hot beds of CRA lending) home prices vs interest rates (I multiplied interest by 75 to get it about the same scale).

View attachment 67203167

There is no doubt he could have done more to stop the Bush Mortgage Bubble but his policies didnt cause it.

LOL, AZ and NV weren't hotbeds of 'CRA' lending. They were hotbeds of subprime lending but I doubt if 1 subprime loan in 10 in those states was covered at all by CRA.

And the man promoted the idea that unregulated financial markets were self correcting for nearly 20 years, and his actions as the regulator of last resort of the U.S. financial system reflected that viewpoint - he did nothing, raised no alarms, issued no objections, as the banks he is tasked to oversee the soundness of blew up the biggest credit bubble in at least modern history, nor did he once (AFAIK) so much as utter a note of concern as unregulated derivatives fueling all this reached $100s of TRILLIONS outstanding. In short, the guy spent his entire career cheerleading the policies that nearly brought down the world financial system, from his seat as Chairman of the Fed which was one of very few with the ability to do something about it.

 

[beerftw]

Don't struggle too hard because it wasn't any Presidents fault but G.W.Bush. Clinton's signing of Phil Gramm's bill as a lame duck in his last weeks of office was only 1 piece in the puzzle. It required a willing partner for the banks to pull the thing off and that partner was Bush. He kicked off the housing bubble in 2002 with his Minority Housing Initiative which pushed Fannie Mae into buying 550 Billion in worthless paper. He latter lowered lending standards to legalize the new "No Doc" subprime motgages and then used Federal power to block the States from regulating the predatory mortgages with their own laws. I'de say those things made him indispensable to the banks who are the ultimate cause of their own demise and the world financial collapse that some nations are still reeling from.

HUD Archives: President George W. Bush Speaks to HUD Employees on National Homeownership Month (6/18/02)
Eliot Spitzer - Predatory Lenders' Partner in Crime

Clinton left in 2001 in january, not 1999, I somehow fail to see how almost an entire year is just weeks before he left.