What I was suggesting I think would essentially take that power out of the hands of the Feds. Maybe they can control how much money they lend out to banks and thus indirectly control interest rates, but I was proposing what I thought would be a built in mechanism for allowing interest rates to be anti-cyclical according to what the market needs. At the very least, it would provide the Fed with additional data on whats going on in the lending market.
Sounds like "Wall Street" forced people o buy houses they couldn't afford..?
Not sure about Vegas, but it is a fact in my area. In the rural areas the FHA apparently are back to zero down per a broker but PMI has tripled and does not drop off at 78%; and in the city there are some 3% down programs. Bricks and Mortar Banks still require 20% down or additional collateral, but brokered loans are heading back into pre-collapse terms with stricter scrutiny. In addition, the fed has a program that helps people keep their house they otherwise would lose, but the details are sketchy and the requirements are arbitrary and inflexible.
No, deregulation of the financial industry, especially allowing unregulated derivatives, like CDSs, to flood the market, caused the disaster. It was Greenspan's market evangelism that was the problem.
Cheap money is generally good for an economy. Indeed, easy credit is the basis of a modern advanced economy like ours. Without it, it's back to 1880
No, deregulation of the financial industry, especially allowing unregulated derivatives, like CDSs, to flood the market, caused the disaster. It was Greenspan's market evangelism that was the problem.
Cheap money is generally good for an economy. Indeed, easy credit is the basis of a modern advanced economy like ours. Without it, it's back to 1880
So, are we agreeing or disagreeing?
No, not exactly. Wall Street purchased bad loans, knowing that they were bad, and repackaged them to make them appear to be more attractive, paid off rating companies to give crap products great ratings, then sold those bundles of lies to investors, who had technically done their due dilligence by checking the ratings and listening to the advice of a variety of people who claimed to be expert financial advisors. This funded those loans and made them easy to get, mortgage brokers, originators, and the entire real estate profession then conned people who couldn't afford these mortgages to purchase houses at crazy high prices.
It's easy to try to pawn the blame off onto lay people who never claimed to be financial or real estate experts, but those people respected their real estate professionals and accepted their bad advice just like most people accept the advice of their attorney or doctor.
No, not exactly. Wall Street purchased bad loans, knowing that they were bad, and repackaged them to make them appear to be more attractive, paid off rating companies to give crap products great ratings, then sold those bundles of lies to investors, who had technically done their due dilligence by checking the ratings and listening to the advice of a variety of people who claimed to be expert financial advisors. This funded those loans and made them easy to get, mortgage brokers, originators, and the entire real estate profession then conned people who couldn't afford these mortgages to purchase houses at crazy high prices.
It's easy to try to pawn the blame off onto lay people who never claimed to be financial or real estate experts, but those people respected their real estate professionals and accepted their bad advice just like most people accept the advice of their attorney or doctor.
the controls that the fed has are intended to be used as tools to offset the wild swings that the private sector tends to create. Without those tools, there is very little that our government can do to stabilize our economy when it get's crazy.
So what was the disaster? Recovery of the housing market?
When it comes to the real estate market, the feds know very well what is going on. In fact, their underwriting requirements on the Making Homes Affordable or whatever it is called conflicts with my state real estate law under a very specific set of facts which convolutes transactions when those facts are present in order to comply with the fed requirements and the state case law.
This is true. I just think it is a better if they directly control how much money is being lent out and sell it off to the highest bidder.... rather then indirectly control how much money they lend out by controlling the interest rates.
But as I sort of implied in the OP, this was mostly a brainstorming exercise.
I think we both can agree this was fraud in the truest sense. But...... at the same time I also ask why these bad loans were made in the first place and I do expect people to have at least some financial sense of what they can and can't afford. You can't blame people for getting bad advice, but I don't think anyone would jump off a bridge just because a doctor told them to do it either.
While I agree with you that there is plenty of blame to go around, one can't relinquish personal responsibility and claim ignorance.
Blaming Wall Street is popular; I get that, but borrowers also deserve scrutiny.
I'm also fairly confident that most, if not all of the financial professionals who were engaged in CDO activities at Wall Street, intended on misleading and defrauding someone. When you get paid millions of dollars a year to be a financial expert, you darned well better be a financial expert.
Do you even know what a CDO is/does? Or why these exists?
Like I said there is plenty of blame to go around; however WS was but a conduit of what people wanted: the gov wanted home ownership, people wanted a house, banks wanted a loan, real estate agents and mortgage brokers wanted a deal, investors wanted earnings, rating agencies wanted fees, etc..
Wall Street simply brought everyone's interest together. They were a participant but really the major part of the blame lays in people's unrealistic expectations of home prices and on a gov that fostered these. With or without WS we would have had the same outcome...
Well, as I have thought this through, I realize the Fed would still indirectly control interest rates by how much money it puts up for auction. But, I do think it would at least give them a lot better feedback on how strong/weak demand is in the financial sector and would overall be a better mechanism for achieve its supposed goals.
And the disaster was dropping the Federal Funds Rate all the way down as low as 1% in the midst of a speculative housing bubble and being too slow to react and raise back up interest rates.
No one forced the financially stupid to take those loans. Wall Street firms, who very well knew that they were purchasing high risk loans, and who are reasonably assumed to be experts in their field, made poor choices in the loans that they purchased and fradulently sold.
I'm fairly confident that few people who purchased overpriced real estate that they couldn't afford intended to default. they do deserve part of the blame (for being morons), but only a very small part of it. But it's unrealistic to think that a brick mason, or a truck driver, or a teacher, or a police officer, should be a financial expert, especially when the real estate agent is telling them that property can never decrease in value, when the banker is telling them "sure, you can afford it, I know because you qualified based on your financial ratios", and then they watch the news and learn all about the property value boom, and how people are getting rich just by owning real estate.
I'm also fairly confident that most, if not all of the financial professionals who were engaged in CDO activities at Wall Street, intended on misleading and defrauding someone. When you get paid millions of dollars a year to be a financial expert, you darned well better be a financial expert.
CMO's have been around for decades. It's sort of silly to blame them.
Do you even know what a CDO is/does? Or why these exists?
The issue is that Wall Street was purchasing loans that were doomed to failure. I don't think they had intentionally been doing that for decades - only for roughly 6 years.
As far as the loans went, the worst offender was the subprime loan that had an introductory low rate (sometimes 0% interest) for the first two or three years. The lenders financially qualified the borrower based upon this low rate, then when the rates went to there permanent rate (which was sometimes prime + as high as 6%), the borrowers payments doubled. It was almost a guarantee of default. They weren't doing that decades ago.
This could have largely been prevented by requiring lenders to qualify borrowers based upon the permanent rate instead of the introductory rate.
Wall Street loves them because they weren't regulated like most other securities. It's also apparently easy to hide a lot of junk in them, allowing Wall Streeters to pawn of their garbage as if it were treasure.
The issue is that Wall Street was purchasing loans that were doomed to failure. I don't think they had intentionally been doing that for decades - only for roughly 6 years.
As far as the loans went, the worst offender was the subprime loan that had an introductory low rate (sometimes 0% interest) for the first two or three years. The lenders financially qualified the borrower based upon this low rate, then when the rates went to there permanent rate (which was sometimes prime + as high as 6%), the borrowers payments doubled. It was almost a guarantee of default. They weren't doing that decades ago.
This could have largely been prevented by requiring lenders to qualify borrowers based upon the permanent rate instead of the introductory rate.
You didn't answer the questions: what are they, what do they do and why do they exists. Please do elaborate..
Your answer is just blah blah blah. My feeling is that you don't know what your talking about yet throwing WS under the bus is just easy and fashionable these days.
I think it's a little silly to simply blame "big bad banks" TBH. The reason the crisis happened was because there was an incentive structure down the entire chain, from home buyers all the way up to securitizers. Home buyers were incentivized to purchase, mortgage brokers were incentivized to hand out loans, loan companies were incentivized to ease restrictions, brokers were incentivized to pump out mortgages for block sale to securitizers, securitizers were incentivized to expand the supply of MBO/CMO product to satisfy investor demand, investors were incentivized to invest due to the hunt for yield partially because of Fed interest rates, Fed interest rates were set based on inflation, etc.
Yeah, it was a failure in regulation, definitely, but to say that, for example "JP Morgan" is to blame is silly, because JP Morgan was simply one piece in the whole puzzle.
I purposely didn't answer your question because I don't need to. I already know the answers to those questions, but I'm probably not the best source of information (although my educational background is in the fields if economics and finance and I have the piece of paper to prove that), and many articles have already been written about this topic, so there is no purpose in me rewriting them.
If you want me to, I will do a google search and post some links for you.
What's really pathetic is to lay most of the blame at the feet of the common worker instead of focusing on the misdeed of the self proclaimed experts who were intentionally screwing the common worker and the investor. Investors who purchased CDOs may have made stupid decisions, just like the fat slob who orders an ab roller believing the promises that it will "melt away belly fat effortlessly and without dieting", but they did no moral wrong, and stole from nobody.
Why do you keep saying "intentionally"? No one stole from anyone..tell me, who specifically stole from whom??
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