bostonbubble.com

[Xenos]

The whole point of Fannie was to create liquidity by enabling a market in mortgage backed securities. By allowing a good 30% of households to enter the buyers' market, Fannie fueled the main post-war rise of housing values. I used to sell Fannie Maes in mutual funds in the 90s to people who were spooked by the stock market and wanted a reliable yield that would keep them ahead of inflation.

They were [cough, mumble] implicitly [/mumble] backed by the FULL FAITH and CREDIT of the GOVERNMENT, you know.

The CRA did not change anything directly. Indirectly it allowed crap loans to get mixed up with the AAA MBSes, and opened the floodgates into the bogus bonds sold in the last few years. That is the argument, at least. I don't quite buy it, but I can't deny that the CRA, however well intentioned, was part of a subordination of sensible financial policy to political considerations, and at least played a role in the development of a fraudulent financial market.

[Renting in Mass]

I can't quit this thread

Even if I granted that the CRA and the creation of Fannie and Freddie were a bad idea, I still wouldn't accept the premise that private lenders made 91% of subprime loans without government prompting because they were assuming the government did their due diligence and therefore they didn't need to. That's not how corporations act in any other context.

[admin]

[john p]

The government told the banks that they didn't have to be responsible for the mortgages when they said that they could securitize them. After that, it was the wild west and what percentage were earmarked as CRA is beside the point.

Think of it this way. Imagine the government saying "We want you to serve our under age service men and women alcohol so we are allowing you to lower the drinking age to 18". Now if 9% of the bar is in the service is sort of beside the point; the government lowered the drinking age. Furhter, they said you're not responsible if these under age drinkers drink and drive. Now in that instance, if you don't serve under age drinking, you competitor will so "responsiblity" doesn't pay any more. This isn't the sort of thing you'd expect from our elected leaders? I mean, this collapse may not have happened as bad as it did if it weren't for the loading of other conditions. Using my analogy about the rain leaders, if we just got a sudden sun shower for five minutes we would have detected that the rain leaders had been broken, but because it was a full rain storm the basement got flooded. Nonetheless, the rain leaders shouldn't have been demolished.

The other reason why I am bringing up this differential accumulation theory is that as companies get bigger and bigger during periods of stagflation, risk gets spread out. If I lay out my own shingle, I am responsible for the work I produce. If I work for a large corporation, I can dodge in and out of shadows and avoid responsiblity. This is why I often brought up the tunnel ceiling collapse and how we never found out the individual who stamped the drawings because he was protected by the corporate shield. I mean I'd bet a lot of the leaders in the banks who were buying these toxic assets have their jobs and other innocent hard workers may have been laid off. If you worked for Lehmans what would you really care if another department fails? In fact, you'd want them to fail because people in your department will be promoted because they outperformed them.

If I had the time, I'd wonder if people inside of these organizations knew what investments were riskier than others and more importantly if they were intentially leading certain particular people to the slaughter.

When people talk about the "Big Dig" culture, they're really talking about how a mega company can shirk responsibility and irresponsible people can lie about their bids and make their money on change order later. This behavior rewards the liars and cheats in a society and the honest and responsible end up having to work for them.

Now, if a society gives the rewards to the bad guys, you empower the bad guys. That is the theory of capital beyond the simple money definition as posed by the authors of the Differential Accumulation Theory. It's kind of like if you need to make a decision and you tell a lie, you let the honest part of yourself lose and the lying cells within your body expand and your honest cells die. This is why I talk about our "constitution". Our biological make-up changes when we become weak. We strenghten our constitution when we step up and make the right decisions. We empower good people when we give opportunities to them and from the good hardworking people, the benefits spread to others. If you let the bad guys win too much we end up having wars because the powerful organizations can't get their gears to work because the good people are buried beneath weakness.

Further, in the book "The Pedagogy of the Opressed", it talks about how opressed people have their pride and hopes driven from them and they believe that the world is corrupt and there is nothing they can do. This is true and the thirst for hope is what drove people to almost worship Obama. He let them catch a whiff of hope and laid that out there for him and baited them like the pied piper. It is almost a betrayal to dangle that out for people to reach at knowing that you can't deliver. I am very passionate now because not only has his reckless promises given ungrounded hope just like the families that bought in ARMS only later to have their dream ripped away, other nations are watching us and if the United States, a Government of the People fails, they won't model themselves after us. I don't want to fight wars to make others democratic, I want us to live well and have others follow. What sucks is that we have to make the guy succeed because the damage of him failing is demoralizing an entire young generation and all those that were previously disenfranchized as well. Obama has to succeed, which is why people have to put pressure on him to do the right thing.

[mpr]

[john p]

Hey MPR, how the hell are you? Long time no hear.

Jeez, I can't explain the stupidity of the investors, it is kind of mind boggling. I agree, it is a stretch of the imagination that the government could get the banks to follow right along.

I see them setting a bad example and I see your point, the banks weren't forced to follow to the degree that they did. I think that they were chasing the fees that they get in processing the mortgages and didn't care about the risks because they were allowed to securitize them. They say "Don't blame the player, blame the game." People in that industry feel that it is ok to get away with as much as the regulations allow and if you are "responsible" you're handicapping yourself.

I would like to press forward with investigations of these banks because they had fiduciary responsibilities to their investors. Why a manager of a Pension would be investing in subprime paper is borderline criminal and absolutely rises to the point where an investigation is needed. The conspiracy theory voice in my head says that they knew someone had to buy this crap and they fed this rotten crap to those of their choosing. It is so bad you have to wonder that they lined up certain people for the slaughter. Because taxpayers need to replenish pension funds to certain levels to meet certain laws, I think there are grounds for investigation.

What holds me back in this vain is that it was a perfect storm of events that increased the magnitude of the situation, but regardless, pension funds should not have been investing in that crap.

I think as a society we need to investigate this because the current corruption I believe is going on in these mega corporations that grow bigger though acquisition during times like these (stagflation). I think that people who run these companies are playing with capital stock, offering matches of 401k's only for company stock and pretty much creating Ponzi Schemes of acquiring companies to buy their pipeline and get their cash. I think that if you follow the asset bubble migration, it is in the mergers and acquisition ponzi game and I think you're going to start seeing some of these fail. If the leadership of these companies start to see some of the irresponsible people of the prior chapter's scams being prosecuted, including politicians being held accountable, they might think twice about messing around.

[GenXer]

Defense is hanging by the thread. Obama nuked missle defense. Everybody is laying off or not hiring. Only specialists are hired and even then contracts come and go.

Unemployement will dictate the pace of decline. The longer this lasts, the less government's ability to throw money would affect anything. People are buying anything that stands in Newton. This can't be good. Prices will most likely decline for the foreseeble future, as income is lost and everybody is cutting back on everything.

Many houses on the market for rent have lease terms of 10 or even 6 or 7 months. The bet is that in 1 year or less the prices will resume their upwards march. When that doesn't happen, look for a lot of unhappy campers.

[john p]

http://www.erisafraud.com/Default.aspx?tabid=1810

from above:

[mpr]

[john p]

I need a good read, maybe I'll buy that book.

My point wasn't that because Government is doing it that we should do it (as if it is the smart thing to do), my point is that because Government is doing it we can get away with doing it (knowing that it is toxic).

Think of a subprime investment as if it is a "hot potato". Prior to 1995 banks used affordability benchmarks like down payments, price to earnings ratios and track record as the basis of their underwriting. Democrats thought it was unfair. Honestly, I was part of the generation where rents and student loans were so high it would have taken forever to save for the down payments that the banks wanted, so I get why Democrats thought it was unfair and didn't want a generation to be left out of home ownership. That's why I love Democrats, because they care... Anyway, the only way they got the banks to agree was if the banks didn't have to hold the "hot potato" they could securitize it and pass it off. Only then did banks agree because hell, they could get the transaction fee and then sell the mortgages. Now when the housing market is going up they could get any schmuck to buy these (I mean by comparison PE ratios for many stocks were outrageous so subprime was perhaps less outrageous at a certain period of time), but when the market hit a saturation point they seem to have to find some Yucka Mountain or toxic waste dump. They knew they could tuck this crap to Pension Funds because they knew it was taxpayers on the hook. I think at this point, they were asking themselves, how can I minimize MY risk and tuck this to someone else and what will my defense be if someone challenges my fiduciary responsibility. Because this is kind of shady, I don't imagine that you'd read this out in the open. My point is also that Democrats are circling the wagons to defend a mistake and you guys are also defending the banks when you defend Barney Frank. Did you ever work for a company that would continue to screw up and they'd find dumb excuses for their mistakes, scapegoat people so that the truly responsible could live another day. It is absurd that Dodd and Frank are still in power with respect to finances. You can see Frank on youtube saying that there was no housing bubble. Dodd was bought off with a sweetheart deal by one of the worst predatory lenders. Deval Patrick got hundreds of thousands of dollars from Ameriquest, one of the worst predatory lenders that preyed on the poor and minorities. I will go after anyone who preys on the poor, whether they are a Democrat or Republican. It is the Democrats who are pushing for casinos which we know prey on the weakest of our brethren. Democrats defend the Party not the values, so they have been overrun by those that are corrupt and take advantage of bind loyalty. I think Democrats need to ask themselves if they have been blindly loyal and if the people they are actually are promoting are actually hurting the people they say on the surface they are trying to help. We have to take these bum off the mound because not only is his poor judgement under question, but all those that choose to keep him on the mound. I'll become a Democrat when they come back to the values they claim to promote.