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Old 09-30-2008, 10:16 AM   #21
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I've said it before and I'll say it again -- I'm not convinced it's a coincidence that this started happening again after the Depression generation began dying out, and there were few cautionary voices left to remind us to heed their experience and avoid repeating those mistakes...
Isn't that part of the the hypothesis concerning the Kondratiev Wave? That every 50 or 60 years people/society have to relearn the same lessons?
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Old 09-30-2008, 10:20 AM   #22
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I've said it before and I'll say it again -- I'm not convinced it's a coincidence that this started happening again after the Depression generation began dying out, and there were few cautionary voices left to remind us to heed their experience and avoid repeating those mistakes...
Not only that. But here almost 80 years later from 1929, regulations and controls instituted after the Great Depression and helping keep excesses and recessions from getting too bad in the intervening 75 have consistently been pulled out. Folks didn't think they were "needed" any more. 1999 - repeal of the Glass-Steagal (sp?) Act.; 2004 - permission by SEC for the larger investment banks to use leverage well above the prior 12:1 limit; 2007 - suspension by the SEC of the "uptick rule" for shorting stocks, as well as lack of enforcement of naked shorting; also 2007 - investigative reports indicate that the SEC basically quit monitoring and regulating investment banks.

I think we were victims of our own success. With the lack of a truly economically crippling crisis in the last 75 years, people started to believe that markets could operate unregulated and unfettered and it would somehow be even better to take the controls away. Instead - what happened - oh yeah, unfettered capitalism went right back to the old excesses motivated by short term greed: excessive leverage, pushing "risk" to other parties for the short term gain of fees, increasingly complex financial transactions, taking excessive risk, etc.

Clearly the voices who preach unfettered capitalism, "let the markets work themselves out" don't remember what the world was like in 1933 and the 100 or more years before.

I sure hope we get back to sensible regulation. We had sensible regulation once upon a time. Sure, a "shadow" banking system grew up which tried (and succeeded in many ways) to work around the regulations, but that just meant we needed to keep up with the new system. The insane mortgage lending was a giant red flag. Anyone looking at it could see that things could only end badly - but not a hand was raised to stop or slow it down. This complete lack of questioning or action or stepping up and saying - something is not right here is what amazes me. I honestly can't believe that Alan Greenspan or someone else monitoring our Financial System didn't campaign for some level of sense in mortgage lending.

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Old 09-30-2008, 10:21 AM   #23
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Has Greenspan made any public comments on the bail-out plan? That would be an interesting perspective to contemplate.
I think he's lost a lot of credibility and anything he says has to be looked at through the lens of him trying to prop up his "legacy" as Fed Chairman.

History will judge him quite differently than as the all-knowing, savior of the economy that he was hailed as several years ago.
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Old 09-30-2008, 10:23 AM   #24
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Yes, Greenspan presided over the worst of the excesses of the 2000s, and all he had to say was that consumers were "smart" to by using ARMs implying that interest rates would be kept low for a long time. One of the most irresponsible statements a Fed Chair has ever made IMO.

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Old 09-30-2008, 10:23 AM   #25
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It's all Greenspan's fault. Really.
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Old 09-30-2008, 10:27 AM   #26
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It's all Greenspan's fault. Really.
Nope, but he's got a heapin' helpin' of it that he has to bear. Plenty of it to go around though, unfortunately.
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Old 09-30-2008, 10:31 AM   #27
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It's all Greenspan's fault. Really.
He helped enable the borrowing frenzy with cheap and easy money. But ultimately he didn't hold a gun to anyone's head and force them to overextend and live beyond their means with borrowed money.
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Old 09-30-2008, 10:35 AM   #28
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He helped enable the borrowing frenzy with cheap and easy money. But ultimately he didn't hold a gun to anyone's head and force them to overextend and live beyond their means with borrowed money.
Yep, Al supplied low-cost crack. But he didn't force the addicts to buy...
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Old 09-30-2008, 10:44 AM   #29
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Originally Posted by ziggy29 View Post
He helped enable the borrowing frenzy with cheap and easy money. But ultimately he didn't hold a gun to anyone's head and force them to overextend and live beyond their means with borrowed money.
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Yep, Al supplied low-cost crack. But he didn't force the addicts to buy...
But we used to have systems in place that kept people from doing exactly this! You didn't get a mortgage unless you met certain requirements. How that system was allowed to be circumvented I will never understand.

Did it really start with congress/president wanting more people to own homes and so let this "shadow" mortgage system get put into place with NO CONTROLS and go run amuck? I suppose.

That's the WHOLE REASON we have controls - so that people - lenders AND borrowers can't run amuck and then go bust and screw things up for the rest of us.

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Old 09-30-2008, 10:53 AM   #30
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But we used to have systems in place that kept people from doing exactly this! You didn't get a mortgage unless you met certain requirements. How that system was allowed to be circumvented I will never understand.
Audrey, I believe what happened is that in recent decades, legislators began to believe that the "dream" of homeownership needed to be expanded to as many people as possible. Poverty was nothing that the ability to own one's own home couldn't cure.

It was largely bipartisan. Conservatives pushed the "ownership society" as a way to get more people to care about run-down neighborhoods. Liberals pushed for more lenient lending standards in poor and minority-dominated areas. Even if disagreeing on many specifics and supportive of it for different reasons, both were pushing for more homeownership.

So all these programs came along to make it easier for lower income and otherwise less-qualified buyers to buy homes. That meant relaxing lending standards. That means creating quasi-government entities to package, own and "implicitly" guarantee mortgages. That meant making homeowners of people with questionable income and/or credit.

Then came easy money at low rates together with "creative" financing and no-doc loans to turn the smoldering fire into a conflagration of irresponsible borrowing and lending practices.
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Old 09-30-2008, 11:04 AM   #31
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That means creating quasi-government entities to package, own and "implicitly" guarantee mortgages.
The "quasi-government" entities to guarantee mortgages were put in place in the 1930s and worked prefectly well for decades. That was NOT a contributor to the crazy mortgage lending of the 2000s. The craziness occurred outside the traditional mortgage lending mechanisms.

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Old 09-30-2008, 11:07 AM   #32
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The "quasi-government" entities to guarantee mortgages were put in place in the 1930s and worked prefectly well for decades. That was NOT a contributor to the crazy mortgage lending of the 2000s.
Except that standards for what was guaranteed changed.
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Old 09-30-2008, 11:24 AM   #33
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I wouldnt cut Uncle Al too much slack...from 2004 when he said the housing market was fine, bankruptcies were no problem, and encouraged homeowners to consider adjustable rate mortgages while concurrently encouraging bankers to 'offer a broader range of products'. Seems he provided the crack, gave a promotional speech to the dealers, and told the users it'd be good for them.

Don't take mortgage advice from Alan Greenspan - MSN Money

"On Monday, he extolled the virtues of the levered-up homeowner to a credit union conference."

"What he advocated last Monday should send cold shivers down the spine of anyone so engaged. I already thought that what was going on in real estate was dangerous, but what he now cites as a good thing is not only dangerous, it will be disastrous -- guaranteed."

"In a rare evaluation of interest-rate options that households face, Federal Reserve Chairman Alan Greenspan questioned whether American homeowners are well served by popular fixed-rate long-term mortgages."

"The notion of the whole country piling into ARMs when rates are at multi-decade lows is a truly destabilizing concept to contemplate. What happens if rates go up (because my view is incorrect) and the economy roars ahead?"

"Greenspan says personal debt Is mitigated by housing value,"

"An extended period of low interest rates and extra cash from mortgage refinancing has given borrowers flexibility to better manage their debt."

"Mortgage refinancing and the rise in home values have helped to bolster economic spending in economic hard times, as well as better periods."

"We have postponed the inevitable via this leveraging of home values and aggressive lending tactics to keep the housing market alive and percolating. But we are running out of steam."
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Old 09-30-2008, 11:47 AM   #34
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Except that standards for what was guaranteed changed.
This is true. Fannie/Freddie started buying subprime mortgages securities in the 1990s. The buying escalated in the 2000s and peaked in 2004.
How HUD Mortgage Policy Fed The Crisis

I didn't realize that Fannie/Freddie participated in the subprime mortgage market to that extent. Given the timeline of how their buying of such loans peaked in 2004, and they cut back in 2005, then they cut back in 2006. This eerily coincides with the ballooning of the housing bubble.

Wow!

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Old 09-30-2008, 01:02 PM   #35
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Audrey, I believe what happened is that in recent decades, legislators began to believe that the "dream" of homeownership needed to be expanded to as many people as possible. Poverty was nothing that the ability to own one's own home couldn't cure.

It was largely bipartisan. Conservatives pushed the "ownership society" as a way to get more people to care about run-down neighborhoods. Liberals pushed for more lenient lending standards in poor and minority-dominated areas. Even if disagreeing on many specifics and supportive of it for different reasons, both were pushing for more homeownership.

So all these programs came along to make it easier for lower income and otherwise less-qualified buyers to buy homes. That meant relaxing lending standards. That means creating quasi-government entities to package, own and "implicitly" guarantee mortgages. That meant making homeowners of people with questionable income and/or credit.

Then came easy money at low rates together with "creative" financing and no-doc loans to turn the smoldering fire into a conflagration of irresponsible borrowing and lending practices.
I wish people would be more discerning in assessing the blame for the subprime blow-up. I have a colleague who has an extensive bankruptcy practice and he tells me that most of the subprime mess he's handling for major lenders evolves around middle-income borrowers using their home equity as an ATM or purchasing second homes or speculating during the real estate bubble. There are a lot of low income people who should have not obtained any conventional housing loans, but I think people over-state the case when they blame the entire mess on low-income borrowers or CRA on the subprime mess. The FHA has had low-income housing loan or guarantee programs for years and years promoting home ownership, and it appears to work well.

The neighborhoods I tour where housing has blown up are not low income areas, where you would think the prevalent housing problems of foreclosure and stagnation would occur. They are middle-income and upper income areas, where many people just got over their heads with lending products that they didn't, in many cases, understand. Granted some of the people in these areas are lower income people trying to move up, but a large percentage are ordinary working, middle class folks sucked into credit problems.
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Old 09-30-2008, 01:49 PM   #36
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Yep, Al supplied low-cost crack. But he didn't force the addicts to buy...
http://www.villainouscompany.com/vcb..._frank_di.html

I am sure this is biased but still has some good facts...

http://www.taxfoundation.org/blog/show/23617.html

Gotta love Barney Frank....
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