Larry Blanchard wrote:

On Sat, 28 Mar 2009 16:17:56 -0500, Tim Daneliuk wrote:

The U.S. government - in the form of its political rectal warts
like Carter, Clinton, Frank, and Dodd - *distorted* market behavior
by insisting that banks lend to borrowers who absolutely could not
qualify under normal rules. They did this by promising the bankers
they could keep the upside of such lending, but that "the government"
would protect them from the downside when such borrowers defaulted.
This created a perverse incentive for the banks (and AIG as their
mortgage default insurance company) to take lots of risk knowing
they'd never have to eat the downside.

I know you won't believe this, Tim, but the majority of defaulted loans
were made by mortgage brokers thru non-bank finance companies. I don't
recall the exact numbers, but I posted them here once before.

The banks problems were that they bough up the securitized mortgages
believing the housing market would go up forever.

And then there's the speculators who simply walked away when the bubble
started leaking. Or haven't you read about all the renters that are
being evicted because their landlord bailed out?

Trying to blame the CRA just won't fly. It's been debunked too often.
Can you show me language in that or any other law that requires lending
to unqualified individuals.

You really don't get it do you?

The CRA didn't have language in it that said, "you will loan to
unqualified people". Instead, it used language about "fair housing"
and "non-discriminatory lending practices". At that point, various groups
such as community activists (ever heard of ACORN?) and the Janet Reno
justice department began threatening civil and legal action against banks
that did not meet "fair lending criteria". Those criteria used various
things such as number of loans to various favored political classes as
evidence of discriminatory lending practices. This, coupled with
increasingly lowered qualification requirements promulgated by Fannie and
Freddie served as the catalyst for both the bubble and the creation of the
bundled securities. While lending institutions are not free of blame from
this, they are not the root cause of the problem.

http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/456805-1.html

http://www.investors.com/editorial/editorialcontent.asp?status=article&id=31276678171 6725&secid=1501

http://www.usdoj.gov/archive/ag/speeches/1998/0320_agcom.htm

Sure seems like government coercion at work.

In the beginning, the banks simply determined that the best approach was
to roll over and take the losses (some of which were covered by taxpayers
anyway) rather than deal with an ACORN lawsuit for every loan turned down.

Unintended consequences suck.





And it wasn't the government that invented "liar loans" either.


--
If you're going to be dumb, you better be tough