Preet Bharara fired?

“between being forced to make subprime loans and aggressive lending practices “

Banks weren’t forced to make subprime loans.

The CRA, which applied only to deposit taking banks and not to investment banks, required that a percentage of loans be made to to the community from which deposits originated.

As to whether those loans were business loans, mortgage loans, prime loans, subprime, conforming, or any other detail was entirely up to the banks.

Banks simply found it easier to purchase loans from independent brokers meaning that they didn’t have a hands on knowledge of the quality of the loans they were holding, a big difference from how they once operated. But that was their choice.

Government policy, including that originating with Dubya, pushed banks to make loans to ‘underserved minority borrowers’. They were entirely free to limit those loans to conforming paper. They chose otherwise, in large measure because everyone else was doing the same thing.

“the CRA, HUD and GSEs pushed by Clinton and Cuomo created the mess”

That’s simply not true.

The housing bubble began building shortly after Dubya took office. Clinton was out of office.

Bush had a Republican House and Senate. He had every opportunity to reverse CRA if it was the bogeyman that you believe it to be. The same goes for HUD.

And the GSEs stuck with conforming loans all through the bubble. Conforming loans performed just as they are intended to do because those borrowers are carefully vetted. This was verified by Lazard for its own investors.

The trouble originated in the fast growing private sector competitors to Fanny and Freddy, the people who invented NINJA subprime lending. Ameriquest Mortgage, Argent, and all of the smaller firms that spun off from those giants. Firms here in Orange County where I live, which is one reason I was aware very early on about the madness infecting the mortgage world.

The mortgage bubble was a perfect storm of factors including investment firms hunting for yield in a world of extremely low interest rates; a tax code promoting home equity lending; capital gains favoring RE; the scrapping of loan officers for outside independent loan brokers; Li’s Gaussian copula function; Investment banks, hedge funds and pure mortgage lenders deciding to farm subprime lending; Quants inventing CDOs Squared, Synthetic CDOs, tranches, and a whole host of other derivatives that had the OTC options market wagging the mortgage writing dog.

And those are just some of the factors that drove the bubble.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.