Subprime Lending - Or How The Liberals In Congress Got Us Into This Mess

The Virginian ^ | 5/10/2008 | Moneyrunner

[moneyrunner]

The subprime mortgage meltdown has cost the world 15% of its market capitalization, about $9 trillion. The primary culprit who caused all of this financial loss, pain and suffering is not the mortgage companies. Neither is it the overextended borrowers. It is our own federal regulations interfering with the free market.

...

The unintended consequences of good intentions can do more economic harm than all the mean-spirited greed within capitalism.

Part of the good intention was forcing banks to be good neighbors by making altruistic loans that discriminated in favor of underprivileged communities. Any attempts by banks to set higher rates, terms or conditions on people with questionable credit was labeled "predatory lending" and used to hold lenders hostage. This form of price controls held the price on questionable loans artificially low.

[moneyrunner]

Today, the people who advocated lax lending standards are self-righteously critical of lenders for letting this debacle happen. Having forced millions of bad loans, they are now complaining the government is paying a small portion of the losses back to Bear Stearns. Having enacted regulations that ruined the U.S. financial markets, they now claim the credit problems stem from a lack of regulation.

[org.whodat]

Having enacted regulations that ruined the U.S. financial markets, they now claim the credit problems stem from a lack of regulation.

The lenders, broker, mortgage lenders and mortgages bankers, real estate appraisers, real estate agents/brokers, and builder/developer's. Were all just little innocents lead to slaughter. What bunk.!

[kindred]

[has cost the world 15% of its market capitalization, about $9 trillion. The primary culprit who caused all of this financial loss, pain and suffering is not the mortgage companies. Neither is it the overextended borrowers. It is our own federal regulations interfering with the free market. ... The unintended consequences of good intentions can do more economic harm than all the mean-spirited greed within capitalism]

When you think on the people who run Congress and pass legislation and the type of leaders they have, you can see why true conservatives hate the hate filled left wing communists monsters who are destroying our once great nation.

[johnny7]

Their Marxist-socialist “fixes”... have also wreaked havoc on our energy industry and health-care system. Everything they touch... turns to sh•t.

[underground]

The market acts like a herd sometimes. This effect is magnified greatly when you have elected politicians and federal reserve boards that insist on acting like shepherds and treating the market participants as sheep.

As the regulation, interest rates, and subsidies change - the market sheep move in the direction their leaders have directed them.

In this case, right off a cliff.

[moneyrunner]

Did you read the entire article or just that excerpt? The article answers the question as to why the banks lent the way they did.

[moneyrunner]

Try not to paint with too broad a brush. There were people who resisted these regulations. Not many, but some. There was a lot of demagoguery going on about unfair lending practices, remember? The issue of “race” was being tossed around by anyone who uttered a peep.

[moneyrunner]

The effect of lending to people who could not afford their mortgages were masked for years by rising home prices and refinancing:

The belief was that home owners build equity in their homes by making regular payments that include both interest and principal. For most families, paying a mortgage is a forced form of savings. But this assumes home owners have the cash flow that allows them to build equity in their houses. Encourage those unaccustomed or unable to save to become home owners, and they are apt to refinance and take any growing equity out of their house to fund other expenses. In fact, that is exactly what happened.

[moneyrunner]

Here's what most people don't realize about the home you own:

The idea was that purchasing a home is an investment. But the home you own is not an investment. An investment pays you money. Rental property is an investment. The house you live in is a liability, which increases proportionately with its size.

[willieroe]

Are you the author of this blog entry?

[org.whodat]

The article answers the question as to why the banks lent the way they did.

That is a good one, the article is nothing more than one man's opinion, which is at the most silly.

[snowman1]

This is more than one mans opinion and it’s not in the least silly. Anytime the federal govt. steps in they manage to screw things up. Do your homework.

[HangThemHigh]

"The idea was that purchasing a home is an investment. But the home you own is not an investment. An investment pays you money. Rental property is an investment. The house you live in is a liability, which increases proportionately with its size. "

While not an investment in the usual sense of the term, a home does tend to increase in value and is not really terribly different from a stock that doesn't pay a dividend. Many folks have funded their retirement by the sale of their primary residence and downsizing or even (shudder) a reverse mortgage.

[Old North State]

If I remember right it was the late nineties when the fed jumped in to the Clinton sponsored CRA mess and allowed CDO’s to be backed by sub-prime loans which helped spread the disaster into more financial markets. But regardless of that, the author of the article is pointing out the politicallt incorrect truth as to the genesis of the fiasco; political pressure by race hustlers and their allies in the Democratic Party and the Republicans who caved in to that pressure.

[moneyrunner]

Are you the author of this blog entry?

No, the author is David Marotta, a money manager in Virginia. I happen to agree.

[moneyrunner]

the article is nothing more than one man's opinion, which is at the most silly.

David Marotta connects the dots unlike the people who believe that bankers deliberately set out to commit financial suicide.

I recall the charges of racism that were thrown about, about "red-lining" and about discrimination against people without good credit history. I know demagoguery when I hear it and that was out and out demagoguery, something that the Left is skilled at.

So the banks and lenders caved. They relaxed or even abandoned credit checks. And for a few years as real estate values went up, it worked. But a house does not produce income, it is an income sink and people who could barely afford the mortgage began refinancing to pay for other things. They were using their home loans like ATM machines. When housing values stopped rising and began declining, the people were tapped out and now owe more than the value of their homes.

But in the end it took the government to begin the process of loosening lending standards. The rest is history and now the entire world is paying for the Lefts "good intentions."

[moneyrunner]

HangThemHigh,

I work with over two hundred retirees. Virtually none have used their home to fund their retirement. If they move, it's into a retirement community that costs about the same as the value of their home.

A home absorbs income: mortgages, maintenance, utilities, taxes and insurance are just some of the expenses. Trust me when I say this.

The heirs are probably the only ones to derive financial benefit from home ownership.

[moneyrunner]

Amen.

Bad men have a limit to the damage they will do; they have to sleep sometime and their greed can be satisfied.

Beware the crusader for good on a mission. Their ability to create devastation knows no bounds.

[Notary Sojac]

Subprime lending to "minorities" is part of the problem, but far from the largest part.

When it all shakes out, the lion's share of bad lending will not come from the po' folks, but from;

(1) middle and upper class homeowners who cashed out hundreds of billions in paper "equity" via refinance/line of credit, and then pi**ed away the proceeds.

(2) builders and investors that built spec homes by the millions which turned out to be unaffordable unless bought on suicide loan terms.

All of this took place under the insane delusion that real estate could only go up....

Google "Gramm-Leach-Bliley Act" to learn about the law that really caused the credit meltdown.

[moneyrunner]

I don't want to be misinterpreted. You are probably right that minorities are not the majority of those who are defaulting on their loans (I do not have any data on this, but let's assume you are right). The reality is when you change the standards for lending, you change them for everybody, not just people who have dark skin.

The government pushed for more relaxed lending standards. And that is the reason for the mess we are in.