What Has Caused Current Financial Crisis

Current Events | 092708 | sirchtruth

[whitedog57]

Well, you are correct on one level. The bailout basically says that borrowers are innocent. But we have screwed this country up so bad between CRA, F&F, Wall Street going along with F&F, Greenspan keeping rates TOO LOW for TOO LONG, etc.

We need to rethink the Fed model. I contend that Fed intervention policies is a major cause of our current down business cycles. E.g. Greenspan and Bernanke kept the Fed Fund rate target too low for too long. Thus, we created too excessive credit, induced a speculative “bubble” in the housing market. All this has resulted in an abnormally low savings rate (and too much spending by borrowers).

The party is now over.

[Tax-chick]

Names: Chris Dodd, Hussein Obama, and some putz who’s such wallpaper that I can’t remember his name but is a Big Shot in the Senate. The top three recipients of largesse from Raines, the head of FNMA ... buying off oversight with taxpayer-supported profits. Ain’t oligarchy FUN?!?

If ONLY McCain had mentioned this last night. I was ready to slap him when he let the opportunity pass.

I hear Raleigh is a swell place. I haven’t been there since my brother was at Dook in the early 80’s. I live (happily!) in the Boring ‘Burbs of Charlotte.

[sirchtruth]

You’re right. Hasn’t the Prime Rate been at 5.00% for about 8 months now? There was something about the Glass-Stegal act which Greenspan was against back during the Clinton years.

[jude24]

I think factually what caused this situation is, Redlining. Banks had to lend to ARM's to high risk, high debt to income clients.

Not really. It has a lot more to do with investment banks taking those high-risk loans, bundling them together, and selling them as though they were low-risk investments. Lots of banks, insurance companies, pension funds, etc. invested in those surprisingly high-risk investments. Now, no one wants to buy these bundled loans.

[jude24]

That's way too much information to sift through.

That's your problem. You're trying to simplify a complex issue - and consequently missing the point.

[sirchtruth]

buying off oversight with taxpayer-supported profits.

This is the crux of the whole problem and I'm so glad you brought it up! The names on that list are curious to me because Obama moved up it so fast. I mean lightning speed!

While we were busy hoping to find a stain on a blue dress, Clinton was making his dem friends rich! That's what this is really about and I'm going to seek the facts on this aspect even if I have to dig a hole all the way to China. I wounder if I'll find the paperbag that carried all the cash Maggie Williams accepted at her desk in the WH?

I lived in Raliegh til I was 20 and never once set foot in Charlotte.

[whitedog57]

First, Greenspan has ties to Citi, so he was a big supporter of deregulation.

Second, the part of the Gramm et al deregulation bill was that banks could now compete in the MBS/ABS market.

Well, THAT part of the deregulation certainly didn’t work well!!!

[Tax-chick]

Huge amounts of money have gone to the Senators and their pet “NGO’s”, like Obama with ACORN. Republicans, too, I’m sure. I think they should have a bedrock of decency that says, “Decent people don’t take taxpayers’ money like this. It’s wrong.” Remember when Armstrong Williams, the columnist, was found to be taking subsidies from the Department of Education to promote No Child Left Behind? He agreed with the program, so it’s not like he was being paid to write something he didn’t believe, but he should have had a visceral response of, “I can’t take the taxpayers’ money like this.”

Charlotte is like Oklahoma City and Tulsa (the last two places we lived) in a good way. It’s easy to live here with a large family. Everyone’s nice. If you have time to “do something,” there’s plenty to do. We never visited everything we wanted to see in OKC or Tulsa, and we haven’t done it in Charlotte (in 5 years) either. And Raleigh has some neat places, like the Natural History museum, that would be really cool to visit, if we could just find a date that doesn’t have somebody’s Scouting or church commitments, and then pull ourselves together for the 3-hour drive each way.

[sirchtruth]

You're trying to simplify a complex issue - and consequently missing the point.

No, it's not a complex issue. That's what the gov't dems want you to think. I was trying, unsuccessfully I might add, gather bullet point facts about the crisis.

There's one fact people need to understand.

Fannie and Freddie were failing, everyone knew it and Barney Frank prevented congress from acting when it needed too.

[jude24]

That's what the gov't dems want you to think. I was trying, unsuccessfully I might add, gather bullet point facts about the crisis.

The Wall Street Journal and the Economist are all in on the conspiracy too!!!!!

[icwhatudo]

I should have written “Low credit score” as opposed to low income.

[plain talk]

It wasn’t a comment so much directed at you. I am just wondering what class of people were primarily responsible for the defaults - low income, middle income or wealthy speculators? I just haven’t seen much explaining this.

[Polybius]

What has really caused the current financial crisis?

The causes of this problem were evident years ago and were argued about endlessly on Free Republic on the old "Is There Really a Housing Bubble" threads.

It was not just people in "redline" areas that were getting loans they could not afford to repay. There were FReepers right here on Free Republic tripping over each other to pay $500,000 for $250,000 houses with gimmick loan because they all believed that those houses would now be worth $750,000.

On those threads, most people argued that Housing Trees Grow to the Sky and that the Bubble price of house "reflected what the market was willing to pay" while a few other pointed out that when people were putting no money down and getting gimmick loans on terms they could never afford to repay, the "market" was not really "paying" anything.

I predicted this mess on Free Republic back in 2005.

49 posted on Wednesday, June 22, 2005 2:28:10 PM by Polybius

35 posted on Wednesday, June 22, 2005 12:17:19 PM by Polybius

Some now want to blame the predictable crash and burn on a Carter era law that worked just fine throughout the 1980's and most of the 1990's.

That explanation is too convenient an answer. Low income people were not snapping up $800,000 condos on Miami Beach or $800,000 McMansions as fast as they could be built.

The law says you cannot turn down somebody for a loan because of race, creed or color but nowhere does the law say you can turn down somebody for a loan because of the fast that they can't possibly repay what you are loaning.

What happened was a scam, a con game, a swindle.

Specifically, it was a classic Pigeon Drop " in which a mark or 'pigeon' is convinced to give up a sum of money in order to secure the rights to a larger sum of money, or more valuable object. In reality the scammers make off with the money and the mark is left with nothing."

The "pigeon" of this scam was the mutual fund manager of your own 401K. Therefore, you, by proxy, were the pigeon.

The illegal aliens, the deadbeats without jobs or very low paying jobs or the middle class guy with a middle class job borrowing three times more than he could afford to repay were merely the tools of the scam.

The mortgage mess was created by loan brokers who were not lending their own money. They were just creating phony Pigeon Drop mortgages to sell to gullible investors. Let's be clear here. That "gullible investor" was NOT the house "buyer". It was a mutual fund manager in maybe your own 401K or a foreign investor wanting to invest in the U.S.

At the time, the stock market was not red hot like it was during the Tech Bubble and interest rates on CD's were pretty low.

However, Americans were lining up for big mortgages that they promised to repay at a good interest rate after a few years at an introductory "teaser" rate.

As a long term investment, buying those mortgage loans seemed a pretty good idea and Wall Street's customers wanted to buy them up.

So, loan brokers would write up mortgages, they would be bundled up in financial instruments and would them be sold off to your 401K manager or to that foreign investor.

Every time that happened, the loan broker would get a good commission.

Life was good for a loan broker.

There was one problem, however. Although there was a high demand for that product and investor wanted to buy more and more of those mortgage loans, the supply of creditworthy borrowers was running out.

What to do?

Simple.

Just sign up borrowers without a snowball's chance in hell of repaying the loans. Mix those loans up with better loans in a package and they will still buy them up like hot cakes on Wall Street.

So, the loan brokers started creating mortgages by getting anybody, ANYBODY with a pulse (and even some dead people without pulses, as investigators discovered) to get their names on mortgages. The worthless mortgages were then sold to eager Wall Street investors, maybe the manager of your own 401K.

As the demand for these "great investments" grew, illegal aliens, native born Americans without jobs or good credit, people with good credit wanting to borrow three times what they could actually repay to buy a house at three times the price a real market could actually bear and even dead people had their names put on these Pigeon Drop mortgages.

And Wall Street's customers just kept buying that worthless paper up.

For the loan brokers, it was just like writing a commission check to themselves, having a drunk downtown sign it, taking the check to your 401K manager than then having your 401K manager give him you 401K money in exchange for that check.

That is why loan brokers were getting filthy rich.

Every time such a worthless Pigeon Drop mortgage was sold on Wall Street to a 401K mutual fund manager ....KA-CHING..... the loan brokers got richer with commissions.

The loan brokers who rounded up illegals and dead people's names to put on the dotted line for "loans" they could never hope to repay knew exactly what they were doing: They was swindling YOUR mutual fund manager out of YOUR money and they knew it.

How's your 401K doing lately?

The mutual fund managers and investors around the world, plus the legions of Freepers who used to argue that there was no such thing as the Housing Bubble all swallowed the loan broker's Pigeon Drop swindle hook, line and sinker.

The loan brokers who left the game early got filthy rich. The ones who stayed in the game too long are now in deep kimchee because the "pigeons" wised up and are no longer buying their worthless product.

That financial blood has already been spilled and, through the stock market, is now affecting even those of us who predicted that the behavior of the last several years was lunacy.

What about the future?

How about getting back to that good ole common sense that required buyers to put down a meaningful down payment, that required that interest PLUS principal be paid each month and that required buyers to ..... GASP!! ..... OH! THE HUMANITY!!! ...... to prove that they had the income they claimed to qualify for the loan.

[XEHRpa]

> What has really caused the current financial crisis?

As simple today as it was in 1852:

Extraordinary Popular Delusions and the Madness of Crowds

(see http://www.freerepublic.com/focus/f-news/2092074/posts)

[TruthWillWin]

Sorry, I apologize. I am actually working on a subprime causes paper as we speak (or type), so I am not reading other’s opinions as carefully as I should.

I would be very interested in seeing your finished work. Are you going to post it here? How about a ping if you do.

[Polybius]

I am just wondering what class of people were primarily responsible for the defaults - low income, middle income or wealthy speculators?

All of the above.

See Post 73.

All classes of borrowers, low income, middle income and high income were used as tools in the Pigeon Drop scam. Investigators have even found mortgages made out to DEAD people!

In order to understand the scam, it is important to realize that the "pigeons" being scammed were not the people who borrowed the money. The "pigeons" being scammed were the investors that were buying up those mortgages that the loan brokers were writing as fast as they could in order to make Big Bucks on commissions.

It did not matter WHO signed the mortgage or their ability to repay the mortgage as long as loan brokers sold it to the "pigeon" for a nice commission.

Thus, you have unemployed people borrowing $200,000 they couldn't afford to repay, middle class people borrowing $600,000 they couldn't afford to repay and high income people borrowing $1.5 million they couldn't afford to repay.

Thus, you have low income people defaulting in poorer neighborhoods, middle class people defaulting on a McMansion and high income people defaulting on that $1.5 million condo in Miami Beach.

[plain talk]

All of the above? duh. That wasn’t my question. My question is what class of people primarily are responsible for the defaulted loans? Not sure anyone knows that or has supplied that.

[Scarchin]

Well - I’m glad you did it.

I wonder if it’s just a symptom of the election, but the proliferation of self-serving or inane vanities has bugged me over the past year.

I come here for good links with intelligent comments from FReepers.

[Tax-chick]

I think it takes a lot of ego to assume that one’s thoughts on a subject everyone is discussing - the debate, the polls, the financial fiasco - are so brilliant and original that they deserve their own thread.

I should go clean something out there in Real Life - then I’ll feel chirpy again :-).

[Polybius]

All of the above? duh. That wasn’t my question. My question is what class of people primarily are responsible for the defaulted loans? Not sure anyone knows that or has supplied that.

What part of "All of the Above" do you have trouble understanding?

Are you expecting a simplistic answer to confirm your simplistic premise that only one "class" of people was responsible for the idiocy of the Housing Bubble?

The reality is that everybody from the burger flipper that signed a $200,000 mortgage he couldn't repay to the middle class Joe Six Pack that signed a $600,000 mortgage he couldn't repay to the successful lawyer that signed a $1.5 million mortgage he couldn't repay are ALL defaulting.

As bills mounted and revenue shrank, the board of Miami Beach's luxury Bentley Bay condo knew it had to take drastic action. Facing a spike in delinquencies and the need to pay the bills, the Bentley's condo association opted to take a hard line with lenders that took over units there -- many from investors who went into foreclosure.

If you want a simplistic answer to your simplistic premise, here is your answer.

Low income borrowers are defaulting in low income neighborhoods.

Middle class borrowers are defaulting in the suburbs.

High income borrowers are defaulting on the luxury Miami Beach condos they bought at Bentley Bay.