Posted on 06/14/2008 10:29:21 PM PDT by TigerLikesRooster
The Bubble
How homeowners, speculators and Wall Street dealmakers rode a wave of easy money with crippling consequences.
By Alec Klein and Zachary A. Goldfarb
The Washington Post
Sunday, June 15, 2008; A01
Part I · Boom
The black-tie party at Washington's swank Mayflower Hotel seemed a fitting celebration of the biggest American housing boom since the 1950s: filet mignon and lobster, a champagne room and hundreds of mortgage brokers, real estate agents and their customers gyrating to a Latin band.
On that winter night in 2005, the company hosting the gala honored itself with an ice sculpture of its logo. Pinnacle Financial had grown from a single office to a national behemoth generating $6.5 billion in mortgages that year. The $100,000-plus party celebrated the booming division that made loans largely to Hispanic immigrants with little savings. The company even booked rooms for those who imbibed too much.
Kevin Connelly, a loan officer who attended the affair, now marvels at those gilded times. At his Pinnacle office in Virginia, colleagues were filling the parking lot with BMWs and at least one Lotus sports car. In its hiring frenzy, the mortgage company turned a busboy into a loan officer whose income zoomed to six figures in a matter of months.
"It was the peak. It was the embodiment of business success," Connelly said. "We underestimated the bubble, even though deep down, we knew it couldn't last forever."
Indeed, Pinnacle's party would soon end, along with the nation's housing euphoria. The company has all but disappeared, along with dozens of other mortgage firms, tens of thousands of jobs on Wall Street and the dreams of about 1 million proud new homeowners who lost their houses.
(Excerpt) Read more at washingtonpost.com ...
You are forgetting that it was not sold as “bad paper”. It was sold as “AAA” rated paper. Think Treasury Bonds that pay more interest. That is what investors thought they were getting. They had not clue they were buying junk bonds. They were defrauded, pure and simple, by the rating agencies who rated them at “AAA”. That is who bought the bad paper — conservative investors looking for a modest rate of return on a bullet-proof investment about as safe as cash.
OK....who are the Rating Agencies??? NAME NAMES!
http://en.wikipedia.org/wiki/Bond_credit_rating#Credit_Rating_Agencies
Wikipedia is not the most accurate, but they are the most convenient.
No. The CRA had nothing to do with the no-doc loans or any government regulation.
What happened in the credit market is what happens when the shift of the risk moves to other people. Banks outsourced the job of approving homeowners for loans to the mortgage brokers. The brokers got paid regardless if the homeowner defaulted or not. The Banks pooled those loans and sold them off, so they would get paid regardless if the homeowner defaulted or not. Ibanks repackaged those loans and sold them off, so they would get paid regardless if the homeowner defaulted or not. Hedge Funds, Mutual Funds and Pensions would buy those loans with other people’s money and get paid regardless if the homeowner defaulted or not. So the risk is passed to the two parties with the least amount of information - the average/sub-prime homeowner and the investor.
There was too much cash in the marketplace after 2001 (Bush Tax Cuts, runaway GOP spending & Fed theory) and when the stock market became too expensive, the money moved to corporate bonds, when that got too expensive it went to prime mortgages, then Alt-A, finally to subprime.
The government didn’t force anybody to do anything.
According to some friends who were in the middle of that mortgage market they were told their rejection rates were too high for minorities and they were ‘encouraged’ to approve mortgages for them.
I don’t think the government forced a regulation on them but they certainly were encouraged to do it.
Your friends are lying to you.
I told everybody here more than a year ago that the subprime problem was an illegal alien problem, but all these experts insisted otherwise (http://www.freerepublic.com/focus/f-news/1805625/posts).
Told ya so!
Your friends may lie. Mine don't.
http://www.city-journal.org/html/10_1_the_trillion_dollar.html
You didn’t even read that article.
So my friends are liars and I don’t read articles I ping you to.
Boy oh boy am I glad I’m not married to you.
you and me both.
The real problem behind the sub-prime meltdown was the passing off of risk to the least knowledgeable participants - the borrowers and the investors.
Loans originating from Mortgage brokers and bought and repackaged by banks never counted in the CRA’s tally.
So your shyster friends who were processing no-doc loans they knew the customer could never pay back are the real criminals in this situation, they are just trying to pass the blame onto black people.
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