we do realize that banks and institutions were forced at the point of a gun to write bad loans, right? We also understand that they devised a process to package the bad loans with good loans and sell them for a minimal profit in a market controlled by the fed gov, right? In that market, the fed gov made money as well as the banks and that market was controlled by Clintonites like Rahm, Mcauliffe, Gorelick and Barney Frank’s gay lover. People with no experience at all in financial dealing were making decisions on how to best manage and facilitate a trillion dollar shell game and people blame the banks while these people live large on their bonuses. Anyone who questioned it was called racist.
This is nothing but a shakedown.
Banks are painted as villains while the real culprit is the government. Who forced banks to make bad loans under the premiss of fair credit? Who set the down payment requirements and other guidelines? Who accepted fraudulent documents (Fannie and Freddie)? Banks don’t have sufficient funds to make and hold mortgages so they pass them upstream to government agencies. The bank holds servicing rights, which means they basically get some deposits and a small fee for administrative duties. Settlements to date have been a sham and ignored the real cause of the collapse-easy credit without proper due diligence. I think this suit is more about getting a settlement to avoid ongoing and expensive legal fees.
It was the Community Reinvestment Act.
Even small town banks were blackmailed by the government.
” We also understand that they devised a process to package the bad loans with good loans and sell them for a minimal profit in a market controlled by the fed gov, right? “
Since that’s not at all true I hope we don’t understand this.
Collateralizing loans into CDOs and CMOs was extremely profitable and the government didn’t control it in any fashion. The Commodity Futures Modernization Act of 2000 saw to that.
You’re confusing the OTC derivatives market with Fannie and Freddie. Fannie and Freddie dealt in low risk, low yield conforming paper and had done so for decades.
The private OTC derivatives market peddled high risk, high yield paper and they were eating F&F’s lunch during the bubble. They were in this market in a huge way, and in it entirely because they wanted to be. It was very lucrative.
Investors gobbled up all the high yield paper that they could get. When the underlying securities collapsed they learned the meaning of ‘high risk’.
“we do realize that banks and institutions were forced at the point of a gun to write bad loans, right?”
This also is untrue or at least very misleading.
The Community Reinvestment Act applied only to retail banks and S&Ls, deposit taking financial firms. It did not apply to investment banks, to hedge funds, to pure mortgage lenders, and to other shadow banking firms that raise their money from investors.
The CRA mandated that deposit takers write a percentage of their loans in neighborhoods where they take in deposits. Ergo “community reinvestment”. There was no requirement that the loans be mortgages and certainly not that they be risky.
Banks holding bad mortgage paper did so either because their own lending practices were bad or because they were purchasing mortgage paper on the secondary market and didn’t vet it themselves.
Retail banks usually have good lending practices. They got in trouble when they trusted the rating agencies and bought AAA rated paper on the secondary market. A lot of that paper turned out to be junk at best and a time bomb at worst.
Whatever the lack of merits of the CRA if it hadn’t existed it wouldn’t have made a difference. If every CRA loan written had failed it wouldn’t have created the financial crisis. There simply weren’t enough of them.
The financial crisis developed in the multi trillion dollar derivatives market which was driving the demand for subprime paper. Bundlers wanted all the subprime paper that they could get and they had an army of loan brokers writing it for them.
we do realize that banks and institutions were forced at the point of a gun to write bad loans, right?
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Make the CRA argument all you want , it doesn’t hold water ,, the CRA areas largely were skipped in the ponzi meltup , the desirable areas were pumped up, not the slums..
The truth is that deregulation coupled with the banks discovering that they could game the system and profit from KNOWN BAD LOANS drove the scam. Creating a bubble , insured many times over in their favor , was something they all took part in.