From American Dream to American Nightmare

[saltydawg]

Remember when Tyler used to brag about economic growth during the GWB years?

http://www.oregonlive.com/business/i...from_ame.html?

"So if much of the economic growth of the past 15 years was illusory, fueled by injections of high-octane debt, what happens now that the tank is empty? We could be entering a wrenching adjustment period of lower spending, slower growth, perhaps a lesser standard of living.

"We're not going back to those growth rates; that was a dream world," said Kevin Lansing, an economist with the Federal Reserve Bank of San Francisco who for years has tracked consumer debt. "There could be 10 years where you're going to have this drag on the economy. ... People's living standards are not going to be improving the way they were. It will place a new strain on government as their tax revenue falters."

[T_Won]

This goes way back... way before GWB. Americans have been living beyond their means since at least GHWB (I'm not old enough to remember how it was before that). The bills are now due and our country is about to change. We don't produce much anymore... we've outsourced production (both parties). Our economy has been run on consumer spending and we are out of money to spend. Hyperinflation from government and Fed spending is right around the corner. I don't see a way out.

[T_Won]

Oh, I kept reading.... here's what I was saying:

"The current economic wreckage has its roots in a sweeping change in American behavior dating to the late 1980s.
Between 1965 and 1985, household leverage -- measured by the ratio of debt to personal disposable income -- hovered between 55 to 65 percent. It more than doubled in the ensuing years, reaching a zenith of 133 percent in 2007, according to a paper issued in May by Lansing and Reuven Glick, economists at the Federal Reserve Bank in San Francisco."

But the government (Carter and Clinton administration) was primarily responsible for setting up the housing bubble by pressuring mortgage companies to lend to the poor.

[saltydawg]

Oh, I kept reading.... here's what I was saying:

"The current economic wreckage has its roots in a sweeping change in American behavior dating to the late 1980s.
Between 1965 and 1985, household leverage -- measured by the ratio of debt to personal disposable income -- hovered between 55 to 65 percent. It more than doubled in the ensuing years, reaching a zenith of 133 percent in 2007, according to a paper issued in May by Lansing and Reuven Glick, economists at the Federal Reserve Bank in San Francisco."

But the government (Carter and Clinton administration) was primarily responsible for setting up the housing bubble by pressuring mortgage companies to lend to the poor.

Regarding the housing bubble, had nothing to do with Carter or Reagan or Clinton. Had everything to do with mortgage companies making loans to people who put no money down and who did not make enough money to pay the mortgage in the first place and then selling the mortgages as securities. The government never told these mortgage companies and banks to ignore sound underwriting principles. The mortgage companies and banks made these lousy and unsound banking decisions because they collected fat fees for doing so and they didn't care who they made a mortgage to as long as he or she could fog a mirror.

[GonzoDawg]

Regarding the housing bubble, had nothing to do with Carter or Reagan or Clinton. Had everything to do with mortgage companies making loans to people who put no money down and who did not make enough money to pay the mortgage in the first place and then selling the mortgages as securities. The government never told these mortgage companies and banks to ignore sound underwriting principles. The mortgage companies and banks made these lousy and unsound banking decisions because they collected fat fees for doing so and they didn't care who they made a mortgage to as long as he or she could fog a mirror.

How can you say that had nothing to do with Carter, Reagan or Clinton? It started in the Carter admin. continued under Reagan and Clinton and when the GWB WH warned congress about it Barney Frank, Chris Dodd told him to take a hike. Nothing wrong here, nothing to see. All of these and all of the current and former members of congress are to blame. We need to get over this finger pointing at each other and start pointing them at congress where they belong. These bastards are screwing all of us and all we do is blame each other instead of the real culprits.

[dawg80]

Regarding the housing bubble, had nothing to do with Carter or Reagan or Clinton. Had everything to do with mortgage companies making loans to people who put no money down and who did not make enough money to pay the mortgage in the first place and then selling the mortgages as securities. The government never told these mortgage companies and banks to ignore sound underwriting principles. The mortgage companies and banks made these lousy and unsound banking decisions because they collected fat fees for doing so and they didn't care who they made a mortgage to as long as he or she could fog a mirror.

That is true. But, it is clear "gov-mint" played a role by encouraging, fostering, and then assuring said mortgagers that Fannie and Freddie had their backs, so go ahead and pursue those risky loans.

I am NOT defending the banks. They rolled the dice and many THOUSANDS such bankers and financiers took their ill-gotten gains and got out before the house of cards collapsed. But, don't expect opportunistic capitalists not to act as opportunistic capitalists when you (i.e. gov-mint) make it so easy for 'em.

The group that has YET to be held accountable are those gov-mint officials that opened the flood gates....

But, of course, some of you are so pleased with the way gov-mint handled their role in that debacle, you are ready to hand over healthcare to 'em now. Hmmm....

[T_Won]

Regarding the housing bubble, had nothing to do with Carter or Reagan or Clinton. Had everything to do with mortgage companies making loans to people who put no money down and who did not make enough money to pay the mortgage in the first place and then selling the mortgages as securities. The government never told these mortgage companies and banks to ignore sound underwriting principles. The mortgage companies and banks made these lousy and unsound banking decisions because they collected fat fees for doing so and they didn't care who they made a mortgage to as long as he or she could fog a mirror.

There was definitely a change in policy of how mortgage companies issued mortgages. The government pressured them to give loans to the poor and they designed ways to do that... Adjustable Rate Mortgages, interest-only payments, etc...

http://en.wikipedia.org/wiki/Timelin...housing_bubble

Excerpts:

1977: Community Reinvestment Act passed to encourage banks and savings and loan associations to offer credit to minority groups on lower incomes or owning small businesses

1995: New Community Reinvestment Act regulations break down home-loan data by neighborhood, income, and race; encourage community groups to complain to banks and regulators by allowing community groups that marketed loans to collect a brokers fee; Fannie Mae allowed to receive affordable housing credit for buying subprime securities

1999, September: Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans

2000, November: Fannie Mae announced that the Department of Housing and Urban Development (“HUD”) would soon require it to dedicate 50% of its business to low- and moderate-income families" and its goal was to finance over $500 billion in Community Investment Act-related business by 2010.

2000, December:Commodity Futures Modernization Act of 2000 defines interest rates, currency prices, and stock indexes as "excluded commodities," allowing trade of credit-default swaps by hedge funds, investment banks or insurance companies with minimal oversight, and contributing to 2008 crisis in Bear Stearns, Lehman Brothers, and AIG

2001: US Federal Reserve lowers Federal funds rate 11 times, from 6.5% to 1.75%

2003: Fannie Mae and Freddie Mac buy $81 billion in subprime securities

2003, September: Bush administration recommended moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes were blocked by Congress

2003, December: the Bush Administration committed to reforming the homebuying process that would lower closing costs by approximately $700 per loan. It was said it would further stimulate homeownership for all Americans

2003-2007: The Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage subprime loans

2004: HUD ratcheted up Fannie Mae and Freddie Mac affordable-housing goals for next four years, from 50 percent to 56 percent, stating they lagged behind the private market; from 2004 to 2006, they purchased $434 billion in securities backed by subprime loans

February–ongoing: 2007 Subprime mortgage financial crisis Subprime industry collapse; more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale

2009, June: T_Won laid off from AIG and financial industry has national hiring freeze.

[mikedog]

Regarding the housing bubble, had nothing to do with Carter or Reagan or Clinton. Had everything to do with mortgage companies making loans to people who put no money down and who did not make enough money to pay the mortgage in the first place and then selling the mortgages as securities. The government never told these mortgage companies and banks to ignore sound underwriting principles. The mortgage companies and banks made these lousy and unsound banking decisions because they collected fat fees for doing so and they didn't care who they made a mortgage to as long as he or she could fog a mirror.

This was definitely "a" cause, but not "the" cause. The government incentivized banks to make risky loans, and Americans across the board fell in love with credit.

[saltydawg]

This was definitely "a" cause, but not "the" cause. The government incentivized banks to make risky loans, and Americans across the board fell in love with credit.

I agree that it was a multifactorial situation and that we will never agree about "the" cause. The Bankruptcy "reform" act of 2004 didn't help matters, nor did Greenspan 1$ loan rate. Hopefully, we can set up some kind of "trip wire" to see that this situation doesn't happen again.

Regarding health care reform, what we have currently is a lousy system full of fraud, waste and heart-ache. How many people each day are wiped out financially by huge medical bills? The current system is a con, plain and simple, on the American people. Yes, we need a revolution, and I see one coming at the ballot box. You guys got a taste of it last November.

[T_Won]

I agree that it was a multifactorial situation and that we will never agree about "the" cause. The Bankruptcy "reform" act of 2004 didn't help matters, nor did Greenspan 1$ loan rate. Hopefully, we can set up some kind of "trip wire" to see that this situation doesn't happen again.

Can we agree with this?

- It is bad business to loan money to people who are unlikely to pay it back. (a business can go bankrupt this way).

- Government pressured businesses to loan to risky applicants (to be more fair to minorities, who weren't getting many loans).

- Businesses loaned to risky applicants (gladly, because it increased their business and the government had their back because it was government's idea).

[saltydawg]

Can we agree with this?

- It is bad business to loan money to people who are unlikely to pay it back. (a business can go bankrupt this way).

- Government pressured businesses to loan to risky applicants (to be more fair to minorities, who weren't getting many loans).

- Businesses loaned to risky applicants (gladly, because it increased their business and the government had their back because it was government's idea).

I don't agree that the government EVER force banks to make mortgages to low income people who could not meet the minimum loan under writing standards that the banks applied to prime customers.

[T_Won]

I don't agree that the government EVER force banks to make mortgages to low income people who could not meet the minimum loan under writing standards that the banks applied to prime customers.

Would you say the government pressured mortgage companies to lend money to a class of people that, under normal business practices, they would not have loaned money to?

In other words, was it predatory lending to try to make mortgages affordable for poor people, even if the government was pressuring businesses to do that?

In other words, had government left capitalism alone, would we have had this crisis?

[saltydawg]

Can we agree with this?

- It is bad business to loan money to people who are unlikely to pay it back. (a business can go bankrupt this way).

- Government pressured businesses to loan to risky applicants (to be more fair to minorities, who weren't getting many loans).

- Businesses loaned to risky applicants (gladly, because it increased their business and the government had their back because it was government's idea).

Would you say the government pressured mortgage companies to lend money to a class of people that, under normal business practices, they would not have loaned money to?

In other words, was it predatory lending to try to make mortgages affordable for poor people, even if the government was pressuring businesses to do that?

In other words, had government left capitalism alone, would we have had this crisis?

Yes. The subprime mortgage sector was not a problem until 2002. Like I said, the government never force banks to make mortgages to subprime folks who could not make their payments. The banks went after that crowd without any under writing standards (and later the prime borrowers) because they could sell the mortgages to others who would pass the buck down the line to those who bought the mortgage securities. It was a big ponzi scheme that the government should have seen coming from a mile away.

[dhussdawg]

Yes. The subprime mortgage sector was not a problem until 2002. Like I said, the government never force banks to make mortgages to subprime folks who could not make their payments. The banks went after that crowd without any under writing standards (and later the prime borrowers) because they could sell the mortgages to others who would pass the buck down the line to those who bought the mortgage securities. It was a big ponzi scheme that the government should have seen coming from a mile away.

So, I guess you were calling it back then? Since it was so obvious. Did you short the Case-Shiller and the market? Just wondering since it was so obvious.

[T_Won]

Yes. The subprime mortgage sector was not a problem until 2002. Like I said, the government never force banks to make mortgages to subprime folks who could not make their payments. The banks went after that crowd without any under writing standards (and later the prime borrowers) because they could sell the mortgages to others who would pass the buck down the line to those who bought the mortgage securities. It was a big ponzi scheme that the government should have seen coming from a mile away.

Would you be surprised if I told the government ENABLED businesses to pass the buck via this Ponzi scheme?

http://en.wikipedia.org/wiki/Commodi...on_Act_of_2000

"Although hailed by the PWG on the day of congressional passage as “important legislation” to allow “the United States to maintain its competitive position in the over-the-counter derivative markets”, by 2001 the collapse of Enron brought public attention to the CFMA’s treatment of energy derivatives in the “Enron Loophole.” Following the Federal Reserve’s emergency loans to “rescue” American International Group (“AIG”) in September, 2008, the CFMA has received even more widespread criticism for its treatment of credit default swaps and other over-the-counter derivatives (“OTC derivatives”)."