How the Democrats Created the Financial Crisis.

[DC Tom]

Bull2. It doesn't go back "decades." It starts in 1999 with the end of Glass-Steagall. That should make the right happy because we all know who was president--although I could play the congress card like y'all like to do....

The interest only loans, the no-doc/lo-doc loans are all recent phenomena. I posted an editorial awhile back by Spitzer (while he was still governor) who blamed the administration for preventing states from limiting predatory loan practices. There is a lot of blame to go around, and almost all of it happened after the 1999 deregulation.

Btw, did you mean to say "reserve requirements"? Or did you mean down payment on the mortgages?

 

I meant to say reserve requirements...although it's more complicated than that, I know.

 

And Bull 3. Glass-Steagall is a big contributing factor, but this goes back well further than 1999.

[meazza]

I meant to say reserve requirements...although it's more complicated than that, I know.

 

And Bull 3. Glass-Steagall is a big contributing factor, but this goes back well further than 1999.

 

Question, will the Bills inevitable perfect season cause the economy to crash and will this be the Democrats fault??

[StupidNation]

Barney Frank - Chair of the House Financial Services Committee

-> pointman pressuring FM/FM and the banking industry to increase homeownership rates to the poor for decades

-> congressional pressure to relax lending standards and re-interpret lending requirements

-> erosion of lending standards throughout the banking industry, requires repackaging and commoditization of risk beyond the lenders themselves

-> housing market collapses, impact is spread throughout the entire financial community and the insurance community

-> prospect of financial sector collapse directly threatens the entire business community.

 

All excellent points. The lending of the banking standards to increase homeownership is regulation to increase bad loans. What was needed in such a case was less regulation and let the banks fall on their faces if that happens. When you subsidize bad decisions and regulate bad decisions and then blame deregulation it shows how clueless the ordinary public is.

[GG]

Bull2. It doesn't go back "decades." It starts in 1999 with the end of Glass-Steagall. That should make the right happy because we all know who was president--although I could play the congress card like y'all like to do....

The interest only loans, the no-doc/lo-doc loans are all recent phenomena. I posted an editorial awhile back by Spitzer (while he was still governor) who blamed the administration for preventing states from limiting predatory loan practices. There is a lot of blame to go around, and almost all of it happened after the 1999 deregulation.

Btw, did you mean to say "reserve requirements"? Or did you mean down payment on the mortgages?

 

Bull 4. Glass Steagall was useless by 1999. US was the only place in the world that still separated banks from brokers. Even without repeal of Glass Steagall the problem would have festered because securitizations are not regulated, they were dreamt up in investment bank houses that didn't have capital requirements and sold through Wall Street trading platforms. The originations were done through state chartered entities, under zero control of federal regulators (something St. Spitzer conveniently left out of his broadside)

 

So tell us again how the repeal of Glass Steagall is responsible.

[LongLiveRalph]

It's important that instead of coming up with a solution for the future, we determine who we can blame for the past.

 

[molson_golden2002]

Bull 4. Glass Steagall was useless by 1999. US was the only place in the world that still separated banks from brokers. Even without repeal of Glass Steagall the problem would have festered because securitizations are not regulated, they were dreamt up in investment bank houses that didn't have capital requirements and sold through Wall Street trading platforms. The originations were done through state chartered entities, under zero control of federal regulators (something St. Spitzer conveniently left out of his broadside)

 

So tell us again how the repeal of Glass Steagall is responsible.

Glass Steagal had been whittled away at slowly over the years and was not what it had once been, and this was done against the wishes of Paul Volker and with the approval of Greenspan. Here is a nice summary of it:

 

http://www.pbs.org/wgbh/pages/frontline/sh...ill/demise.html

 

Not saying I know how all this sh-- came to pass, just saying is all

[YellowLinesandArmadillos]

I am not sure I understand all the subtleties of this legislation, but there doesn't to appear to have been any hearings on it let alone a vote. Also Sen. McCain signed on as a co-sponsor a year after the last major action on the legislation was taken. So I find the article highly suspect.

 

Check out this link to all the info on the legislation provided by the Library of Congress

 

http://thomas.loc.gov/cgi-bin/bdquery/z?d109:s.00190:

 

There is is not a lot there and if a bill has traction, usually there is more action. I would be interested if in reading the text someone could tell what this consolidation the Freddie Mac and Fannie Mae would actually accomplish. And what preventing them from "participating in certain securities" would actually do. Finally, I did a quick search on Thomas and found a miriad of bills including an Amendment by Hagel that was rolled into 2005 Budget Recon Bill requiring Freddie Mac and Fannie Mae to register under security trading laws S.1932 that was later withdrawn.

 

Since the Republicans were in charge at this point, I am surprised something wasn't done if they felt that strongly about it. It appears that a lot of legislation was introduced and considered to deal with issues concerning Fannie Mae and Freddie Mac. Yes, Dems have been strong supporters not because of political support from those organizations but because they believed that as many people as possible should have access to home ownership when the economy was booming for so many.

 

What I don't think anyone counted on was the surge in home prices and how that affected the amount of the loans requested, the types of illegitimate loans (high interest) leveraging people ill equipped to afford them in the first place. Democrats, who traditionally call for oversight and regulation were only calling for it as it related to predatory loan interest rates, but not very often for oversight of Fannie and Freddie Mae. Republicans certainly were not going to limit these loans, they just wanted to eliminate Freddie Mac and Fannie Mae because they were not their political friends. So no one's motives in this thing is clean and no one appears to have written any legislation in 2005 to address the whole problem, only legislation on politically expedient parts.

[elegantelliotoffen]

Pretty damning article. I wonder if any of the Democrats here can offer an intelligent rebuttal.

 

Do you know the difference between an article and an op-ed piece?

[DC Tom]

Do you know the difference between an article and an op-ed piece?

 

There isn't one. An op-ed piece is an article.

[John Adams]

Bull. This has been brought on by the persistent weakening of lending standards and reserve requirements in pursuit of "The American Dream" without responsibility. Blaming it on one party or the other is ridiculous when the issues go back decades.

 

Bull. The Republicans had a rare window of power controlling the Exec and Leg, with a divided SC for 6 years and did what with Fannie/Freddie?

 

Sure, the seeds of the problems go further back but we wouldn't be on the current steep descent without the Repubs looking the other way for so long.

 

I'm not saying the Dems aren't to blame (Barney Frank I'm looking at you) but the Repubs are holding most of the sh-- on this one.

[finknottle]

Bull. The Republicans had a rare window of power controlling the Exec and Leg, with a divided SC for 6 years and did what with Fannie/Freddie?

 

Sure, the seeds of the problems go further back but we wouldn't be on the current steep descent without the Repubs looking the other way for so long.

 

I'm not saying the Dems aren't to blame (Barney Frank I'm looking at you) but the Repubs are holding most of the sh-- on this one.

 

They tried:

 

In 2003, [barney, Chairman of the House Financial Services Committee] Frank opposed Bush administration and Congressional Republican efforts for the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis. Under the plan a new agency would have been created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. "These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis," Frank said. He added, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

http://en.wikipedia.org/wiki/Barney_Frank

[GG]

Bull. The Republicans had a rare window of power controlling the Exec and Leg, with a divided SC for 6 years and did what with Fannie/Freddie?

 

With the political environment protecting Fan/Fred in 2005, it's very doubtful the reform bill would have ever emerged out of committees, let alone withstand a filibuster.

[YellowLinesandArmadillos]

With the political environment protecting Fan/Fred in 2005, it's very doubtful the reform bill would have ever emerged out of committees, let alone withstand a filibuster.

 

Agreed and it wasn't as nefarious as some suggest... although there was some of that, it had more to do with everyone trying to grab a piece of the pie while ignoring the consequences of the pie being all ready being gone and no one cooking any more pies.

 

Best analogy I could come up with....

[blzrul]

Do you know the difference between an article and an op-ed piece?

That there is a basic inability to distinguish facts from wishful thinking...

 

This just in: McCain admits that the economy may NOT be strong. Take that to the bank (if it's still open).

[molson_golden2002]

With the political environment protecting Fan/Fred in 2005, it's very doubtful the reform bill would have ever emerged out of committees, let alone withstand a filibuster.

Did Dems threaten to fillibuster?

[GG]

Did Dems threaten to fillibuster?

 

Didn't need to because there was no chance in hell the bill would have made it to the floors.

[finknottle]

Nice Summary:

 

http://online.wsj.com/article/SB122212948811465427.html

[TPS]

Bull 4. Glass Steagall was useless by 1999. US was the only place in the world that still separated banks from brokers. Even without repeal of Glass Steagall the problem would have festered because securitizations are not regulated, they were dreamt up in investment bank houses that didn't have capital requirements and sold through Wall Street trading platforms. The originations were done through state chartered entities, under zero control of federal regulators (something St. Spitzer conveniently left out of his broadside)

 

So tell us again how the repeal of Glass Steagall is responsible.

Of course the walls were coming down for decades going back to deregulation in the early 1980s. Securitizations also go way back (and my recollection is that they were started by banks, but polished by IBs). My point is the current financial crisis stems from the housing bubble. Maybe 1999 is not the starting point either (And i didn't say that the end of GS was responsible, I said that you can start there)? Could it be the fallout from Enron and fraud in the stock market caused investors to move to a new market in 2002? As I said, there are many factors (including both parties) that can be blamed. However, I do disagree with the belief that this housing bubble was caused by something from 20+ years ago.

 

As for Spitzer, that's exactly what he was writing about, that state's were trying to go after predatory lending practices but they were being squelched by the Feds.

[Max Fischer]

They tried:

 

QUOTE

In 2003, [barney, Chairman of the House Financial Services Committee] Frank opposed Bush administration and Congressional Republican efforts for the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis. Under the plan a new agency would have been created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. "These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis," Frank said. He added, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

 

http://en.wikipedia.org/wiki/Barney_Frank

 

http://en.wikipedia.org/wiki/Barney_Frank

 

 

Are you purposely distorting the facts or just don't know any better?

 

Why did you insert " [barney, Chairman of the House Financial Services Committee] " in that sentence? You do know the Republicans controlled Congress from 1995 to 2006, right? And you do know Republicans have controlled the Presidency since 2001? So how is this Frank's fault when he didn't take over until 2007? Why make it look like he controlled the committee?

[bills_fan]

Of course the walls were coming down for decades going back to deregulation in the early 1980s. Securitizations also go way back (and my recollection is that they were started by banks, but polished by IBs). My point is the current financial crisis stems from the housing bubble. Maybe 1999 is not the starting point either (And i didn't say that the end of GS was responsible, I said that you can start there)? Could it be the fallout from Enron and fraud in the stock market caused investors to move to a new market in 2002? As I said, there are many factors (including both parties) that can be blamed. However, I do disagree with the belief that this housing bubble was caused by something from 20+ years ago.

 

As for Spitzer, that's exactly what he was writing about, that state's were trying to go after predatory lending practices but they were being squelched by the Feds.

 

 

Caused...perhaps not. But we started on the path to ruin when lending standards that had been in place since the 1930s were relaxed in the 1980s...

 

The mortgage market was humming along just fine when, in the late 1980s, progressives decided that it needed to be "fixed." Their complaint: Some ethnic groups got approved for mortgages at lower rates than others.

 

In reality, mortgage lenders were simply being prudent - taking care to provide mortgages to those who could best afford to make the payments.

 

The shift began in 1989, when Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates. Banks were "Shamed By Publicity," as one 1993 New York Times headline put it.

 

In fact, they found a racial disparity only by ignoring relevant data on applicants' ability to make mortgage payments - such as their assets and credit history.

 

But the political pressure was intense - with few in politics or media eager to speak the truth. And then, in 1992, came a study from four researchers at the Boston Fed, which seemed to bear out the critics' contentions.

 

That study was, in fact, based on quite flawed data - but the authors' political, media and academic protectors stifled most serious criticism, smearing the reputation of one whistleblower and allowing the Boston authors to avoid answering serious academic challenges (mine included) to their work. Other studies with different conclusions were ignored.

 

The very next year, the Boston Fed announced new requirements for banks - rules that have now turned out to be monumentally catastrophic: Adopt "relaxed lending standards" or risk being labeled as racists, and face serious penalties under the federal Community Reinvestment Act.

 

and the following....

 

Gone (as "arbitrary" and "outdated") were traditional lending requirements such as requiring a down payment or limiting mortgage payments to 28 percent of income. (Of course, the loosened lending standards weren't limited to poor and minority applicants - that would be discriminatory.)

 

The new standards performed as intended: Home- ownership rates, stagnant for 25 years, began a rapid 10-year ascent in 1995, with many new homeowners being lower-income and/or minority families.

 

The large rise in demand for houses, however, fed a run-up in prices starting in 1997 - the infamous housing bubble. And rising prices hid the great vulnerability of these loans to defaults and foreclosures, because refinancing or selling at a profit was the easy alternative.

 

Soon, these loans began to be sold in the secondary market. Fannie Mae and Freddie Mac were enthusiastic proponents of relaxed lending standards and purchased large swaths of these loans.

 

Time after time, Fannie and Freddie trumped criticism by pointing to how they were helping broaden homeownership. Because of the subject's racial overtones, they beat back calls for reform even after financial irregularities were found.

 

Finally, and I did not know this, but NYC had a program to help low income residents achieve the dream of home ownership. It was administered by the Bloomberg administration, and properly run. Consider the following...

 

With once-mighty financial institutions around the United States reeling from the subprime-mortgage crisis, the mayor announced yesterday that only five of the 17,109 mortgages granted under the city's $7.5 billion affordable-housing program are in foreclosure.

 

"We've been very conservative," said Bloomberg, explaining that buyers couldn't devote more than 30 percent of family income to their monthly mortgage payments.

 

"If you can't afford that, you're not going to get the mortgage."

 

The city also established other checks.

 

Only fixed-rate mortgages were acceptable, so there were none of the dramatic swings that are a fixture of adjustable-rate loans.

 

Downpayments of 10 percent were generally required, and every prospective buyer had to take a course in home ownership.

 

Full articles below for citation purposes

 

Bloomberg Program

 

Other article