How the Democrats Created the Financial Crisis.

[TPS]

You seem to imply it's changes to promote increased minority homeownership, but the articles indicate those programs aren't to blame. So what is your point?

 

Besides, I believe most of the problems derive from the "house flippers" in the really hot markets. You buy an asset with someone else's money, and if it goes up in value, you sell it; if it falls, you walk away.

[bills_fan]

You seem to imply it's changes to promote increased minority homeownership, but the articles indicate those programs aren't to blame. So what is your point?

 

Besides, I believe most of the problems derive from the "house flippers" in the really hot markets. You buy an asset with someone else's money, and if it goes up in value, you sell it; if it falls, you walk away.

 

 

No, you misread me. The problem stems from the relaxation of lending standards for all homebuyers, encouraged by each successive administration since Reagan. If lending standards were still tight, like in the NYC program, there would be no crisis.

[finknottle]

No, you misread me. The problem stems from the relaxation of lending standards for all homebuyers, encouraged by each successive administration since Reagan. If lending standards were still tight, like in the NYC program, there would be no crisis.

 

That is correct.

 

- Congressional social engineering goals required a loosening of lending practices to disadvantaged groups.

- Equal treatment requires the same lending standards apply to all borrowers.

- Therefore loosened lending standards spread throughout the entire housing sector.

[GG]

You seem to imply it's changes to promote increased minority homeownership, but the articles indicate those programs aren't to blame. So what is your point?

 

Besides, I believe most of the problems derive from the "house flippers" in the really hot markets. You buy an asset with someone else's money, and if it goes up in value, you sell it; if it falls, you walk away.

 

As has been said before, there wasn't a single cause - just a series of contributory factors that culminated in a bubble. Securitizations on their own, are not bad. Credit default swaps on their own, are not bad. But the mix of relaxed lending standards, wide availability of easy cash and basic human nature of ignoring risk when times are good combined to create a volatile stew at a perfect time. Now, people are looking for scapegoats to explain away human behavior.

 

The root of the housing bubble has nothing to do with the repeal of Glass Steagall, and everyone who throws that explanation into the discussion only shows his ignorance of the topic. The main criticisms of the repeal of GS came from the fears that banks would endanger their franchises by taking on greater risks to emulate investment banks. In truth, the exact opposite

came to fruition - the system is being undone by risks investment banks took to emulate regular banks, without having the solid foundations for capital.

[TPS]

As has been said before, there wasn't a single cause - just a series of contributory factors that culminated in a bubble. Securitizations on their own, are not bad. Credit default swaps on their own, are not bad. But the mix of relaxed lending standards, wide availability of easy cash and basic human nature of ignoring risk when times are good combined to create a volatile stew at a perfect time. Now, people are looking for scapegoats to explain away human behavior.

 

The root of the housing bubble has nothing to do with the repeal of Glass Steagall, and everyone who throws that explanation into the discussion only shows his ignorance of the topic. The main criticisms of the repeal of GS came from the fears that banks would endanger their franchises by taking on greater risks to emulate investment banks. In truth, the exact opposite

came to fruition - the system is being undone by risks investment banks took to emulate regular banks, without having the solid foundations for capital.

I agree. I would add a few more culprits though. For one, the ratings agencies were complicit in their very generous risk models so the asset-backed securities could get their top ratings; then the monolines jumping in on insuring the nonn-AAA. As in every bubble, everyone wanted a piece of the action...