Whose fault is housing crisis? People/banks/gov't?

Well, no one should condone such behavior, so maybe requiring registration on here isn't such a bad idea, but the manner in which you played your retort was odd and, frankly, silly. You like to paint people with a broad brush. I think you feel dignified in some egotistical way. By the way, go back and read my very first post on here around page two. I never said the GSEs were the DRIVING force behind the crash, the aftermath of which still hasn't played out, but they certainly contributed. To deny that is just more uber liberal posturing. The last article I posted from Collison hits this pretty well, but there are many sources in the link just prior that point to the accidents waiting to happen that were the GSEs. The ultimate hypocrisy is that we really have done very little to fix the problem.

Don't quibble over semantics, Ryan. You and Flagpole both are talking about supply and demand; housing values dropped because buyers said that houses were too expensive relative to the amount of houses out there.

Again, it's almost as if you agree with Flagpole. Borrowers did take risks, but the different loan options that were available put too many borrowers into a position where they were gambling on both an increase in future earnings and increased value. Like Flagpole indicated, 5th grade math makes it easy to see that a typical 3% raise in your salary would not cover a 3% increase in a ARM. And don't even talk to me about the idiots who just thought it might be a good idea to refinance every couple of years. 2nd grade math should have covered that dilemma, where one would have to pay upwards of $5,000 in closing costs. These people were barely making payments; how were they supposed to save for a re-fi?

Sorry Flagpole but I have your own posts to back it up.

Okay, maybe I'll just narrow it to Wall Street banks.

Again the housing crises = the financial crises. You have admitted that. You agree that values going down isn't itself a crises and indeed none of the American people was saying it was a crises. Bad borrowers were accepting the fate of foreclosure and moving on. Only when banks starting going to the brink in 07'-08' did banks come out and declare a housing crises. So if you even acknowledge there is a housing crises at all you are saying that 90% of the blame for the banks going to the brink of mass bankruptcy was because of the people, not bank management. Therefore it has to work the other way. When banks make profits it has to be because of people, not the banks.

It would probably be better for you to just say there really was no housing crises. And come to think, I'm not sure where you stood on the bank bailouts. Maybe you were against them and felt the market would sort itself out. That would be fair enough. But you have proven to be wrong or just plain incoherent on this.

What happened to the big players in the financial crisis?

http://www.propublica.org/article/cheat-sheet-whats-happened-to-the-big-players-in-the-financial-crisis

This is all you need to know about who caused it, how, and why.

Sagarin, this was a question I was wondering about that pie chart. It shows subprime mortgages, but more interesting would be a pie chart that shows the source of the defaulted loans. Not all sub-prime mortgages are the same.

The chart says that the government held 71% of the sub-prime mortgages, but now you quote another source that only 32% of the seriously delinquent loans were government loans?

If my math is correct, then in other words, the Wall Street loans were 4 times more likely to become seriously delinquent, then the government loans?

I wonder how the default rate for the government loans compared to secured prime loans, or to the expected rate of default for these riskier loans? Who has put these default rates into perspective?

Much of what I read is that the GSE loans (as well as CRA loans) generally performed much better than private banking loans, and probably not worse than would be expected from the riskier sub-prime loans, so it's curious to me why it pops up so often as a potential cause of the crisis. It was a factor that existed before and after the crisis, and I haven't seen anything that said the default rate for these government related loans significantly changed.

Your federal papers argue that the GSE loans could become a problem, and how policy should be enabled to mitigate or limit that risk. I guess Wall Street was able to show a worst case scenario, by doubling the delinquency rate of sub-prime loans in just a few short years.

It's a little different than that. I don't actually disagree with most of your points (except Clinton and the CRA), and your basic philosophy. But I disagree that you've answered the question that was asked.Although, I used the word bank, maybe it's better to distinguish between mortgage lending companies, traditional commercial banks, and investment banks. When traditional banks were saying "no", borrowers could turn to alternative mortgage lending institutions, who started giving them bad loans, and then sold them to investment banks.While I have to agree that everyone should have been smart enough to say "No way. I can't afford this. It seems too good to be true." The fact is that markets were going up, and it seemed plausible that they could take the loan with no risk, for those who could understand the risk.And I have to think that maybe you are financially smarter than "a Mexican strawberry picker in Bakersfield earning $14,000/year who doesn't speak English, who was loaned every penny of $720,000 for a new home".http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom/index2.htmlBut I'll disagree even more strongly by suggesting that the total value of all of the sub-prime loans that defaulted alone, would not have created the crisis. After all, they were still backed by the homes, even if they dropped to a fraction of their original value.But investment banks were creating new financial instruments betting against the loans, and selling them many times over. Unlike the original mortgages, backed by the home, these were not backed by anything. The actual losses suffered were much greater than the total value of the loans.http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom/index4.htmlWhen the loans started defaulting, these banks not only suffered the default of the loan (while getting the house back), they also had to pay off all the people who bet that the loans would default. It was these obligations which started to kill the investment banks that survived to receive a bailout.When the question is "what caused the crisis", sure not taking the loans could have avoided the crisis, but it's not clear that taking the loans and defaulting is sufficient to have caused the crisis.

Flagpole wrote:

We'll just have to disagree then brother.

As I see it, banks and people were greedy, and the PEOPLE control the end result there, so they are more to blame.

No bank has packaged a bad loan taken out by me, so I don't see why that couldn't have been the case for everyone else. I'm not wealthy either.

You keep throwing out more and more info (that I'm aware of by the way), and ALL of it is dependent on people taking bad loans. Yes they can't take them if they aren't offered (which is why I give the banks SOME blame), but they are responsible for taking them.No repackaging of bad loans could have happened if they didn't.No betting against the bad loans could have happened if they didn't.None of the stuff you are trying to blame the banks for could have happened if the people didn't take out those bad loans.Again, no bank sold or repackaged a bad loan with my name on it. Why not? Because I make prudent financial decisions that requires only about a 5th grade education to make (meaning of course that the vast majority of the people who made those bad loans should have known better).Unless a person is mentally challenged or mentally ill, they have the responsibility of knowing if the loan they took out is reasonable for them or not. Matters not if he is Mexican or picks strawberries or makes $14,000 a year. I actually made $14,500 a year back in 1989 as a reporter for a newspaper in Los Gatos, CA. Guess what, I didn't go get a loan for hundreds of thousands of dollars.

I referred specifically to that quote, not because of its "substantive" assertion, but to point out that the person who made that claim had a conflict of interest and some of the other sources are dubious. In fact, the entire Center For American "Progress" is a liberal institution, whther they believe they've presented a fair analysis.

As I said before, Pinto, having been a former Chief Credit Officer at Fannie, is automatically undermined as a source of credibility, but he had inside info. The issue seems to be his classification of loans:

"Pinto creates new definitions for the terms “subprime” and “Alt-A,” based on the claim that existing classifications inadequately capture the “objective risk

characteristics” of “subprime” and “Alt-A” mortgages. Whether or not Pinto’s criticism is accurate, his newly invented definitions are totally inconsistent with how the terms “subprime” and “Alt-A” are actually used in any research efforts, particularly when it comes to loan performance."

"Pinto defines “subprime by characteristic” to include all conventional loans made to borrowers with FICO credit scores between 620 and 660, and “Alt-A by characteristic” to include all loans with a cash down payment of less than

10 percent.32 As of the second quarter of 2010, these types of mortgages held by Freddie Mac defaulted at a rate of 10.04 percent and 8.45 percent, respectively."

As the paper itself points out, the GSEs, FHA, and GSE were responsible for over 70% of the securitizations onward from 2006 (and probably late 2005) as this mania was hitting a crescendo. Again, none of this explains why Fannie's delinquency rates were higher (albeit by a small margin), why they had to restate four years of trumped up earnings to the tune of over $6 billion (while the chairmen somehow accumulated over $100 miilion in personal wealth), and why they ended up needing the most assistance from the Federal Government and continue to need it while paying lavish bonuses.

http://www.aei.org/outlook/28704

Furthermore, I pointed out Summers' (former Obama advisor) own comments that "Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) whose purpose is to mitigate cyclicality in housing and that today dominate the mortgage market, have become a textbook case of disastrous and pro-cyclical policy," as well as Christina Romer's (another former advisor who retreated for the comfort of academia) comments about how we need to reform the GSEs which were never restructured properly and are still bleeding profusely.

The Federal Reserve could have put a stop to this, and I posted a link with several citations about the inherent risks in the GSEs and that they weren't necessarily mitigating interest rate premiums to the extent it was originally believed and really may not have been serving any useful purpose at all, other than to buy all kinds of loans, with the explicit backing of the taxpayer, and freeing up credit for shady chacters to make even riskier loans.

My original intent on this thread wasn't to demonize the GSEs exclusively, because there were many bad actors, including the banks, who don't deserve to be exonerated and never should've been bailed out to begin with, like Fannie, which needs to be shuttered. We're all talking around each other, but EVERYONE is culpable for this crisis. Only a strict partisan would not admit that. Greed was pervasive at every level, from the consumers, to the GSEs, to the banks. Anyone who simply posts a link to essentially "Where have all the banksters gone?" is simply revealing extreme partisanship. It's like me asking, "Why aren't Johnson and Raines in jail?," the latter having been tabbed as a temporary advisor for Obama.

Anyway, as I said previously, hindsight is 20/20, this is a dead issue (as someone said, the comment about the "chipmunks not doing it" should have been the end of this thread, and perhaps an apropo one, because chipmunks hoard and maybe there's your answer. Greed and self-preservation are inherent instincts).

Besides, people need to be focused on competent economic policies of the present. I acknowledged that anyone who is already making mortgage payments in good stead but not allowed to refinance because their houses are undrwater and they don't meet the arbitrary requirement of 20 or 25% down SHOULD be allowed to refinance, which would inject more money into the economy. Those who bought too much house and can't make the payments, well, too bad, you lose and the bank takes the hit. No more moral hazard. The problem is that these banks are still severely undercapitalized and have inadequate loan loss reserves. Just look at what the financial sector has done recently. Moreover, when Europe can no longer contain its virus with patchwork measures, our banks are going to catch it too.

agip, do us all a favor and put an end to this thread.

One word: Greenspan. I am a public school history teacher, so I will explain it in 10th grade terms. My explanation is by no means exhaustive though. The guy talked up home ownership like it was no business. People took out loans (mortgages)that were subprime, with small sometimes nonexistant down-payments. Banks wouldn't conduct thorough background/credit checks. People started having liens placed against them when they couldn't pay their mortgages. Some took out second mortgages (facepalm). The housing bubble burst and people were what is called "upside down" because people literally had no money to pay back these mortgages, and the banks were f*cked. Some were bailed out by Bush in Summer'08 (Fannie Mae, Freddie Mac). Others weren't so lucky.

Flagpole,

You are insanely stubborn (of course we all know this about you).

No one is denying that people being overly optimistic about the housing market and being suckered into bad mortgages was an INITIAL step towards the collapse (but as many have pointed out to you, this step alone was not nearly enough to bring about the overall financial crisis that ensued). However, how on earth can you not see that:

a) it was/is a two-way street. A mortgage is an agreement between two parties, right?? If it is a bad agreement, then why is only one party to blame?? Who forced mortgage companies to destroy their standards and to give those loans to people they knew wouldn't likely be able to pay back the loans??? Jesus, flagpole, even at this initial step, why can't you see that at worst, the blame would be 50/50, instead of your absurd blame ratio?? You won't budge because you refuse to admit a dumb point on your part

b) as many others have pointed out, if this was the only step in the process, in a vacuum, there would not have been a near depression. It was all the steps AFTER that (the creation of complex, multi-layered investment instruments based on these loans, the lack of regulation of these investments, the huge, reckless risks the financial giants allowed themselves to be exposed to based on these investments, the allowance of the shadow baking system, everyone wanting a piece of this pie, etc, etc) that led to the house of cards that would tumble if and when housing prices collapsed. There were big, reckless, fraudulent, STUPID, decisions by many, many parties all along the way from step 1 that led to the final mess. But you will only focus on step 1, and ONLY on the party that signed for the loan when apportioning blame??

What a simplistic, silly, point to try and make.

Flagpole wrote:

You are presenting this in a way that isn't pertinent to this discussion.

The discussion is about assigning blame for the housing crisis (read the subject line).

If the banks did not approve loans to people incapable of repaying them, then the housing crises would have been averted.

If the same exact people applied for loans today that applied in the mid 2000's, you would get significantly more loan denials now then you would have then.

Because the banks are acting more responsibly now.

Same thing in the 90's. The exotic loans were not available then so people were not enabled to take out crazy loans.

Sagarin wrote:

agip, do us all a favor and put an end to this thread.

holy crap, if I could I would.

Since you want this thread to end, I won't attempt to debate your more detailed points (at least now, let's see where this goes). But here are some more opinions on Fannie/Freddie:

Dean Baker:

“Fannie and Freddie got into subprime junk and helped fuel the housing bubble, but they were trailing the irrational exuberance of the private sector….In short, while Fannie and Freddie were completely irresponsible in their lending practices, the claim that they were responsible for the financial disaster is absurd on its face—kind of like the claim that the earth is flat.”

- In testimony before the House Committee on Oversight and Government Reform, Lehman Brothers CEO Richard Fuld acknowledged that Fannie and Freddie’s role in Lehman’s demise was “de minimis,” or so small that it does not matter.

There you go.

Did the GSE's play some role in the overall crisis? Of course. But the private financial sector played a much, much bigger role. And lack of action/regulation by the gov't and the Fed is what allowed those people to create the disaster that ensued. So to focus (not saying you specifically, but MANY on the right have) on the GSE's as playing a quite central role in the crisis is complete BS and driven purely by ideology (and I have pointed out the specific reasons this narrative fits in so well with right wing ideology). This has simply been my point all along. Flagpole's comment on CRA fit this type of thinking.

I'm only stubborn when I know about a subject and I am RIGHT, and this is the case here.I know it's a two-way street, but the power when determining to sign a loan lies with the person taking the loan. They didn't have to sign up for it.Once again, NONE of the bad actions of banks could have happened if the bad loans didn't exist, and those loans ONLY exist because people signed up for them. Banks should not have offered them, but due to the tone set by the Federal government and then them doing it, I do put SOME blame on both of them to the tune of 6% for the government and 4% for the banks. Banks are businesses out for their own good, and this is a GIVEN and needs to be factored in here. The people...the STUPID people...deserve the brunt of the blame.Analogy time once again:1) McDonald's offers you breakfast, lunch, and dinner, and mid-day snacks too if you'd like. It's pretty cheap too. You going to eat all or even most of your meals there? If you did do that, would that be McDonald's fault?2) There's a crack dealer in every major town and in most towns above a certain size too. You going to partake just because they offer?3) I can go take out a car loan at 25% interest at used car places here in town. Want me to tell you where they are so you can go get a loan?4) You can spend all of your money on lottery tickets in most states or gamble away at casinos that are just about everywhere now. Are you not responsible for that if you do it?I could go on...alcohol, cigarettes, dalliances.Why do you want to remove (or greatly limit) the responsibility from the one who can control their actions?Bank: This is the best loan I can offer you (ARM or subprime loan or interest-only loan that will adjust up rapidly over time). Lots of people in your situation have this exact loan; standard practice now. Housing has been rising now for 20 years. The likelihood is that your value will rise and you could sell later on for a profit; this is not guaranteed though. Or, you could pay it down and refinance later for a lower payment.Person: (this person now has a choice to make). Ok. I'll do it.Above re-enactment shows the GIVEN that banks are not out for your best interest and then a poor decision by the mortgage buyer. Brought to you by the Flagpole Willy Prime Time Players!

1) McDonald's offers you breakfast, lunch, and dinner, and mid-day snacks too if you'd like. It's pretty cheap too. You going to eat all or even most of your meals there? If you did do that, would that be McDonald's fault?

How does McDonalds risk money in this deal?

2) There's a crack dealer in every major town and in most towns above a certain size too. You going to partake just because they offer?

Police usually focus on the dealers not the users in this case. So that would be like focusing on the banks more than the borrowers.

3) I can go take out a car loan at 25% interest at used car places here in town. Want me to tell you where they are so you can go get a loan?

The car dealer can charge 125% interest but won't make money if they loan to a deadbeat.

4) You can spend all of your money on lottery tickets in most states or gamble away at casinos that are just about everywhere now. Are you not responsible for that if you do it?

Gambling is illegal in most places and it is questionable if it should be legal at all. Lotteries prey on the poor and I am not in favor of them.

The odds favor these businesses and there is no collateral of assets that extend the business relationship.

These are some really bad analogies to the housing market.

They are perfect analogies...items that are there and legal for the taking...just like a bad mortgage.If a dude eats 15 Big Macs a day and weighs 700 pounds and is riddled with health problems, do you blame him or McDonald's?

You just don't get it. You are on the wrong side of the analogy ... and the discussion.

The issue isn't the health of the McDonald's customer, it's the health of McDonalds.

McDonalds made a bunch of money off of this big guy.

They will lose revenue when he dies, but that will still take a while.

Have you heard of TARP?

The troubled assets that were given relief were the financial institutions.

There was no funding given to borrowers to keep their houses. There were programs to help them but billions were poured into the banks.

So we are not blaming the banks for issues that borrowers got themselves into.

We are blaming the banks for losing money. Our money.

We are blaming the banks for requiring a huge federal financial committment to be rescued.

We are blaming the banks for enabling home prices to get out of control.

We are blaming the banks for causing a huge loss of confidence in the financial system.

Any individuals that got into a loan they couldn't handle? Yeah that's their fault.

But that's not the crisis.

The crisis is how everyone was affected in one way or another, whether they took a loan during that period or not.

Charles Nelson Reilly wrote:

One word: Greenspan. I am a public school history teacher, so I will explain it in 10th grade terms. My explanation is by no means exhaustive though..... The housing bubble burst and people were what is called "upside down" because people literally had no money to pay back these mortgages, and the banks were f*cked.

As a public- school history teacher, you are doing our 10th graders an injustice.

Upside-down or underwater had very little bearing on the housing crisis. A responsible borrower would be uspset with being upside-down, but the concept of being upside-down is only relevant when trying to sell or refinance. People who lost their jobs and were upside-down is one thing; irresponsible borrowers who hoped to leverage increased home value to do re-fi's or hoped for increased income to cover ARMs is another.

A lot of people are upside down and still making their mortgage payments. Being upside-down is annoying, and complicates selling and re-financing. Being upside-down is not a major factor in the housing crisis; walking away from your mortgage contract is. As long as the borrower continues to make payments, he stands to become right-side up at some point in time.

Flagpole, since the banks are not at fault, and they suffered from the crises, then by logic they are actually victims, would you agree?

Here's an interesting article:

http://www.washingtonpost.com/business/what-caused-the-financial-crisis-the-big-lie-goes-viral/2011/10/31/gIQAXlSOqM_story.html

A quote from above, seems to describe Flagpole pretty well:

"... Rather than admit the error of their ways — Repent! — these people are engaged in an active campaign to rewrite history. They are not, of course, exonerated in doing so. And beyond that, they damage the process of repairing what was broken. They muddy the waters when it comes to holding guilty parties responsible. They prevent measures from being put into place to prevent another crisis.

Here is the surprising takeaway: They are winning. Thanks to the endless repetition of the Big Lie."