so then we can send the invoice to teddy boy and his cow-bell constituents?..they apparently have the money and don't give a shit about our country as a WHOLE..which makes them as traitorous as teddy boy..must be nice to want to pick and choose with a me, me, me attitude..it's not all about you and your convoluted, bible thumping politikkking..
Schuylaar's Sesh - Treason
- Thread starter schuylaar
- Start date
ginwilly
Well-Known Member
I agree, that me me me attitude brought us the Stimulus and ACA based on lies. Liberals; bringing you ideas so good they have to be mandated.
that me, me, me attitude brought us the Financial Crisis of 2007-08..how quickly we forget..teachers in non-stated adjustables mcmansions..yeah ye haaaaaaaa..wild west city!..let's keep EVERYTHING unregulated just as you pubsters want..
[h=1]“Those who fail to learn from history are doomed to repeat it.” Sir Winston Churchill[/h]
ginwilly
Well-Known Member
Yep, I remember the banks being too big to fail and we needed to do something. Do you agree with what we've done? Bailed them out at 100c on the dollar and give them 85B a month?. You can't possibly support the way Obama's team and policy is widening the income gap all while complaining about the income gap. We are being played because of people like you.
Edit: to be fair and in before "they do it too", there were still over 30 percent of the pollsters still supporting Bush that were just as crazy and partisan as you guys.
Rob Roy
Well-Known Member
If a concept of "freedom" is the reason for being of an organization or country then that organization becomes "treasonous" when it removes freedom of choice.
The USA is treasonous to freedom when it declares a purchase to be "mandatory"
do you?
[h=3]Subprime lending[/h] Main article: Subprime mortgage crisis
During a period of intense competition between mortgage lenders for revenue and market share, and when the supply of creditworthy borrowers was limited, mortgage lenders relaxed underwriting standards and originated riskier mortgages to less creditworthy borrowers.[SUP][7][/SUP] In the view of some analysts, the relatively conservative Government Sponsored Enterprises (GSEs) policed mortgage originators and maintained relatively high underwriting standards prior to 2003. However, as market power shifted from securitizers to originators and as intense competition from private securitizers undermined GSE power, mortgage standards declined and risky loans proliferated.[SUP][7][/SUP] The worst loans were originated in 2004–2007, the years of the most intense competition between securitizers and the lowest market share for the GSEs.
U.S. subprime lending expanded dramatically 2004–2006
As well as easy credit conditions, there is evidence that competitive pressures contributed to an increase in the amount of subprime lending during the years preceding the crisis. Major U.S. investment banks and GSEs like Fannie Mae played an important role in the expansion of lending, with GSEs eventually relaxing their standards to try to catch up with the private banks.[SUP][32][/SUP][SUP][33][/SUP] A contrarian view is that Fannie Mae and Freddie Mac led the way to relaxed underwriting standards, starting in 1995, by advocating the use of easy-to-qualify automated underwriting and appraisal systems, by designing the no-downpayment products issued by lenders, by the promotion of thousands of small mortgage brokers, and by their close relationship to subprime loan aggregators such as Countrywide.[SUP][34][/SUP][SUP][35][/SUP]
Depending on how “subprime” mortgages are defined, they remained below 10% of all mortgage originations until 2004, when they spiked to nearly 20% and remained there through the 2005–2006 peak of the United States housing bubble.[SUP][36][/SUP]
Some scholars, like American Enterprise Institute fellow Peter J. Wallison,[SUP][37][/SUP] believe that the roots of the crisis can be traced directly to affordable housing policies initiated by HUD in the 1990s and to massive risky loan purchases by government sponsored entities Fannie Mae and Freddie Mac. Based upon information in the SEC's December 2011 securities fraud case against 6 ex-executives of Fannie and Freddie, Peter Wallison and Edward Pinto have estimated that, in 2008, Fannie and Freddie held 13 million substandard loans totaling over $2 trillion.[SUP][38][/SUP]
The majority report of the Financial Crisis Inquiry Commission, written by the six Democratic appointees and four Republican appointees, studies by Federal Reserve economists, and the work of several independent scholars dispute Wallison's assertions.[SUP][7][/SUP] They note that GSE loans performed better than loans securitized by private investment banks, and performed better than some loans originated by institutions that held loans in their own portfolios.[SUP][7][/SUP] Paul Krugman has even claimed that the GSE never purchased subprime loans – a claim that is widely disputed.[SUP][39][/SUP]
On September 30, 1999, The New York Times reported:
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers... In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.[SUP][40][/SUP]
In 2001, the independent research company, Graham Fisher & Company, stated that HUD’s 1995 “National Homeownership Strategy: Partners in the American Dream,” a 100-page affordable housing advocacy document, promoted “the relaxation of credit standards.”[SUP][35][/SUP]In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers... In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.[SUP][40][/SUP]
In the early and mid-2000s (decade), the Bush administration called numerous times[SUP][41][/SUP] for investigation into the safety and soundness of the GSEs and their swelling portfolio of subprime mortgages. On September 10, 2003, the House Financial Services Committee held a hearing at the urging of the administration to assess safety and soundness issues and to review a recent report by the Office of Federal Housing Enterprise Oversight (OFHEO) that had uncovered accounting discrepancies within the two entities.[SUP][42][/SUP] The hearings never resulted in new legislation or formal investigation of Fannie Mae and Freddie Mac, as many of the committee members refused to accept the report and instead rebuked OFHEO for their attempt at regulation.[SUP][43][/SUP] Some believe this was an early warning to the systemic risk that the growing market in subprime mortgages posed to the U.S. financial system that went unheeded.[SUP][44][/SUP]
A 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that $467 billion of mortgage lending was made by Community Reinvestment Act (CRA)-covered lenders into low and mid level income (LMI) borrowers and neighborhoods, representing 10% of all U.S. mortgage lending during the period. The majority of these were prime loans. Sub-prime loans made by CRA-covered institutions constituted a 3% market share of LMI loans in 1998,[SUP][45][/SUP] but in the run-up to the crisis, fully 25% of all sub-prime lending occurred at CRA-covered institutions and another 25% of sub-prime loans had some connection with CRA.[SUP][46][/SUP] In addition, an analysis by the Federal Reserve Bank of Dallas in 2009, however, concluded that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later.[SUP][47][/SUP] Furthermore, most sub-prime loans were not made to the LMI borrowers targeted by the CRA, especially in the years 2005–2006 leading up to the crisis. Nor did it find any evidence that lending under the CRA rules increased delinquency rates or that the CRA indirectly influenced independent mortgage lenders to ramp up sub-prime lending.
To other analysts the delay between CRA rule changes (in 1995) and the explosion of subprime lending is not surprising, and does not exonerate the CRA. They contend that there were two, connected causes to the crisis: the relaxation of underwriting standards in 1995 and the ultra-low interest rates initiated by the Federal Reserve after the terrorist attack on September 11, 2001. Both causes had to be in place before the crisis could take place.[SUP][48][/SUP] Critics also point out that publicly announced CRA loan commitments were massive, totaling $4.5 trillion in the years between 1994 and 2007.[SUP][49][/SUP] They also argue that the Federal Reserve’s classification of CRA loans as “prime” is based on the faulty and self-serving assumption: that high-interest-rate loans (3 percentage points over average) equal “subprime” loans.[SUP][50][/SUP]
Economist Paul Krugman argued in January 2010 that the simultaneous growth of the residential and commercial real estate pricing bubbles and the global nature of the crisis undermines the case made by those who argue that Fannie Mae, Freddie Mac, CRA, or predatory lending were primary causes of the crisis. In other words, bubbles in both markets developed even though only the residential market was affected by these potential causes.[SUP][51][/SUP] In his Dissent to the Financial Crisis Inquiry Commission, Peter J. Wallison wrote: "It is not true that every bubble—even a large bubble—has the potential to cause a financial crisis when it deflates." Wallison notes that other developed countries had "large bubbles during the 1997–2007 period" but "the losses associated with mortgage delinquencies and defaults when these bubbles deflated were far lower than the losses suffered in the United States when the 1997–2007 [bubble] deflated." According to Wallison, the reason the U.S. residential housing bubble (as opposed to other types of bubbles) led to financial crisis was that it was supported by a huge number of substandard loans – generally with low or no downpayments.[SUP][52][/SUP]
Others have pointed out that there were not enough of these loans made to cause a crisis of this magnitude. In an article in Portfolio Magazine, Michael Lewis spoke with one trader who noted that "There weren’t enough Americans with [bad] credit taking out [bad loans] to satisfy investors' appetite for the end product." Essentially, investment banks and hedge funds used financial innovation to enable large wagers to be made, far beyond the actual value of the underlying mortgage loans, using derivatives called credit default swaps, collateralized debt obligations and synthetic CDOs.[SUP][53][/SUP]
As of March 2011 the FDIC has had to pay out $9 billion to cover losses on bad loans at 165 failed financial institutions.[SUP][54][/SUP] The Congressional Budget Office estimated, in June 2011, that the bailout to Fannie Mae and Freddie Mac exceeds $300 billion (calculated by adding the fair value deficits of the entities to the direct bailout funds at the time).[SUP][55][/SUP]
[h=3]Growth of the housing bubble[/h] Main article: United States housing bubble
A graph showing the median and average sales prices of new homes sold in the United States between 1963 and 2008 (not adjusted for inflation)[SUP][56][/SUP]
Between 1997 and 2006, the price of the typical American house increased by 124%.[SUP][57][/SUP] During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006.[SUP][58][/SUP] This housing bubble resulted in many homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation.
In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. This pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with products such as the mortgage-backed security and the collateralized debt obligation that were assigned safe ratings by the credit rating agencies.[SUP][59][/SUP]
In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers and the large investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted, and continued strong demand began to drive down lending standards.[SUP][59][/SUP]
The collateralized debt obligation in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. This essentially places cash payments from multiple mortgages or other debt obligations into a single pool from which specific securities draw in a specific sequence of priority. Those securities first in line received investment-grade ratings from rating agencies. Securities with lower priority had lower credit ratings but theoretically a higher rate of return on the amount invested.[SUP][60][/SUP][SUP][61][/SUP]
By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak.[SUP][62][/SUP][SUP][63][/SUP] As prices declined, borrowers with adjustable-rate mortgages could not refinance to avoid the higher payments associated with rising interest rates and began to default. During 2007, lenders began foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006.[SUP][64][/SUP] This increased to 2.3 million in 2008, an 81% increase vs. 2007.[SUP][65][/SUP] By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure.[SUP][66][/SUP] By September 2009, this had risen to 14.4%.[SUP][67][/SUP]
[h=3]Easy credit conditions[/h] Lower interest rates encouraged borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%.[SUP][68][/SUP] This was done to soften the effects of the collapse of the dot-com bubble and the September 2001 terrorist attacks, as well as to combat a perceived risk of deflation.[SUP][69][/SUP] As early as 2002 it was apparent that credit was fueling housing instead of business investment as some economists went so far as to advocate that the Fed "needs to create a housing bubble to replace the Nasdaq bubble".[SUP][70][/SUP] Moreover, empirical studies using data from advanced countries show that excessive credit growth contributed greatly to the severity of the crisis.[SUP][71][/SUP]
U.S. current account deficit.
Additional downward pressure on interest rates was created by the high and rising U.S. current account deficit, which peaked along with the housing bubble in 2006. Federal Reserve chairman Ben Bernanke explained how trade deficits required the U.S. to borrow money from abroad, in the process bidding up bond prices and lowering interest rates.[SUP][72][/SUP]
Bernanke explained that between 1996 and 2004, the U.S. current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these deficits required the country to borrow large sums from abroad, much of it from countries running trade surpluses. These were mainly the emerging economies in Asia and oil-exporting nations. The balance of payments identity requires that a country (such as the U.S.) running a current account deficit also have a capital account (investment) surplus of the same amount. Hence large and growing amounts of foreign funds (capital) flowed into the U.S. to finance its imports.
All of this created demand for various types of financial assets, raising the prices of those assets while lowering interest rates. Foreign investors had these funds to lend either because they had very high personal savings rates (as high as 40% in China) or because of high oil prices. Ben Bernanke has referred to this as a "saving glut".[SUP][73][/SUP]
A flood of funds (capital or liquidity) reached the U.S. financial markets. Foreign governments supplied funds by purchasing Treasury bonds and thus avoided much of the direct impact of the crisis. U.S. households, on the other hand, used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets. Financial institutions invested foreign funds in mortgage-backed securities.
The Fed then raised the Fed funds rate significantly between July 2004 and July 2006.[SUP][74][/SUP] This contributed to an increase in 1-year and 5-year adjustable-rate mortgage (ARM) rates, making ARM interest rate resets more expensive for homeowners.[SUP][75][/SUP] This may have also contributed to the deflating of the housing bubble, as asset prices generally move inversely to interest rates, and it became riskier to speculate in housing.[SUP][76][/SUP][SUP][77][/SUP] U.S. housing and financial assets dramatically declined in value after the housing bubble burst.[SUP][78][/SUP][SUP][79][/SUP]
[h=3]Weak and fraudulent underwriting practices[/h] Testimony given to the Financial Crisis Inquiry Commission by Richard M. Bowen III on events during his tenure as the Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group for Citigroup (where he was responsible for over 220 professional underwriters) suggests that by the final years of the U.S. housing bubble (2006–2007), the collapse of mortgage underwriting standards was endemic. His testimony stated that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were "defective" (were not underwritten to policy, or did not contain all policy-required documents) – this, despite the fact that each of these 1,600 originators was contractually responsible (certified via representations and warrantees) that its mortgage originations met Citi's standards. Moreover, during 2007, "defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi's standards) increased... to over 80% of production".[SUP][80][/SUP]
In separate testimony to Financial Crisis Inquiry Commission, officers of Clayton Holdings—the largest residential loan due diligence and securitization surveillance company in the United States and Europe—testified that Clayton's review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% of the loans met their originators’ underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 "too big to fail" banks) additionally showed that 28% of the sampled loans did not meet the minimal standards of any issuer. Clayton's analysis further showed that 39% of these loans (i.e. those not meeting any issuer's minimal underwriting standards) were subsequently securitized and sold to investors.[SUP][81][/SUP][SUP][82][/SUP]
There is strong evidence that the GSEs – due to their large size and market power – were far more effective at policing underwriting by originators and forcing underwriters to repurchase defective loans. By contrast, private securitizers have been far less aggressive and less effective in recovering losses from originators on behalf of investors.[SUP][7][/SUP]
[h=3]Predatory lending[/h] Predatory lending refers to the practice of unscrupulous lenders, enticing borrowers to enter into "unsafe" or "unsound" secured loans for inappropriate purposes.[SUP][83][/SUP] A classic bait-and-switch method was used by Countrywide Financial, advertising low interest rates for home refinancing. Such loans were written into extensively detailed contracts, and swapped for more expensive loan products on the day of closing. Whereas the advertisement might state that 1% or 1.5% interest would be charged, the consumer would be put into an adjustable rate mortgage (ARM) in which the interest charged would be greater than the amount of interest paid. This created negative amortization, which the credit consumer might not notice until long after the loan transaction had been consummated.
Countrywide, sued by California Attorney General Jerry Brown for "unfair business practices" and "false advertising" was making high cost mortgages "to homeowners with weak credit, adjustable rate mortgages (ARMs) that allowed homeowners to make interest-only payments".[SUP][84][/SUP] When housing prices decreased, homeowners in ARMs then had little incentive to pay their monthly payments, since their home equity had disappeared. This caused Countrywide's financial condition to deteriorate, ultimately resulting in a decision by the Office of Thrift Supervision to seize the lender.
Former employees from Ameriquest, which was United States' leading wholesale lender,[SUP][85][/SUP] described a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits.[SUP][85][/SUP] There is growing evidence that such mortgage frauds may be a cause of the crisis.[SUP][85][/SUP]
[h=3]Deregulation[/h] Further information: Government policies and the subprime mortgage crisis
Critics such as economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner have argued that the regulatory framework did not keep pace with financial innovation, such as the increasing importance of the shadow banking system, derivatives and off-balance sheet financing. A recent OECD study[SUP][86][/SUP] suggest that bank regulation based on the Basel accords encourage unconventional business practices and contributed to or even reinforced the financial crisis. In other cases, laws were changed or enforcement weakened in parts of the financial system. Key examples include:
- Jimmy Carter's Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) phased out a number of restrictions on banks' financial practices, broadened their lending powers, allowed credit unions and savings and loans to offer checkable deposits, and raised the deposit insurance limit from $40,000 to $100,000 (thereby potentially lessening depositor scrutiny of lenders' risk management policies).[SUP][87][/SUP]
- In October 1982, U.S. President Ronald Reagan signed into law the Garn–St. Germain Depository Institutions Act, which provided for adjustable-rate mortgage loans, began the process of banking deregulation, and contributed to the savings and loan crisis of the late 1980s/early 1990s.[SUP][88][/SUP]
- In November 1999, U.S. President Bill Clinton signed into law the Gramm–Leach–Bliley Act, which repealed part of the Glass–Steagall Act of 1933. This repeal has been criticized for reducing the separation between commercial banks (which traditionally had fiscally conservative policies) and investment banks (which had a more risk-taking culture).[SUP][89][/SUP][SUP][90][/SUP] However, the vast majority of failures were at institutions that were created by Glass-Steagall.[SUP][91][/SUP]
- In 2004, the U.S. Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has conceded that self-regulation of investment banks contributed to the crisis.[SUP][92][/SUP][SUP][93][/SUP]
- Financial institutions in the shadow banking system are not subject to the same regulation as depository banks, allowing them to assume additional debt obligations relative to their financial cushion or capital base.[SUP][94][/SUP] This was the case despite the Long-Term Capital Management debacle in 1998, where a highly leveraged shadow institution failed with systemic implications.
- Regulators and accounting standard-setters allowed depository banks such as Citigroup to move significant amounts of assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles, masking the weakness of the capital base of the firm or degree of leverage or risk taken. One news agency estimated that the top four U.S. banks will have to return between $500 billion and $1 trillion to their balance sheets during 2009.[SUP][95][/SUP] This increased uncertainty during the crisis regarding the financial position of the major banks.[SUP][96][/SUP] Off-balance sheet entities were also used by Enron as part of the scandal that brought down that company in 2001.[SUP][97][/SUP]
- As early as 1997, Federal Reserve chairman Alan Greenspan fought to keep the derivatives market unregulated.[SUP][98][/SUP] With the advice of the President's Working Group on Financial Markets,[SUP][99][/SUP] the U.S. Congress and President allowed the self-regulation of the over-the-counter derivatives market when they enacted the Commodity Futures Modernization Act of 2000. Derivatives such as credit default swaps (CDS) can be used to hedge or speculate against particular credit risks. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. Total over-the-counter (OTC) derivative notional value rose to $683 trillion by June 2008.[SUP][100][/SUP] Warren Buffett famously referred to derivatives as "financial weapons of mass destruction" in early 2003.[SUP][101][/SUP][SUP][102][/SUP]
Leverage ratios of investment banks increased significantly 2003–07
Prior to the crisis, financial institutions became highly leveraged, increasing their appetite for risky investments and reducing their resilience in case of losses. Much of this leverage was achieved using complex financial instruments such as off-balance sheet securitization and derivatives, which made it difficult for creditors and regulators to monitor and try to reduce financial institution risk levels.[SUP][9][/SUP] These instruments also made it virtually impossible to reorganize financial institutions in bankruptcy, and contributed to the need for government bailouts.[SUP][9][/SUP]
Household debt relative to disposable income and GDP.
U.S. households and financial institutions became increasingly indebted or overleveraged during the years preceding the crisis.[SUP][103][/SUP] This increased their vulnerability to the collapse of the housing bubble and worsened the ensuing economic downturn.[SUP][104][/SUP] Key statistics include:
Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period, contributing to economic growth worldwide.[SUP][105][/SUP][SUP][106][/SUP][SUP][107][/SUP] U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.[SUP][108][/SUP]
USA household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990.[SUP][103][/SUP] In 1981, U.S. private debt was 123% of GDP; by the third quarter of 2008, it was 290%.[SUP][109][/SUP]
From 2004 to 2007, the top five U.S. investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to a financial shock. Changes in capital requirements, intended to keep U.S. banks competitive with their European counterparts, allowed lower risk weightings for AAA securities. The shift from first-loss tranches to AAA tranches was seen by regulators as a risk reduction that compensated the higher leverage.[SUP][110][/SUP] These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Lehman Brothers was liquidated, Bear Stearns and Merrill Lynch were sold at fire-sale prices, and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation. With the exception of Lehman, these companies required or received government support.[SUP][111][/SUP]
Fannie Mae and Freddie Mac, two U.S. Government sponsored enterprises, owned or guaranteed nearly $5 trillion in mortgage obligations at the time they were placed into conservatorship by the U.S. government in September 2008.[SUP][112][/SUP][SUP][113][/SUP]
These seven entities were highly leveraged and had $9 trillion in debt or guarantee obligations; yet they were not subject to the same regulation as depository banks.[SUP][94][/SUP][SUP][114][/SUP]
Behavior that may be optimal for an individual (e.g., saving more during adverse economic conditions) can be detrimental if too many individuals pursue the same behavior, as ultimately one person's consumption is another person's income. Too many consumers attempting to save (or pay down debt) simultaneously is called the paradox of thrift and can cause or deepen a recession. Economist Hyman Minsky also described a "paradox of deleveraging" as financial institutions that have too much leverage (debt relative to equity) cannot all de-leverage simultaneously without significant declines in the value of their assets.[SUP][104][/SUP]
During April 2009, U.S. Federal Reserve vice-chair Janet Yellen discussed these paradoxes: "Once this massive credit crunch hit, it didn’t take long before we were in a recession. The recession, in turn, deepened the credit crunch as demand and employment fell, and credit losses of financial institutions surged. Indeed, we have been in the grips of precisely this adverse feedback loop for more than a year. A process of balance sheet deleveraging has spread to nearly every corner of the economy. Consumers are pulling back on purchases, especially on durable goods, to build their savings. Businesses are cancelling planned investments and laying off workers to preserve cash. And, financial institutions are shrinking assets to bolster capital and improve their chances of weathering the current storm. Once again, Minsky understood this dynamic. He spoke of the paradox of deleveraging, in which precautions that may be smart for individuals and firms—and indeed essential to return the economy to a normal state—nevertheless magnify the distress of the economy as a whole."[SUP][104][/SUP]
[h=3][/h]
okay so 55$/per month..660$/per year..what do you think you get for that?..one accident/illness could wipe you out unless you are independently wealthy with a junk policy..comes down to accountability..shall we continue with subprime loans? why/why not?
do you?
[h=3]Subprime lending[/h] Main article: Subprime mortgage crisis
During a period of intense competition between mortgage lenders for revenue and market share, and when the supply of creditworthy borrowers was limited, mortgage lenders relaxed underwriting standards and originated riskier mortgages to less creditworthy borrowers.[SUP][7][/SUP] In the view of some analysts, the relatively conservative Government Sponsored Enterprises (GSEs) policed mortgage originators and maintained relatively high underwriting standards prior to 2003. However, as market power shifted from securitizers to originators and as intense competition from private securitizers undermined GSE power, mortgage standards declined and risky loans proliferated.[SUP][7][/SUP] The worst loans were originated in 20042007, the years of the most intense competition between securitizers and the lowest market share for the GSEs.
U.S. subprime lending expanded dramatically 20042006
As well as easy credit conditions, there is evidence that competitive pressures contributed to an increase in the amount of subprime lending during the years preceding the crisis. Major U.S. investment banks and GSEs like Fannie Mae played an important role in the expansion of lending, with GSEs eventually relaxing their standards to try to catch up with the private banks.[SUP][32][/SUP][SUP][33][/SUP] A contrarian view is that Fannie Mae and Freddie Mac led the way to relaxed underwriting standards, starting in 1995, by advocating the use of easy-to-qualify automated underwriting and appraisal systems, by designing the no-downpayment products issued by lenders, by the promotion of thousands of small mortgage brokers, and by their close relationship to subprime loan aggregators such as Countrywide.[SUP][34][/SUP][SUP][35][/SUP]
Depending on how subprime mortgages are defined, they remained below 10% of all mortgage originations until 2004, when they spiked to nearly 20% and remained there through the 20052006 peak of the United States housing bubble.[SUP][36][/SUP]
Some scholars, like American Enterprise Institute fellow Peter J. Wallison,[SUP][37][/SUP] believe that the roots of the crisis can be traced directly to affordable housing policies initiated by HUD in the 1990s and to massive risky loan purchases by government sponsored entities Fannie Mae and Freddie Mac. Based upon information in the SEC's December 2011 securities fraud case against 6 ex-executives of Fannie and Freddie, Peter Wallison and Edward Pinto have estimated that, in 2008, Fannie and Freddie held 13 million substandard loans totaling over $2 trillion.[SUP][38][/SUP]
The majority report of the Financial Crisis Inquiry Commission, written by the six Democratic appointees and four Republican appointees, studies by Federal Reserve economists, and the work of several independent scholars dispute Wallison's assertions.[SUP][7][/SUP] They note that GSE loans performed better than loans securitized by private investment banks, and performed better than some loans originated by institutions that held loans in their own portfolios.[SUP][7][/SUP] Paul Krugman has even claimed that the GSE never purchased subprime loans a claim that is widely disputed.[SUP][39][/SUP]
On September 30, 1999, The New York Times reported:
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers... In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.[SUP][40][/SUP]
In 2001, the independent research company, Graham Fisher & Company, stated that HUDs 1995 National Homeownership Strategy: Partners in the American Dream, a 100-page affordable housing advocacy document, promoted the relaxation of credit standards.[SUP][35][/SUP]In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers... In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.[SUP][40][/SUP]
In the early and mid-2000s (decade), the Bush administration called numerous times[SUP][41][/SUP] for investigation into the safety and soundness of the GSEs and their swelling portfolio of subprime mortgages. On September 10, 2003, the House Financial Services Committee held a hearing at the urging of the administration to assess safety and soundness issues and to review a recent report by the Office of Federal Housing Enterprise Oversight (OFHEO) that had uncovered accounting discrepancies within the two entities.[SUP][42][/SUP] The hearings never resulted in new legislation or formal investigation of Fannie Mae and Freddie Mac, as many of the committee members refused to accept the report and instead rebuked OFHEO for their attempt at regulation.[SUP][43][/SUP] Some believe this was an early warning to the systemic risk that the growing market in subprime mortgages posed to the U.S. financial system that went unheeded.[SUP][44][/SUP]
A 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that $467 billion of mortgage lending was made by Community Reinvestment Act (CRA)-covered lenders into low and mid level income (LMI) borrowers and neighborhoods, representing 10% of all U.S. mortgage lending during the period. The majority of these were prime loans. Sub-prime loans made by CRA-covered institutions constituted a 3% market share of LMI loans in 1998,[SUP][45][/SUP] but in the run-up to the crisis, fully 25% of all sub-prime lending occurred at CRA-covered institutions and another 25% of sub-prime loans had some connection with CRA.[SUP][46][/SUP] In addition, an analysis by the Federal Reserve Bank of Dallas in 2009, however, concluded that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later.[SUP][47][/SUP] Furthermore, most sub-prime loans were not made to the LMI borrowers targeted by the CRA, especially in the years 20052006 leading up to the crisis. Nor did it find any evidence that lending under the CRA rules increased delinquency rates or that the CRA indirectly influenced independent mortgage lenders to ramp up sub-prime lending.
To other analysts the delay between CRA rule changes (in 1995) and the explosion of subprime lending is not surprising, and does not exonerate the CRA. They contend that there were two, connected causes to the crisis: the relaxation of underwriting standards in 1995 and the ultra-low interest rates initiated by the Federal Reserve after the terrorist attack on September 11, 2001. Both causes had to be in place before the crisis could take place.[SUP][48][/SUP] Critics also point out that publicly announced CRA loan commitments were massive, totaling $4.5 trillion in the years between 1994 and 2007.[SUP][49][/SUP] They also argue that the Federal Reserves classification of CRA loans as prime is based on the faulty and self-serving assumption: that high-interest-rate loans (3 percentage points over average) equal subprime loans.[SUP][50][/SUP]
Economist Paul Krugman argued in January 2010 that the simultaneous growth of the residential and commercial real estate pricing bubbles and the global nature of the crisis undermines the case made by those who argue that Fannie Mae, Freddie Mac, CRA, or predatory lending were primary causes of the crisis. In other words, bubbles in both markets developed even though only the residential market was affected by these potential causes.[SUP][51][/SUP] In his Dissent to the Financial Crisis Inquiry Commission, Peter J. Wallison wrote: "It is not true that every bubbleeven a large bubblehas the potential to cause a financial crisis when it deflates." Wallison notes that other developed countries had "large bubbles during the 19972007 period" but "the losses associated with mortgage delinquencies and defaults when these bubbles deflated were far lower than the losses suffered in the United States when the 19972007 [bubble] deflated." According to Wallison, the reason the U.S. residential housing bubble (as opposed to other types of bubbles) led to financial crisis was that it was supported by a huge number of substandard loans generally with low or no downpayments.[SUP][52][/SUP]
Others have pointed out that there were not enough of these loans made to cause a crisis of this magnitude. In an article in Portfolio Magazine, Michael Lewis spoke with one trader who noted that "There werent enough Americans with [bad] credit taking out [bad loans] to satisfy investors' appetite for the end product." Essentially, investment banks and hedge funds used financial innovation to enable large wagers to be made, far beyond the actual value of the underlying mortgage loans, using derivatives called credit default swaps, collateralized debt obligations and synthetic CDOs.[SUP][53][/SUP]
As of March 2011 the FDIC has had to pay out $9 billion to cover losses on bad loans at 165 failed financial institutions.[SUP][54][/SUP] The Congressional Budget Office estimated, in June 2011, that the bailout to Fannie Mae and Freddie Mac exceeds $300 billion (calculated by adding the fair value deficits of the entities to the direct bailout funds at the time).[SUP][55][/SUP]
[h=3]Growth of the housing bubble[/h] Main article: United States housing bubble
A graph showing the median and average sales prices of new homes sold in the United States between 1963 and 2008 (not adjusted for inflation)[SUP][56][/SUP]
Between 1997 and 2006, the price of the typical American house increased by 124%.[SUP][57][/SUP] During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006.[SUP][58][/SUP] This housing bubble resulted in many homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation.
In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. This pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with products such as the mortgage-backed security and the collateralized debt obligation that were assigned safe ratings by the credit rating agencies.[SUP][59][/SUP]
In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers and the large investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted, and continued strong demand began to drive down lending standards.[SUP][59][/SUP]
The collateralized debt obligation in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. This essentially places cash payments from multiple mortgages or other debt obligations into a single pool from which specific securities draw in a specific sequence of priority. Those securities first in line received investment-grade ratings from rating agencies. Securities with lower priority had lower credit ratings but theoretically a higher rate of return on the amount invested.[SUP][60][/SUP][SUP][61][/SUP]
By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak.[SUP][62][/SUP][SUP][63][/SUP] As prices declined, borrowers with adjustable-rate mortgages could not refinance to avoid the higher payments associated with rising interest rates and began to default. During 2007, lenders began foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006.[SUP][64][/SUP] This increased to 2.3 million in 2008, an 81% increase vs. 2007.[SUP][65][/SUP] By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure.[SUP][66][/SUP] By September 2009, this had risen to 14.4%.[SUP][67][/SUP]
[h=3]Easy credit conditions[/h] Lower interest rates encouraged borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%.[SUP][68][/SUP] This was done to soften the effects of the collapse of the dot-com bubble and the September 2001 terrorist attacks, as well as to combat a perceived risk of deflation.[SUP][69][/SUP] As early as 2002 it was apparent that credit was fueling housing instead of business investment as some economists went so far as to advocate that the Fed "needs to create a housing bubble to replace the Nasdaq bubble".[SUP][70][/SUP] Moreover, empirical studies using data from advanced countries show that excessive credit growth contributed greatly to the severity of the crisis.[SUP][71][/SUP]
U.S. current account deficit.
Additional downward pressure on interest rates was created by the high and rising U.S. current account deficit, which peaked along with the housing bubble in 2006. Federal Reserve chairman Ben Bernanke explained how trade deficits required the U.S. to borrow money from abroad, in the process bidding up bond prices and lowering interest rates.[SUP][72][/SUP]
Bernanke explained that between 1996 and 2004, the U.S. current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these deficits required the country to borrow large sums from abroad, much of it from countries running trade surpluses. These were mainly the emerging economies in Asia and oil-exporting nations. The balance of payments identity requires that a country (such as the U.S.) running a current account deficit also have a capital account (investment) surplus of the same amount. Hence large and growing amounts of foreign funds (capital) flowed into the U.S. to finance its imports.
All of this created demand for various types of financial assets, raising the prices of those assets while lowering interest rates. Foreign investors had these funds to lend either because they had very high personal savings rates (as high as 40% in China) or because of high oil prices. Ben Bernanke has referred to this as a "saving glut".[SUP][73][/SUP]
A flood of funds (capital or liquidity) reached the U.S. financial markets. Foreign governments supplied funds by purchasing Treasury bonds and thus avoided much of the direct impact of the crisis. U.S. households, on the other hand, used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets. Financial institutions invested foreign funds in mortgage-backed securities.
The Fed then raised the Fed funds rate significantly between July 2004 and July 2006.[SUP][74][/SUP] This contributed to an increase in 1-year and 5-year adjustable-rate mortgage (ARM) rates, making ARM interest rate resets more expensive for homeowners.[SUP][75][/SUP] This may have also contributed to the deflating of the housing bubble, as asset prices generally move inversely to interest rates, and it became riskier to speculate in housing.[SUP][76][/SUP][SUP][77][/SUP] U.S. housing and financial assets dramatically declined in value after the housing bubble burst.[SUP][78][/SUP][SUP][79][/SUP]
[h=3]Weak and fraudulent underwriting practices[/h] Testimony given to the Financial Crisis Inquiry Commission by Richard M. Bowen III on events during his tenure as the Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group for Citigroup (where he was responsible for over 220 professional underwriters) suggests that by the final years of the U.S. housing bubble (20062007), the collapse of mortgage underwriting standards was endemic. His testimony stated that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were "defective" (were not underwritten to policy, or did not contain all policy-required documents) this, despite the fact that each of these 1,600 originators was contractually responsible (certified via representations and warrantees) that its mortgage originations met Citi's standards. Moreover, during 2007, "defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi's standards) increased... to over 80% of production".[SUP][80][/SUP]
In separate testimony to Financial Crisis Inquiry Commission, officers of Clayton Holdingsthe largest residential loan due diligence and securitization surveillance company in the United States and Europetestified that Clayton's review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% of the loans met their originators underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 "too big to fail" banks) additionally showed that 28% of the sampled loans did not meet the minimal standards of any issuer. Clayton's analysis further showed that 39% of these loans (i.e. those not meeting any issuer's minimal underwriting standards) were subsequently securitized and sold to investors.[SUP][81][/SUP][SUP][82][/SUP]
There is strong evidence that the GSEs due to their large size and market power were far more effective at policing underwriting by originators and forcing underwriters to repurchase defective loans. By contrast, private securitizers have been far less aggressive and less effective in recovering losses from originators on behalf of investors.[SUP][7][/SUP]
[h=3]Predatory lending[/h] Predatory lending refers to the practice of unscrupulous lenders, enticing borrowers to enter into "unsafe" or "unsound" secured loans for inappropriate purposes.[SUP][83][/SUP] A classic bait-and-switch method was used by Countrywide Financial, advertising low interest rates for home refinancing. Such loans were written into extensively detailed contracts, and swapped for more expensive loan products on the day of closing. Whereas the advertisement might state that 1% or 1.5% interest would be charged, the consumer would be put into an adjustable rate mortgage (ARM) in which the interest charged would be greater than the amount of interest paid. This created negative amortization, which the credit consumer might not notice until long after the loan transaction had been consummated.
Countrywide, sued by California Attorney General Jerry Brown for "unfair business practices" and "false advertising" was making high cost mortgages "to homeowners with weak credit, adjustable rate mortgages (ARMs) that allowed homeowners to make interest-only payments".[SUP][84][/SUP] When housing prices decreased, homeowners in ARMs then had little incentive to pay their monthly payments, since their home equity had disappeared. This caused Countrywide's financial condition to deteriorate, ultimately resulting in a decision by the Office of Thrift Supervision to seize the lender.
Former employees from Ameriquest, which was United States' leading wholesale lender,[SUP][85][/SUP] described a system in which they were pushed to falsify mortgage documents and then sell the mortgages to Wall Street banks eager to make fast profits.[SUP][85][/SUP] There is growing evidence that such mortgage frauds may be a cause of the crisis.[SUP][85][/SUP]
[h=3]Deregulation[/h] Further information: Government policies and the subprime mortgage crisis
Critics such as economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner have argued that the regulatory framework did not keep pace with financial innovation, such as the increasing importance of the shadow banking system, derivatives and off-balance sheet financing. A recent OECD study[SUP][86][/SUP] suggest that bank regulation based on the Basel accords encourage unconventional business practices and contributed to or even reinforced the financial crisis. In other cases, laws were changed or enforcement weakened in parts of the financial system. Key examples include:
- Jimmy Carter's Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) phased out a number of restrictions on banks' financial practices, broadened their lending powers, allowed credit unions and savings and loans to offer checkable deposits, and raised the deposit insurance limit from $40,000 to $100,000 (thereby potentially lessening depositor scrutiny of lenders' risk management policies).[SUP][87][/SUP]
- In October 1982, U.S. President Ronald Reagan signed into law the GarnSt. Germain Depository Institutions Act, which provided for adjustable-rate mortgage loans, began the process of banking deregulation, and contributed to the savings and loan crisis of the late 1980s/early 1990s.[SUP][88][/SUP]
- In November 1999, U.S. President Bill Clinton signed into law the GrammLeachBliley Act, which repealed part of the GlassSteagall Act of 1933. This repeal has been criticized for reducing the separation between commercial banks (which traditionally had fiscally conservative policies) and investment banks (which had a more risk-taking culture).[SUP][89][/SUP][SUP][90][/SUP] However, the vast majority of failures were at institutions that were created by Glass-Steagall.[SUP][91][/SUP]
- In 2004, the U.S. Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has conceded that self-regulation of investment banks contributed to the crisis.[SUP][92][/SUP][SUP][93][/SUP]
- Financial institutions in the shadow banking system are not subject to the same regulation as depository banks, allowing them to assume additional debt obligations relative to their financial cushion or capital base.[SUP][94][/SUP] This was the case despite the Long-Term Capital Management debacle in 1998, where a highly leveraged shadow institution failed with systemic implications.
- Regulators and accounting standard-setters allowed depository banks such as Citigroup to move significant amounts of assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles, masking the weakness of the capital base of the firm or degree of leverage or risk taken. One news agency estimated that the top four U.S. banks will have to return between $500 billion and $1 trillion to their balance sheets during 2009.[SUP][95][/SUP] This increased uncertainty during the crisis regarding the financial position of the major banks.[SUP][96][/SUP] Off-balance sheet entities were also used by Enron as part of the scandal that brought down that company in 2001.[SUP][97][/SUP]
- As early as 1997, Federal Reserve chairman Alan Greenspan fought to keep the derivatives market unregulated.[SUP][98][/SUP] With the advice of the President's Working Group on Financial Markets,[SUP][99][/SUP] the U.S. Congress and President allowed the self-regulation of the over-the-counter derivatives market when they enacted the Commodity Futures Modernization Act of 2000. Derivatives such as credit default swaps (CDS) can be used to hedge or speculate against particular credit risks. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. Total over-the-counter (OTC) derivative notional value rose to $683 trillion by June 2008.[SUP][100][/SUP] Warren Buffett famously referred to derivatives as "financial weapons of mass destruction" in early 2003.[SUP][101][/SUP][SUP][102][/SUP]
Leverage ratios of investment banks increased significantly 200307
Prior to the crisis, financial institutions became highly leveraged, increasing their appetite for risky investments and reducing their resilience in case of losses. Much of this leverage was achieved using complex financial instruments such as off-balance sheet securitization and derivatives, which made it difficult for creditors and regulators to monitor and try to reduce financial institution risk levels.[SUP][9][/SUP] These instruments also made it virtually impossible to reorganize financial institutions in bankruptcy, and contributed to the need for government bailouts.[SUP][9][/SUP]
Household debt relative to disposable income and GDP.
U.S. households and financial institutions became increasingly indebted or overleveraged during the years preceding the crisis.[SUP][103][/SUP] This increased their vulnerability to the collapse of the housing bubble and worsened the ensuing economic downturn.[SUP][104][/SUP] Key statistics include:
Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period, contributing to economic growth worldwide.[SUP][105][/SUP][SUP][106][/SUP][SUP][107][/SUP] U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.[SUP][108][/SUP]
USA household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990.[SUP][103][/SUP] In 1981, U.S. private debt was 123% of GDP; by the third quarter of 2008, it was 290%.[SUP][109][/SUP]
From 2004 to 2007, the top five U.S. investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to a financial shock. Changes in capital requirements, intended to keep U.S. banks competitive with their European counterparts, allowed lower risk weightings for AAA securities. The shift from first-loss tranches to AAA tranches was seen by regulators as a risk reduction that compensated the higher leverage.[SUP][110][/SUP] These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Lehman Brothers was liquidated, Bear Stearns and Merrill Lynch were sold at fire-sale prices, and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation. With the exception of Lehman, these companies required or received government support.[SUP][111][/SUP]
Fannie Mae and Freddie Mac, two U.S. Government sponsored enterprises, owned or guaranteed nearly $5 trillion in mortgage obligations at the time they were placed into conservatorship by the U.S. government in September 2008.[SUP][112][/SUP][SUP][113][/SUP]
These seven entities were highly leveraged and had $9 trillion in debt or guarantee obligations; yet they were not subject to the same regulation as depository banks.[SUP][94][/SUP][SUP][114][/SUP]
Behavior that may be optimal for an individual (e.g., saving more during adverse economic conditions) can be detrimental if too many individuals pursue the same behavior, as ultimately one person's consumption is another person's income. Too many consumers attempting to save (or pay down debt) simultaneously is called the paradox of thrift and can cause or deepen a recession. Economist Hyman Minsky also described a "paradox of deleveraging" as financial institutions that have too much leverage (debt relative to equity) cannot all de-leverage simultaneously without significant declines in the value of their assets.[SUP][104][/SUP]
During April 2009, U.S. Federal Reserve vice-chair Janet Yellen discussed these paradoxes: "Once this massive credit crunch hit, it didnt take long before we were in a recession. The recession, in turn, deepened the credit crunch as demand and employment fell, and credit losses of financial institutions surged. Indeed, we have been in the grips of precisely this adverse feedback loop for more than a year. A process of balance sheet deleveraging has spread to nearly every corner of the economy. Consumers are pulling back on purchases, especially on durable goods, to build their savings. Businesses are cancelling planned investments and laying off workers to preserve cash. And, financial institutions are shrinking assets to bolster capital and improve their chances of weathering the current storm. Once again, Minsky understood this dynamic. He spoke of the paradox of deleveraging, in which precautions that may be smart for individuals and firmsand indeed essential to return the economy to a normal statenevertheless magnify the distress of the economy as a whole."[SUP][104][/SUP]
[h=3][/h]
okay so 55$/per month..660$/per year..what do you think you get for that?..one accident/illness could wipe you out unless you are independently wealthy with a junk policy..comes down to accountability..shall we continue with subprime loans? why/why not?
ginwilly
Well-Known Member
Can you explain how the ACA stops this abuse? If EMTALA says we have to treat you without collecting money, are people (who couldn't afford insurance) going to just pay up now because you say so?
I wish O'care did everything you guys claim it will, I'd throw my support behind it too. In lieu of that, I'd settle for the partisan hacks to just read a little and think for themselves.
This post saved or created 4million jobs.
tell me how many of you pay more for your homeowners/flood or auto policies?..you know you do..why would you value yourself less than your possessions? why would you risk losing your possessions and all that you've worked for..remember, without your HEALTH, you have nothing!
please consider the environment before printing this post
please consider the environment before printing this post
ginwilly
Well-Known Member
Sky, you realize all of those regulations came on the coattails of bailing out banks at 100cents on the dollar and were followed by an 85B a month payment. Pretty good trade off for the banks wouldn't you say? How do your regulations rectify this? Are the too big to fail banks bigger or smaller?
And no, we should have never started sub-prime lending, you can thank Carter/Clinton/Bush for that. I know, let's do a house for clunkers sale! The new regulations were passed strictly across party lines by team players who never read it, of course you would fully support that.
And no, we should have never started sub-prime lending, you can thank Carter/Clinton/Bush for that. I know, let's do a house for clunkers sale! The new regulations were passed strictly across party lines by team players who never read it, of course you would fully support that.
Rob Roy
Well-Known Member
tell me how many of you pay more for your homeowners/flood or auto policies?..you know you do..why would you value yourself less than your possessions? why would you risk losing your possessions and all that you've worked for..remember, without your HEALTH, you have nothing!
please consider the environment before printing this post
Without your freedom to live your life as you see fit, you are not healthy.
if you have insurance you can be proactive and go to the doctor at first signs of not feeling well instead of letting it explode into an "emergency"
well care visits will routinely screen you at no charge for typical illness within your age/gender group..benefits to identifying cancer and other illnesses at early stages = improved life expectancy
have dental..have vision..you NEED those services..i mean do you walk around with green teeth and glasses off the rack from cvs? diagnosing yourself are we? bad move..women must see doctors all their life on a regular basis and we live much longer than men..get it?
yeah, not healthy in the head..but wait!..the ACA covers mental health visits so you'd be able to go and work that out..
If your life isn't worth your possessions and everything you've worked for, you probably aren't properly valuing your life.tell me how many of you pay more for your homeowners/flood or auto policies?..you know you do..why would you value yourself less than your possessions? why would you risk losing your possessions and all that you've worked for..remember, without your HEALTH, you have nothing!
please consider the environment before printing this post
Rob Roy
Well-Known Member
That's a feeble reply. Also you use the term "offer" loosely. An "offer" implies freedom of choice to accept or not accept something. Obamacare is an edict, not an "offer".
Why do you support programs that deny people the freedom to choose, then in another thread about abortion, you are all about a "womens right to choice" ? You seem confused about freedom and choice.
ginwilly
Well-Known Member
But I bought my plan through the exchange and have a 6k deductible I have to meet. Wouldn't going to the ER a few times without actually paying take care of that deductible first? What's my incentive to pay out of pocket at a doctor's office when I can still go to the ER for free?
If Fannie and Freddie are going to buy bad mortgages off your books or insure payment, why would you care about whether the mortgages are ever repaid? You wouldn't. Government interference in the market constituted a substantial part of the problem.
I'm curious, do you know who invented mortgage securities? Commercial banks? Investment banks? No, it was the United States government.
Doer
Well-Known Member
It it suppose to be the offer you can't refuse.
I just saw the nightmare last night on CNN. I have a Software development manager job. And this is not a difficult task. It is very easy in-fact, with maybe 20 coders. Also, it is not the invention of the wheel. We spent the last 30 years to make this quite simple.
So what happened? It was 2 tracked. But, 1 leader covered it all....Kathleen. One track, the main one, was pure Politics. And that is what screwed it up. 20 sub-contractors or more and each in a little box, not knowing what political favoritism was brewing in the other line. Constant politically trading for which States will be screwed at the top. That is why it didn't work. Never tested. But, also hidden purpose.
And 20 more maybe, doing the Political favor and shutdown, and go slow code for screwing State citizens for Votes from other States. But, they were not in contact with the other contractors. It is why there are Millions in useless code in there.
Now it does take some Millions, maybe 5 million. But, 1/2 Billion? WTF??
And none of the code was run together. Stupid and they knew it would fail.We run the simplest thing for weeks of load soak simulations.
But, I think they need some real time run for the Big Brother side.
This is not a software product for health care, it is Big Brother and was coded for that.
Hence the secrecy and the inevitable foul up. But, what they are fixing is Big Brother. Make no mistake.
..........
osama bin laden made sure of this..ever been to an airport?..do you know what shows up on those screens they won't let you turn around and look at after you've gone through the scanner..i'm going to have to say that was truly the beginning..schools locked up with at least one police officer onsite at all times..good times, good times..