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  1. #131
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    Quote Originally Posted by ajblaise View Post
    I haven't heard any economist or anyone put the blame squarely/mostly on the government, even though that seems to be the default libertarian/position for all of societies ills. The legislation I referenced I heard on NPR a few days ago, I don't know what it's nature was, but I would doubt they forced banks to give bad loans, or how much it really effected things.
    Here's part of the problem.

    Fannie Mae was not really a public entity at the time, and not really a private one either.

    A few things happened at once to make this perfect storm. One, quasi-governmental organizations Fannie Mae and Freddie Mac decided to loosen their lending requirements to make more people eligible for mortgages. Two, the lending industry discovered that it could make a ton of money by bundling mortgages and calling the resulting bundle a security, which it would then resell to investment banks. Three, with the increase in potential buyers, housing prices spiked across the country.

    While the real estate boom lasted, homebuyers did not need to pay down a mortgage in order to gain equity... if they could pay enough to stave off foreclosure for two or three years, they could flip the house, pay off the mortgage entirely, and pocket a nice profit besides. The new buyer was working the same plan. So a house that was fairly priced at $150K would sell for $175K, to someone who knew it was too much but who bought anyway because in a few years they'd be able to turn it over for $210K, which seems silly until you realize that that buyer would eventually sell for $275K, a ludicrous sum except when compared against the $350K the house would sell for next... and then all the new homebuyers were used up, and the guy who owed $350K on a $150K house suddenly was stuck with an ARM that had adjusted beyond his means or (worse yet) a reverse-amortization mortgage and nobody to sell his house to.

    So what does he do? He walks. He declares bankruptcy and cuts his losses. The bank doesn't get paid, so the company it sold the mortgage to doesn't get paid, so the commoditized mortgage package suddenly isn't worth what it used to be, and everybody down the line takes a screwing because they tried to run the real estate market like a Ponzi scheme.

  2. #132
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by ajblaise View Post
    Expand on that? I've only heard this referenced, not explained further.

    Where banks forced/swayed/given incentive to give out these loans?
    Companies that fail to maintain profits go extinct; this was profitable (in normal economic terms, it indicates 'efficiency'); others adopted it, and so all were forced to, or they would be left behind.

    Rush to the bottom, IOW.

    The central problem was the real estate bubble. It triggered the ability to have 'asset backed loans' of high quality, but dubious metrics. The controls in place failed in two ways - they couldn't properly calculate exposure, etc. and no one had enough guts to step in and say this wasn't acceptable.

    Can you really imagine the government being able to step in to Fannie and Freddy and terminate their ability to absorb loans? A guaranteed way to cause the political shitstorm. Hell, the non-interventionists would of screamed, the good old boys would of screamed, the banks would of screamed, the people would of screamed... it would of been political suicide.

  3. #133
    Senior Member Eileen's Avatar
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    Quote Originally Posted by booyalab View Post
    It's pretty shitty for the banks too, who end up losing millions of dollars when they loan to people who don't pay them back. Hmm, maybe banks should show more reluctance to loan to people with bad credit history. Except black people are more likely to have bad credit history and denying loans to them is racist! Darn!

    That African Americans are more likely to A. have less money and B. have worse credit is a social problem larger than this. Nonetheless, I think that it's reasonable to make loans to people who have credit that indicates that they're likely to paythem back. To not do so is foolish, and it can also be predatory depending on the type of loan. Regardless of whether this makes a person who is borrowing money stupid/ignorant/foolish/what have you, it is *predatory* to give people loans that are almost certainly going to turn out to be more than they can pay back. I think that people should enter into contracts with good sense, but that needs to be the case on both sides.


    At the end of the day, people are people and banks are institutions. It is worse for people to be fucked over than institutions. The only thing that is in and of itself WRONG with institutions being fucked is that it affects people and their families.
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  4. #134
    Order Now! pure_mercury's Avatar
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    Quote Originally Posted by Eileen View Post
    That African Americans are more likely to A. have less money and B. have worse credit is a social problem larger than this. Nonetheless, I think that it's reasonable to make loans to people who have credit that indicates that they're likely to paythem back. To not do so is foolish, and it can also be predatory depending on the type of loan. Regardless of whether this makes a person who is borrowing money stupid/ignorant/foolish/what have you, it is *predatory* to give people loans that are almost certainly going to turn out to be more than they can pay back. I think that people should enter into contracts with good sense, but that needs to be the case on both sides.


    At the end of the day, people are people and banks are institutions. It is worse for people to be fucked over than institutions. The only thing that is in and of itself WRONG with institutions being fucked is that it affects people and their families.
    I disagree with almost all of this, especially since the banks themselves lose if they make bad loans (in theory, at least). Repossessing someone's house is a total last resort. The banks screwed up, but so did the people taking the loans. I mean, why were they looking to get loans for houses they couldn't afford to begin with? There is no predation here at all.
    Who wants to try a bottle of merc's "Extroversion Olive Oil?"

  5. #135
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by pure_mercury View Post
    I disagree with almost all of this, especially since the banks themselves lose if they make bad loans (in theory, at least). Repossessing someone's house is a total last resort. The banks screwed up, but so did the people taking the loans. I mean, why were they looking to get loans for houses they couldn't afford to begin with? There is no predation here at all.
    Because housing prices always went up

  6. #136
    Seriously Delirious Udog's Avatar
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    Quote Originally Posted by pure_mercury View Post
    I disagree with almost all of this, especially since the banks themselves lose if they make bad loans (in theory, at least). Repossessing someone's house is a total last resort. The banks screwed up, but so did the people taking the loans. I mean, why were they looking to get loans for houses they couldn't afford to begin with? There is no predation here at all.
    Willful ignorance (or willful lack of common sense) mixed with predation. The brokers got paid commission by making the loan, so they didn't take on any of the risk.

  7. #137
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    Quote Originally Posted by Eileen View Post
    That African Americans are more likely to A. have less money and B. have worse credit is a social problem larger than this.
    Fine, whatever. But it's a social problem whose intended solution contradicts the intended solution of *predatory* lending.
    it is *predatory* to give people loans that are almost certainly going to turn out to be more than they can pay back.
    I know what you meant by predatory the first time, but it still doesn't make sense. The bank does not benefit when a lender can't pay.
    I don't wanna!

  8. #138
    Seriously Delirious Udog's Avatar
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    booyalab... Someone correct me if I'm wrong, but brokers made the loans and received a commission. The loans were then passed tothe banks, so the banks themselves did not directly interface with the customers. The brokers didn't care if the loan failed as they already got paid.

    So it was beneficial for brokers to use whatever means necessary to get as many loans as possible. It worked because the banks assumed the houses would always be worth the price of the loan, and there was tremendous money to be made.

  9. #139
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    Quote Originally Posted by ajblaise View Post
    I haven't heard any economist or anyone put the blame squarely/mostly on the government, even though that seems to be the default libertarian/conservative position for all of societies ills.
    What, so you're suddenly incapable of recognizing causality when the cause isn't business? I'll take your silence on the commission issue to mean you agree that bankers probably received commission before the legislation, so why can't you see that legislation requiring banks to lend to people who won't pay back led to banks lending to people who won't pay back.

    Quote Originally Posted by Udog View Post
    booyalab... Someone correct me if I'm wrong, but brokers made the loans and received a commission. The loans were then passed tothe banks, so the banks themselves did not directly interface with the customers. The brokers didn't care if the loan failed as they already got paid.
    durrr
    I don't wanna!

  10. #140
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    So I take it your question has thus been answered?

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