[quote]K2000 wrote:
You’re still glossing over a lot.
Why were people unable to pay their mortgages? Because they were losing their jobs, getting sick and going broke, variable mortgage rates were jumping, and so on. People didn’t buy with the intention of not paying their mortgages. The shaky economy caused that.
Also, the mortgage default problem is bad, but that’s not what brought us to the brink of economic collapse. That would be the mortgage brokers bundling all these bad mortgages together and selling and re-selling them with A1 ratings. If people were simply defaulting on their mortgages, the scale of the problem would be much smaller, and not threaten to wreck our entire economy.[/quote]
You are confusing the problem with the effect. As I said, volumes have and will be written about this time in history, so of course I am not developing every single detail. People that had no business buying a home were stepping up because they “deserved” one. They were stepping up because a) they wanted to b) you now had the new age carpetbaggers in the game, gaming the system, working from their self interest and exploiting the new abberatted system. These were most of the brokers and lenders and all the wing nuts that came up with a way to shed themselves of this soon to be imploding paper through the creation of Mortgage Backed Securities.
Going back, the Bush Administration began sending out warnings in early 2001, saying Fannie May and Freddie Mac had gotten way too big and could easily cause strong repercussions in the markets. In 2003 the warnings were elevated to a systemic risk that could reach well beyond the housing sector. The Bush Admin wanted a strong regulatory body to oversee the two Government Sponsored Enterprises, (Fannie and Freddie).
But then came the ever level headed Barney Frank, claiming that the GSE’s were just fine, and what we really needed was more loans for the marginal home owner. He accused the Bush Admin of creating a “sky is falling” mentality that was wrong and ridiculous. The legislation was blocked.
Greenspan finally stood up after accounting issues started showing up in the GSE’s, claiming that they must be gotten under control or risk insolvency in future crisis. Shummer and Franks came to the rescue, praising the job the GSE’s had done.
McCaine came out on the Senate floor in early 2006, warning that without immediate regulation disaster was emanate. The Bill came out on party lines. The Dems all voting against and the Republicans falling to get the votes needed to pass.
When you get a moment, google Community Reinvestment Act. Carter passed it in the seventies. When done right, it worked a little. Then Clinton and the Dems changed it in 1995. These revisions allowed for the securitization of loans containing subprime mortgages.
Banks were now forced to issue $1 Trillion in new subprime and created subprime mortgage securities. Bear Stearns was the first to do it (remember them?)
Fannie May got into the act, pushing down the requirements for subprime mortgages. Next came variable rate, adjustable rate, NO MONEY DOWN. By 2005 95% of Fannie’s subprime loans were variable rate. Fannie kept telling the banks to write the loans and they would guarantee them. Now demand is outstripping supply and home prices are going up at at accelerated rates.
But wait. Interest rates started to rise. Gas started to rise. People started missing payments. Banks stopped writing the loans. And things started to go bad. The whole scheme depended on a steady steam of new loans to compensate for the steady stream of loans going bad. When equilibrium was lost, things began to implode. Foreclosures began to rise, home prices started to slip, more sellers than buyers. Foreclosure rose more on this viscous cycle till Fannies guarantees were now worthless. They could not guarantee the loans. Fannie had been overstating their assets. Banks started collapsing. Jobs began to disappear, and we find ourselves where we are now.
The Bush admin tried to stop it in 2003 with regulation for the GSEs. The Dems went nuts, the race card came out, and the Democrats were able to block the legislation. Barney Frank, Melvin Watt, Maxine Waters, thank you for nothing.
McCain made another attempt in 2005. The Dems blocked it again. And again in a last chance effort in early 2007.
The Dems were panicking and so were the GSE’s and other entities that had made billions on this house of cards. Guess who they started funneling money to in the maximum quantities allowed. Barrack Hussein Obama. In the case of Fannie, Obama received 47 to 1 in dollars donated for their campaigns.
Poor people did not cause this. Free markets did not cause this. Deregulation did not cause this.
BAD GOVERNMENT REGULATION DID CAUSE THIS.
Bad social engineering.
Socialist are only worried about their intent.
Conservatives know you have to look down the road at outcomes and unintended consequences.
Liberals are the parent that gives the kids all the ice cream they can eat, takes the hugs and then disappear.
Conservatives are the parent that are left with a house full of sick kids with tummy aches. They end up having to fix the problem. It is not fun being the responsible parent, but it is necessary.