Forum Post: Roots of the Banking Crisis
Posted 12 years ago on Nov. 15, 2011, 1:25 p.m. EST by frontierteg
(137)
from Kalamazoo Township, MI
This content is user submitted and not an official statement
Whenever you try to solve a problem you should look at what caused the problem in the first place. In early 2009, the banking system is wrestling with hundreds of billions (if not trillions) of dollars of bad assets, known as subprime loans, marginal loans, or other vague descriptors.
I can say with confidence, "Bankers are more intelligent and business savvy than government bureaucrats." That statement is invariably followed by the question: "So, why did intelligent bankers make so many bad loans?" The answer is government intervention and coercion. Banking has been heavily regulated, controlled, and manipulated for political purposes for many years. Creeping socialism has existed in the banking industry for decades. Occasionally, the "creeping" aspect has been replaced by giant leaps toward a socialist state. The Community Reinvestment Act (CRA) was more a "leap" than "creep." The CRA, and a host of related government lending regulations, coerced (forced) banks to make marginal or bad loans to people with low-income, unstable income, and/or poor credit histories. By supporting these laws and regulations politicians pleased special-interest groups. Politicians were repaid for their efforts with large voting blocks.
Federal bank examiners told banks "marginal" loans must be made to improve the banks CRA rating. While CRA did not mandate civil or punitive damages, CRA required a four-tier rating system with performance levels: outstanding, satisfactory, needs-to-improve, or substantial noncompliance. These ratings were made public. The bottom two ratings meant public outrage. Satisfactory was not "satisfactory" because some of your competitors were already advertising their outstanding rating.
The banks were forced to comply with the government's attempts at social re-engineering. Banks across America originated these loans and then sold them in the secondary market.Many of these subprime loans were pooled(securitized) into bonds. Bonds backed by mortgage loans(mortgage-backed securities) became very popular investment vehicles. To help "improve liquidity in the secondary market" FHLMC (Freddie Mac) and FNMA (Fannie Mae), two government-sponsored organizations, stepped in to guarantee the securities (mortgage-backed bonds) with implied AAA ratings of the federal government. This meant we now had AAA-rated bonds backed by subprime loans flooding the marketplace.
From the beginning, people like me warned that a disaster was inevitable. We were ignored. In March 1995, William Niskanen, Chairman of the Cato Institute, testified before Congress. Niskanen criticized the politicized favoritism in allocating credit and the micromanaging by regulators, and warned against bankers operating at losses in the future. He was ignored. In 2007, blind to the growing problem, Ben Bernanke suggested increasing Fannie Mae's and Freddie Mac's roles in the "affordable housing market" to help banks fulfill their CRA requirements. This meant guaranteeing even more CRA-backed bonds at a time when the system was near collapse. On April 15, 2008 an FDIC (Federal Deposit Insurance Corporation) official said the FDIC was exploring how to get bankers to offer "pay-day" type loans for favorable consideration in their CRA ratings, blissfully unaware that the banking system was about to collapse. Who is to blame for the financial meltdown? The government is to blame. The weeds planted by the government decades ago are now choking our financial system. To fix the banking system we must restore sound business practices. This means we must reject loan applications from people who cannot afford to buy a home. It is perfectly honorable to be a renter.
It is time to return the banking system to the free market. We need bankers running banks, not bureaucrats and politicians. The Federal Reserve, the FDIC and other bank regulators, and the politicians created the financial disaster. To believe the government, Barack Obama (who has no financial training at all), Fed Chairman Ben Bernanke (who appears totally confused), Treasury Secretary Tim Geithner (who had a miserable track record at the New York Fed), clueless career bureaucrats, and the current crew of politicians in Washington can fix the financial crisis is completely irrational. Go back to the root of these problems and you will see government intervention, coercion, and ineptitude.
You seem to be missing the fact that bankers running our country is no better then bureaucrats lol. Even though we all know their one and the same in our corporatocracy.
I'm sorry, but as valid as your points about the collapse are, your wack in the head if you want less restrictions on the bankers who already run our government, lmao.
Brooksley Born was correct. History. The free market will not happen. These are not American markets any more to start with. What makes you think these are considered American Companies any more?
We will be regulating the markets and adjusting as needed. NICE TRY!
Money is not the equivalent to speech.
The Markets are not going to run our government!
What a load of disingenuous disinformation and distortion of the facts.
The CRA was rewritten and the CRB reorganized by the 1999 Republican bill S-900 the Gramm-Leach-Bliley Financial Services Modernization Act.
Lending standards were lowered for the Community Reinvestment Bank.
Glass-Steagall was repealed.
Already under-regulated derivatives were made more widely useable by the banks.
SEE: The Congress that Crashed America http://home.ptd.net/~aahpat/aandc/congcrash.html
S-900 might more accurately be called the Big Bankers Candy Store Act. It gave them the store creating "too big to fail" banks. Allowing those banks to create dangerous mortgage products and licensing the banks to create toxic derivatives that masked the bad loans under bundles of AAA rated mortgages. No one twisted the bankers arms in doing this. The bankers bought hundreds of members of congress who gave the banksters every fuckin thing they wanted and then some.
Yes! As a loan officer as early as 2003 I saw the loosening of guidelines (otherwise known as investor guidelines that lenders outline for qualifying the potential borrower) When a coworker mentioned a woman and others who had made 3 to as many as 5 loans through him we both agreed that between examples of people using their homes like an ATM machine and lines of people at local banks who were clearly responding to low qualifying guideline loans we knew that the 'house of cards' would eventually fall. I told my husband one day when I saw the line at our Wells Fargo that these people, while they qualify now, they will likely lose their homes within the next 3 to 5 years-remember the 'pick a pay' loans? In 2008 when everything was cratering my predictions came true because the leads I was calling on, some of them had 'pick a pay' loans that they had used the interest only option/lowest payment option on and they had a balloon coming due that they needed to refinance (we couldn't help them since the proverbial carpet from the nationwide 'short' had already occurred and so their homes were 'under value.' Another thing, the savings I had set aside that equaled 2 years of income over the span of an 8 year period which was planned for use as a deposit on a home:well, let me tell you about that! In Plumas County/the city of Plumas, CA My husband and I had found a home and a loan officer who acted as his own bank and was willing to do a 3 year balloon loan to us as a 'private lender' We drove all the way up to Plumas, CA from the San Francisco Bay Area thinking we would find our dream home in the mountains only to find that this loan officer/broker claimed there was another offer on the property and would we be willing to pay an additional $10K on it. I was mad, I knew this was a scam, the property on closer inspection was definitely a 'fixer upper' that no conforming lender would touch now or even 10 years from now, no wonder he offered to do a private loan!
I told my husband that the reason this man is number one in production in the Plumas area is because in addition to standard loan brokerage, he does these private loans and when people who are economically challenged cannot pay the loan, he gets yet another property and can flip it. We backed out on the grounds that we did not have the money in reserve to pay for the balloon payment at the end and that there were no guarantees of property appreciation (chillingly, we were right) I was relatively mind blown when I saw my understanding of 'no guarantees' of property appreciation' and chance of refinance borne out by my daily activities in my then failing real estate/mortgage banker/broker company!
Note: As the markets pointed towards a collapse I actually went back to my office and did more research on that 'Smart Plumas Loan Broker' and ran across plenty of paper in the public records that showed his methodology which mirrored what was going on at a mega-scale with the banking system and its new products including SIV's (structured investment vehicles) MBS (mortgage backed securities) CMBS (collateralized mortgage backed securities) etc. ad infinitum! Here's a link for all to see the ongoing mess with banks that's not going change anytime soon from an mortgage industry professional. While you're at it, click through to Mandelman for his running commentary that is both scathing and enlightening: http://ml-implode.com/ Here's his most recent: http://ml-implode.com/viewnews/2011-11-15_WereGoingtoNeedaBiggerHorsePortlandpolicebackdownratherthanengag.html and then when you click the title "We're going to need a bigger horse' this is the link for the complete article: http://mandelman.ml-implode.com/2011/11/were-going-to-need-a-bigger-horse-portland-police-back-down-rather-than-engage-occupy-portland-protesters/ Quote"right now in Washington D.C. the bi-partisan congressional “super-committee” is meeting to determine what will be cut in order to reduce our deficit by $1.5 trillion over the next ten years. According to various reports by members of the press, both Republicans and Democrats are in favor of a plan that would cut Social Security benefits by three percent.'.......