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Politicized Mortgages

Mike

Well-known member
By Phil Gramm

The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis.


If the cause was an unsustainable boom in house prices and irresponsible mortgage lending that corrupted the balance sheets of the world's financial institutions, reforming the housing credit system and correcting attendant problems in the financial system are called for. But if the fundamental structure of the financial system is flawed, a more profound restructuring is required.

I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.

The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse. But unlike previous postwar recessions, consumption and the housing industry remained strong at the trough of the recession. Critics of Federal Reserve Chairman Alan Greenspan say he held interest rates too low for too long, and in the process overstimulated the economy. That criticism does not capture what went wrong, however. The consequences of the Fed's monetary policy lay elsewhere.

In the inventory-cycle recessions experienced in the last half of the 20th century, involuntary build up of inventories produced retrenchment in the production chain. Workers were laid off and investment and consumption, including the housing sector, slumped.

In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed's sharp, prolonged reduction in interest rates stimulated a housing market that was already booming -- triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.

Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.

Meanwhile, mortgage lending was becoming increasingly politicized. Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans. Looser underwriting standards spread beyond subprime to the whole housing market.

As Mr. Greenspan testified last October at a hearing of the House Committee on Oversight and Government Reform, "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of CRA." It was not just that CRA and federal housing policy pressured lenders to make risky loans -- but that they gave lenders the excuse and the regulatory cover.

Countrywide Financial Corp. cloaked itself in righteousness and silenced any troubled regulator by being the first mortgage lender to sign a HUD "Declaration of Fair Lending Principles and Practices." Given privileged status by Fannie Mae as a reward for "the most flexible underwriting criteria," it became the world's largest mortgage lender -- until it became the first major casualty of the financial crisis.

The 1992 Housing Bill set quotas or "targets" that Fannie and Freddie were to achieve in meeting the housing needs of low- and moderate-income Americans. In 1995 HUD raised the primary quota for low- and moderate-income housing loans from the 30% set by Congress in 1992 to 40% in 1996 and to 42% in 1997.

By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.

The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

Blinded by the experience of the postwar period, where aggregate housing prices had never declined on an annual basis, and using the last 20 years as a measure of the norm, rating agencies and regulators viewed securitized mortgages, even subprime and undocumented Alt-A mortgages, as embodying little risk. It was not that regulators were not empowered; it was that they were not alarmed.

With near universal approval of regulators world-wide, these securities were injected into the arteries of the world's financial system. When the bubble burst, the financial system lost the indispensable ingredients of confidence and trust. We all know the rest of the story.

The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.

GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.

Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.

When no evidence was ever presented to link GLB to the financial crisis -- and when former President Bill Clinton gave a spirited defense of this law, which he signed -- proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.

Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.

In reality the financial "deregulation" of the last two decades has been greatly exaggerated. As the housing crisis mounted, financial regulators had more power, larger budgets and more personnel than ever. And yet, with the notable exception of Mr. Greenspan's warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew. There is absolutely no evidence that if financial regulators had had more resources or more authority that anything would have been different.

Since politicization of the mortgage market was a primary cause of this crisis, we should be especially careful to prevent the politicization of the banks that have been given taxpayer assistance. Did Citi really change its view on mortgage cram-downs or was it pressured? How much pressure was really applied to force Bank of America to go through with the Merrill acquisition?

Restrictions on executive compensation are good fun for politicians, but they are just one step removed from politicians telling banks who to lend to and for what. We have been down that road before, and we know where it leads.

Finally, it should give us pause in responding to the financial crisis of today to realize that this crisis itself was in part an unintended consequence of the monetary policy we employed to deal with the previous recession. Surely, unintended consequences are a real danger when the monetary base has been bloated by a doubling of the Federal Reserve's balance sheet, and the federal deficit seems destined to exceed $1.7 trillion.

Mr. Gramm, a former U.S. Senator from Texas, is vice chairman of UBS Investment Bank. UBS. This op-ed is adapted from a recent paper he delivered at the American Enterprise Institute.
 

Tex

Well-known member
Mike said:
By Phil Gramm

The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis.


If the cause was an unsustainable boom in house prices and irresponsible mortgage lending that corrupted the balance sheets of the world's financial institutions, reforming the housing credit system and correcting attendant problems in the financial system are called for. But if the fundamental structure of the financial system is flawed, a more profound restructuring is required.

I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.

The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse. But unlike previous postwar recessions, consumption and the housing industry remained strong at the trough of the recession. Critics of Federal Reserve Chairman Alan Greenspan say he held interest rates too low for too long, and in the process overstimulated the economy. That criticism does not capture what went wrong, however. The consequences of the Fed's monetary policy lay elsewhere.

In the inventory-cycle recessions experienced in the last half of the 20th century, involuntary build up of inventories produced retrenchment in the production chain. Workers were laid off and investment and consumption, including the housing sector, slumped.

In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed's sharp, prolonged reduction in interest rates stimulated a housing market that was already booming -- triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.

Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.

Meanwhile, mortgage lending was becoming increasingly politicized. Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans. Looser underwriting standards spread beyond subprime to the whole housing market.

As Mr. Greenspan testified last October at a hearing of the House Committee on Oversight and Government Reform, "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of CRA." It was not just that CRA and federal housing policy pressured lenders to make risky loans -- but that they gave lenders the excuse and the regulatory cover.

Countrywide Financial Corp. cloaked itself in righteousness and silenced any troubled regulator by being the first mortgage lender to sign a HUD "Declaration of Fair Lending Principles and Practices." Given privileged status by Fannie Mae as a reward for "the most flexible underwriting criteria," it became the world's largest mortgage lender -- until it became the first major casualty of the financial crisis.

The 1992 Housing Bill set quotas or "targets" that Fannie and Freddie were to achieve in meeting the housing needs of low- and moderate-income Americans. In 1995 HUD raised the primary quota for low- and moderate-income housing loans from the 30% set by Congress in 1992 to 40% in 1996 and to 42% in 1997.

By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.

The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

Blinded by the experience of the postwar period, where aggregate housing prices had never declined on an annual basis, and using the last 20 years as a measure of the norm, rating agencies and regulators viewed securitized mortgages, even subprime and undocumented Alt-A mortgages, as embodying little risk. It was not that regulators were not empowered; it was that they were not alarmed.

With near universal approval of regulators world-wide, these securities were injected into the arteries of the world's financial system. When the bubble burst, the financial system lost the indispensable ingredients of confidence and trust. We all know the rest of the story.

The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.

GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.

Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.

When no evidence was ever presented to link GLB to the financial crisis -- and when former President Bill Clinton gave a spirited defense of this law, which he signed -- proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.

Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.

In reality the financial "deregulation" of the last two decades has been greatly exaggerated. As the housing crisis mounted, financial regulators had more power, larger budgets and more personnel than ever. And yet, with the notable exception of Mr. Greenspan's warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew. There is absolutely no evidence that if financial regulators had had more resources or more authority that anything would have been different.

Since politicization of the mortgage market was a primary cause of this crisis, we should be especially careful to prevent the politicization of the banks that have been given taxpayer assistance. Did Citi really change its view on mortgage cram-downs or was it pressured? How much pressure was really applied to force Bank of America to go through with the Merrill acquisition?

Restrictions on executive compensation are good fun for politicians, but they are just one step removed from politicians telling banks who to lend to and for what. We have been down that road before, and we know where it leads.

Finally, it should give us pause in responding to the financial crisis of today to realize that this crisis itself was in part an unintended consequence of the monetary policy we employed to deal with the previous recession. Surely, unintended consequences are a real danger when the monetary base has been bloated by a doubling of the Federal Reserve's balance sheet, and the federal deficit seems destined to exceed $1.7 trillion.

Mr. Gramm, a former U.S. Senator from Texas, is vice chairman of UBS Investment Bank. UBS. This op-ed is adapted from a recent paper he delivered at the American Enterprise Institute.

Mike, I think it is really good to post things like this and just because you read it does not make it true.

Reality puts a big bite in foreclosure Phil's article:

Royal Dutch Shell plc .com Rotating Header Image
Chaos and $37 billion meltdown at crisis hit USB bank where Royal Dutch Shell CFO Peter Voser is a director
Apr 4th, 2008
by admin.

Wall Street Journal UBS chart

THE WALL STREET JOURNAL: The Prizefight for UBS

EXTRACT: “It’s hard to make a case to someone wealthy that you can manage their money well when you’ve just lost $37 billion yourself”

Bank’s Ex-President Pushes for a Breakup; Rematch of 2001 Bout
By CARRICK MOLLENKAMP and KATHARINA BART
April 4, 2008; Page C1

A former president of UBS AG is pushing for a breakup of the banking giant, launching an activist-shareholder campaign, after UBS booked $37.7 billion in write-downs.
Â
For British investor Luqman Arnold, the fight will mark a rematch with the bank that forced him out in 2001 after a dispute over governance and how much power he would have. Among Mr. Arnold’s proposals: UBS should legally separate its investment bank from its private-client bank and consider selling the investment bank; sell its asset-management business to raise money; and remove the chairman it named just Tuesday, according to a letter Mr. Arnold sent to UBS Thursday night.

The surprise attack from Mr. Arnold, chairman of London investment firm Olivant Advisers Ltd., promises to increase acrimony inside UBS, which has gutted its leadership since becoming one of the hardest-hit banks in the credit crisis.

A spokeswoman for UBS confirmed Friday receipt of a letter from Olivant and said the bank will respond in “due course” and in “appropriate form.”

UBS, created by the 1997 merger of Swiss Bank Corp. and Union Bank of Switzerland, has been under pressure from other shareholders to split off its investment bank. They blame the division for moving the traditionally conservative bank into trading complex mortgage securities that led to the write-downs and wiped out profits in 2007 and in the first quarter of this year.
Â
Wealthy clients in UBS’s home market of Switzerland have been pulling money out of the private bank because they have become worried about the bank’s losses, Raoul Weil, chief executive of UBS’s private bank, said before Mr. Arnold sent his demands to the bank. Mr. Weil said UBS private-bank advisers had been reassuring clients, telling them of the announcement Tuesday of a rights issue to boost its capital by 15 billion Swiss francs, or about $15 billion, among other moves.

“It’s hard to make a case to someone wealthy that you can manage their money well when you’ve just lost $37 billion yourself,” said Dirk Hoffmann-Becking, an analyst at Bernstein Research in London.

Smaller Swiss rivals Julius Baer Holding AG and Vontobel Holding AG have said they have gained private-banking clients as UBS struggles.

Mr. Arnold’s firm, Olivant, had accumulated more than a 0.7% stake in UBS, valued at about $470 million, before sending its letter to UBS Vice Chairman Sergio Marchionne. The letter lays out Mr. Arnold’s suggestions and states that UBS “needs to act with urgency … as we remain cautious about the prospects for the U.S. housing market and the outlook for credit markets.”

Activist investors acquire stakes in companies and attempt to force them to make changes. If successful, they can stir up broader investor support and force companies to consider outright sales or the divestitures of ailing units. Last year, a London hedge fund sent a letter to ABN Amro Holding NV’s board chairman and chief executive demanding that the Dutch bank be broken up or sold. The letter ultimately helped to spark the $101 billion sale of ABN to a consortium of European banks.
Â
UBS shares are down 56% in the past 52 weeks and 38% this year. In Zurich on Thursday, its stock fell 4.7% to 32.4 francs.

Mr. Arnold said in an interview that any sale of the investment bank, in a best-case scenario, wouldn’t happen until 2009, and it could take six to nine months to legally separate UBS.

UBS already has published its agenda for its April 23 annual meeting, and it isn’t likely that Mr. Arnold’s proposals will be officially considered. But his ideas could gain support and also accelerate the bank’s own changes. Actares, a lobbying group that votes on behalf of UBS shareholders who transfer their voting rights to it, already has been urging the bank to consider selling the investment bank to protect its private bank.

Mr. Arnold is pushing UBS to hire a nonexecutive as board chairman, faulting the candidate it selected this week, its in-house legal counsel, Peter Kurer. Outgoing Chairman Marcel Ospel, whose differences with Mr. Arnold led to Mr. Arnold’s departure in 2001, said this week he will step down at the bank’s annual meeting.

UBS officials have maintained that the bank can operate an integrated model, boosting business by moving clients from the investment bank to the private bank.
Â
And UBS’s private bank’s expansion outside Switzerland in recent years is helping to cushion the blow of losing clients at home, with inflows from the Middle East and Asia compensating for the client departures in the first quarter of this year, the bank said. UBS counts on Switzerland for 13% of the assets it manages in its private bank, with the remainder coming from the rest of the world. Assets from wealthy clients in its home market totaled 281 billion francs at the end of 2007, with 2.134 trillion francs managed outside Switzerland.

In an effort to shield the rest of the bank, UBS has set up a special structure to hold its mortgage assets. The portfolio ultimately could be sold, but the bank likely would have to find an outside investor to take a stake in the structure.

Mr. Arnold, however, writes that the bank’s business of catering to wealthy clients will be tarnished by its subprime problems. “We are not convinced that the ‘one bank’ integrated business model that has served UBS well in the past will survive the damage inflicted by the proprietary trading losses and write-downs,” Mr. Arnold said.
Â
Despite the bank’s belief that a $15 billion rights issue — the sale of stock typically to existing investors — will be enough capital for the bank when added to the 13 billion francs raised from Middle Eastern and Asian investors, Mr. Arnold said in his letter that fund raising might not be enough.

Mr. Arnold has worked in financial services since the 1970s. He got his start in banking at First National Bank in Dallas, before spending 10 years at Credit Suisse Group. He joined UBS in 1996 and was named president of UBS’s group executive board in April 2001, effectively making him the No. 2 behind Mr. Ospel. But a power struggle later that year between the two men led to Mr. Arnold’s departure.

After leaving UBS, Mr. Arnold joined United Kingdom lender Abbey National PLC as chief executive and then oversaw the sale of Abbey to Spain’s Banco Santander SA in 2004. Today, his company specializes in financial-services investments — it was one potential bidder for a stake in failed British mortgage lender Northern Rock PLC. But Mr. Arnold hasn’t previously been seen as an activist investor in European financial circles.

http://online.wsj.com/article/SB120725574276087561.html?mod=hps_us_whats_news

Very interesting read on UBS and the Bush family in comments after this article:

http://journals.democraticunderground.com/McCamy%20Taylor/264
 

Mike

Well-known member
Would you care to debate Gramms' points in his original article or just continue to cite some Moonbat rhetoric? :roll:
 

Tex

Well-known member
"
GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified. " (quote from Phil in the article Mike originally posted(



In this paragraph, Gramm tries to defend the Glass-Stegall Act repeal on a supposition that because Europe didn't have the same banking structure and therefore did not have the Glass-Steagall Act, the problem should have started there. My first article shows it did affect USB, a major player in Europe and indeed their investment bank part was the huge problem. The Glass Steagall Act separated commercial and investment banks. This was the problem with USB. An argument that because there is no regulation in an area, the lack of regulation will induce fraud seems to be his first argument and that logic does not follow. It could have happened that way, but it wouldn't be expected unless you end up with the same crooks doing the same scams. USB did largely thanks to its purchase of the Enron scamsters and Gramm himself.

Indeed one of the first casualties was Norther Rock, a London bank.

With Gramm's knowledge of monetary policy and what he says Greenspan did wrong, which I agree with, why did he get his company mixed up in a 37 billion dollar loss?

Gramm sums the problem with "the confluence of two factors": 1) The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001 and 2) The second was the politicization of mortgage lending.

The first he should have recognized off the bat and the second he was part of.

From Greenspan:

“Subprime mortgages were and are risky, but they are worth it,” Greenspan said, adding that is better to have a larger property owning class with a vested interest in the system.

“I’m terribly concerned that we would cut back on the availability of subprime that has enabled a very significant increase in mortgages among minorities in the United States,” he added.

The current credit market turmoil began with rising defaults in the United States on subprime mortgages. Those problems have since spread as banks repackaged risky loans with the more reliable and sold them to a wide range of investors, including several European banks.

Credit dried up in early August, roiling financial markets, as banks became wary of exposure to the risky loans.

Greenspan acknowledged that a number of people should not have been taking out those mortgages, but that the current crisis was due “not the subprime problem itself, but to the securitization of subprime.”

Without that, there would have been significantly fewer defaults, he said.
(http://loanidaho.com/news-item.php?newsid=3)




UBS and all the investment banks did that.


Mike, I could go on and on about this but it really isn't necessary. Gramm was smart enough to know what could happen when the Glass Steagall repeal could do to the leverage in the system and the risks that the act was supposed to protect from. He pushed it anyway for profit and lobbied for its repeal and lack of regulations.

You don't have to believe any of it if you don't want to. If you do have a particular part of Gramm's response that you want argued out for better understanding, pick it out and lets dissect it.

I don't find Gramm credible. He is either incompetent or corrupt and the man behind loosening the regulations that allowed all of these things to be too big to fail and that required a step in by the gov. The gov. backs up commercial bank deposits but after the debacle, had to also back up money market accounts to prevent a run on the quasi banks. It was mixing up the regular banking with investment banking.
 

TSR

Well-known member
Tex said:
"
GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified. "

In this paragraph, Gramm tries to defend the Glass-Stegall Act repeal on a supposition that because Europe didn't have the same banking structure and therefore did not have the Glass-Steagall Act, the problem should have started there. My first article shows it did affect USB, a major player in Europe and indeed their investment bank part was the huge problem. The Glass Steagall Act separated commercial and investment banks. This was the problem with USB. An argument that because there is no regulation in an area, the lack of regulation will induce fraud seems to be his first argument and that logic does not follow. It could have happened that way, but it wouldn't be expected unless you end up with the same crooks doing the same scams. USB did largely thanks to its purchase of the Enron scamsters and Gramm himself.

Indeed one of the first casualties was Norther Rock, a London bank.

With Gramm's knowledge of monetary policy and what he says Greenspan did wrong, which I agree with, why did he get his company mixed up in a 37 billion dollar loss?

Gramm sums the problem with "the confluence of two factors": 1) The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001 and 2) The second was the politicization of mortgage lending.

The first he should have recognized off the bat and the second he was part of.

From Greenspan:

“Subprime mortgages were and are risky, but they are worth it,” Greenspan said, adding that is better to have a larger property owning class with a vested interest in the system.

“I’m terribly concerned that we would cut back on the availability of subprime that has enabled a very significant increase in mortgages among minorities in the United States,” he added.

The current credit market turmoil began with rising defaults in the United States on subprime mortgages. Those problems have since spread as banks repackaged risky loans with the more reliable and sold them to a wide range of investors, including several European banks.

Credit dried up in early August, roiling financial markets, as banks became wary of exposure to the risky loans.

Greenspan acknowledged that a number of people should not have been taking out those mortgages, but that the current crisis was due “not the subprime problem itself, but to the securitization of subprime.”

Without that, there would have been significantly fewer defaults, he said.




UBS and all the investment banks did that.


Mike, I could go on and on about this but it really isn't necessary. Gramm was smart enough to know what could happen when the Glass Steagall repeal could do to the leverage in the system and the risks that the act was supposed to protect from. He pushed it anyway for profit and lobbied for its repeal and lack of regulations.

You don't have to believe any of it if you don't want to. If you do have a particular part of Gramm's response that you want argued out for better understanding, pick it out and lets dissect it.

I don't find Gramm credible. He is either incompetent or corrupt and the man behind loosening the regulations that allowed all of these things to be too big to fail and that required a step in by the gov. The gov. backs up commercial bank deposits but after the debacle, had to also back up money market accounts to prevent a run on the quasi banks. It was mixing up the regular banking with investment banking.

Tex thanks for the insight. There's always two sides, probably not gonna change a lot of people's minds but nice to hear an analysis from someone who also agrees with many of us on the terrible ruling in the Pickett case.
 

Mike

Well-known member
I see. You guys are blaming one man for the fiasco we're in? :lol: :lol:

Believe me, there's plenty of blame to go around on both sides of the aisle, but the political motivations for toxic mortgages is the bigger picture.

Not that it will change anyone's mind here.................................
 

Mike

Well-known member
terrible ruling in the Pickett case

I know Lee Pickett. I went to school with him. I see him almost every week at the sale barn.

The final ruling on Pickett was a disaster, I believe. But that ending had no particular political affiliations that I know of or have seen.

Care to tell us how?
 

hypocritexposer

Well-known member
Let's not forget Obama's input towards this mortgage fiasco:

"In a 1995 case known as Buycks-Roberson v. Citibank, Obama and his fellow attorneys charged that Citibank was making too few loans to black applicants and won the case. As one commentator noted in May 2008, legal "successes" such as this were probably responsible for the sub-prime mortgage crisis of 2007 AND 2008. That is, banks were not loaning to blacks whose credit was poor. When the law forced them to lend money anyway, the inevitable collapse occurred."
 

Tex

Well-known member
TexasBred said:
Come on Tex.....no cut and paste without giving credit. Who wrote the article you just posted?????

The first paragraph in that big one was from the original that Mike posted- the first post and the quote from Greenspan was from the article I mentioned on the bottom, I think. I thought I put them together the right way and I will try to have the page right next to the quote so it flows better.

I wrote the other stuff so you know it is unquestionably true but someone can be a knothead and argue it anyway. Doesn't bother me.

I will go back and see if I can put the site with the quote.
 

Tex

Well-known member
hypocritexposer said:
Let's not forget Obama's input towards this mortgage fiasco:

"In a 1995 case known as Buycks-Roberson v. Citibank, Obama and his fellow attorneys charged that Citibank was making too few loans to black applicants and won the case. As one commentator noted in May 2008, legal "successes" such as this were probably responsible for the sub-prime mortgage crisis of 2007 AND 2008. That is, banks were not loaning to blacks whose credit was poor. When the law forced them to lend money anyway, the inevitable collapse occurred."


I didn't read the whole case but here is part of the summary:

"Plaintiffs alleged that the Defendant bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages."

If this is true, your post is way off base as it was a possible redlining case or if not, straight discrimination. Redlining has been illegal for some time and should be.

This does not support your conjuncture nor does it have anything to do with sub prime than anything else.

The commentator was an idiot and should lose credibility. Redlining is discrimination and illegal and is not the cause of the sup prime unless you happen to be stretchy man.
 

hypocritexposer

Well-known member
"Plaintiffs alleged that the Defendant bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages."

Should they have been loaning the money to either race?
 

TSR

Well-known member
Mike said:
terrible ruling in the Pickett case

I know Lee Pickett. I went to school with him. I see him almost every week at the sale barn.

The final ruling on Pickett was a disaster, I believe. But that ending had no particular political affiliations that I know of or have seen.

Care to tell us how?

IMO Mike the affiliation came wtih Tyson-You know legislating from the bench because of pressure from corporate interests and maybe elsewhere. Who knows what went on behind closed doors?? I know you can easily say nothing went on and I am just conjecturing here but I guess I have that right. If a case goes far enough in court for a verdict by a jury then I don't think any judge should overrule a jury's verdict. JMHO
 

Tex

Well-known member
hypocritexposer said:
"Plaintiffs alleged that the Defendant bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages."

Should they have been loaning the money to either race?

hypo, the business of banks is to loan and as Sandhusker states, make good loans. This is not a factor of race, but a factor of the 1) the track record of the borrower, 2) the ability of the borrower to repay the loan based on income and 3) the value of the property.


I haven't read the whole case but it seems you twisted this case for your own purposes so much so that the case you indicated is not at all about what you claim.

This was a judgment by a court and jury and I guess the plaintiffs got relief. You can not blame the mortgage crisis on fairness in lending based on race, you can blame it on the above 3 not being applied and stretched by the mortgage industry.
 

hypocritexposer

Well-known member
ACORN jumped onto the CRA bandwagon, right from the start. Of course they will use race in their lawsuits, it's the same as all the other groups that use "shakedowns". Maybe I didn't use the best case, there are others!


This from 2003

The banks that ACORN has shaken down refuse to discuss their contributions to a political organization that, to put it mildly, is hostile to free enterprise. But one prominent consultant to the financial industry, who preferred to remain anonymous, admits: “The banks know they are being held up, but they are not going to fight over this. They look at it as a cost of doing business.” Some of ACORN’s fellow community activists are even blunter. “ACORN knows that corporate America has no starch in their shorts and, therefore, what they try to do is buy peace from groups that agitate against them,” says Robert L. Woodson, president of the National Center for Neighborhood Enterprise, a community-action group that stresses moral regeneration and individual responsibility rather than government handouts. “The same corporations that pay ransom to Jesse Jackson and Al Sharpton pay ransom to ACORN.”

http://www.city-journal.org/html/13_2_acorns_nutty_regime.html
 

Tex

Well-known member
hypocritexposer said:
ACORN jumped onto the CRA bandwagon, right from the start. Of course they will use race in their lawsuits, it's the same as all the other groups that use "shakedowns". Maybe I didn't use the best case, there are others!


This from 2003

The banks that ACORN has shaken down refuse to discuss their contributions to a political organization that, to put it mildly, is hostile to free enterprise. But one prominent consultant to the financial industry, who preferred to remain anonymous, admits: “The banks know they are being held up, but they are not going to fight over this. They look at it as a cost of doing business.” Some of ACORN’s fellow community activists are even blunter. “ACORN knows that corporate America has no starch in their shorts and, therefore, what they try to do is buy peace from groups that agitate against them,” says Robert L. Woodson, president of the National Center for Neighborhood Enterprise, a community-action group that stresses moral regeneration and individual responsibility rather than government handouts. “The same corporations that pay ransom to Jesse Jackson and Al Sharpton pay ransom to ACORN.”

http://www.city-journal.org/html/13_2_acorns_nutty_regime.html

If they are afraid that they are breaking the law in regards to race discrimination or red lining, they should be held up by these groups into changing behavior.

Community groups like ACORN need to push for their interests because no one else will, especially if it is moneyed interests vs. non moneyed interests. The laws against discrimination are supposed to make sure that the advantages of doing business don't belong to one race or geography.

I am not condoning illegal or immoral acts by ACORN, but fighting for equal rights to be respected is not only necessary for those rights to exist, but is honorable.

Who do you think has been more (or less) honorable: The leaders of the banks who created the sub prime mess or the leaders of ACORN?

I don't think anyone should be shaken down for legal and moral activity or inactivity and they probably aren't by and large. Paying shakedown money denotes a person or company hasn't followed the laws or ethical behavior. I only hope the benefits go to those who were really harmed and not some stereotypical figurehead as you suggest.
 

hypocritexposer

Well-known member
CRA regulations give community groups the right to comment on or protest about banks' non-compliance with CRA.[6] Such comments could help or hinder banks' planned expansions. Groups at first only slowly took advantage of these rights.[14] Regulatory changes during the Clinton administration allowed these community groups better access to CRA information and enabled them to increase their activities

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

In early 2005, the Office of Thrift Supervision (OTS) implemented new rules that – among other changes – allowed thrifts with over $1 billion in assets to meet their CRA obligations without regard to services for, or investments in, their communities. In April 2005, a contingent of Democratic Congressmen issued a letter protesting these changes, saying they undercut the ability of the CRA to "meet the needs of low and moderate-income persons and communities".[36] The changes were also opposed by community groups concerned that it would weaken the CRA.[37]

ACORN used whatever tactics they could to increase lending to low income communities. Was Race an issue, it shouldn't have been, but it was!
 

Tex

Well-known member
hypocritexposer said:
CRA regulations give community groups the right to comment on or protest about banks' non-compliance with CRA.[6] Such comments could help or hinder banks' planned expansions. Groups at first only slowly took advantage of these rights.[14] Regulatory changes during the Clinton administration allowed these community groups better access to CRA information and enabled them to increase their activities

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

In early 2005, the Office of Thrift Supervision (OTS) implemented new rules that – among other changes – allowed thrifts with over $1 billion in assets to meet their CRA obligations without regard to services for, or investments in, their communities. In April 2005, a contingent of Democratic Congressmen issued a letter protesting these changes, saying they undercut the ability of the CRA to "meet the needs of low and moderate-income persons and communities".[36] The changes were also opposed by community groups concerned that it would weaken the CRA.[37]

ACORN used whatever tactics they could to increase lending to low income communities. Was Race an issue, it shouldn't have been, but it was!

So what?

These were good tactics in my opinion and it looks like the big guys were getting out of their legal responsibilities through a rule change.

The communities had every right and obligation to their supporters to make sure they were not left behind just because of big money interests.

hypo, if this is the basis of your objection to ACORN/Obama it is a dubious one at best.

As I posted before, a summary of the lawsuit Obama participated in was about discrimination and it should have been filed.

Should laws only be in effect for organized people with resources?

Every post you make sinks your arguments further and further. You might want to get better ones or stop now and save your losses.

The Community Reinvestment Act was an act by Congress---that means a law that had to be followed--- for banks to reinvest in the communities they were supposed to serve. If they didn't follow the act, they broke the law. Banks or any other business has a right or sometimes a license to operate but that includes following the law and yes, sometimes following the law has costs. If banks want to operate, they must follow the law and it looks like ACORN and Obama, by your posts, tried to make sure they followed the law for the benefit of the people in those areas. That is a good thing--j unless you are a bank trying to save money and not follow the law. In that case you are trying to get a competitive advantage over other banks if they have to follow the law.

I certainly believe the "fudging" of income requirements by lenders had a lot to do with our current crisis. Politicians, it seemed, wanted the numbers to be fudged as substitute for real positive changes in incomes. The mortgage industry took that to huge extremes and set off our current crisis all the while making a mint. CRA and other programs against discrimination did not cause this financial crisis and your case hasn't been made that they have----even remotely.
 
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