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re: Who/what entity would you say is most to blame for the 2007-2009 housing crisis/recession?
Posted on 2/3/22 at 4:55 pm to grizzlylongcut
Posted on 2/3/22 at 4:55 pm to grizzlylongcut
There's plenty of groups who deserve to burn, but the ones that are almost never mentioned are the loan originators and the ratings agencies. Banks were giving mortgages to anybody who could hold a pen. My dad went to get a loan in 2005 and asked the banker how much he could borrow. The response: "How much do you need? I'll write the number to get it for you!" There was no "forcing" banks to write subprime loans, they were slobbering to churn them out as fast as they could.
And people weren't just taking out one loan to buy a personal home; they were taking out multiple interest-only ARM loans and buying homes to flip later, on the hope that appreciation between the time they bought and sold would lead to a nice payoff. Many could barely make the interest payments, and once interest rates went up, they didn't have the income to make the payments and subsequently defaulted.
The way is spread to the rest of the economy was through the ratings agencies: Moody's, Fitch, and Standard and Poor. These frickers were instrumental in turning the bubble up to 11.
The way it worked was that the investment companies would package a number of loans together (known as an ABS - asset backed security) to be sold, but prior to this, they would send them to a rating agency for a grade. Higher grade, such as A+ or AAA, meant the ABS was worth more money on the market. The problem was that some of the ABS's contained up to 40% sup-prime mortgages and were basically not sellable.
Since the ratings agencies make money by providing the rating, the banks threatened to put their business elsewhere if the ratings agencies didn't find a solution. The ratings agencies "reviewed" the ABS's, and boom, that D- rating was now A+! They basically rubber-stamped shitty investments as good ones.
Now the ABS goes to the market, and you have major buyers like retirement funds, unions, and other investors who are purchasing what they think are very safe investments. Once all the defaults start, they're worthless, and this crashes the economy.
And people weren't just taking out one loan to buy a personal home; they were taking out multiple interest-only ARM loans and buying homes to flip later, on the hope that appreciation between the time they bought and sold would lead to a nice payoff. Many could barely make the interest payments, and once interest rates went up, they didn't have the income to make the payments and subsequently defaulted.
The way is spread to the rest of the economy was through the ratings agencies: Moody's, Fitch, and Standard and Poor. These frickers were instrumental in turning the bubble up to 11.
The way it worked was that the investment companies would package a number of loans together (known as an ABS - asset backed security) to be sold, but prior to this, they would send them to a rating agency for a grade. Higher grade, such as A+ or AAA, meant the ABS was worth more money on the market. The problem was that some of the ABS's contained up to 40% sup-prime mortgages and were basically not sellable.
Since the ratings agencies make money by providing the rating, the banks threatened to put their business elsewhere if the ratings agencies didn't find a solution. The ratings agencies "reviewed" the ABS's, and boom, that D- rating was now A+! They basically rubber-stamped shitty investments as good ones.
Now the ABS goes to the market, and you have major buyers like retirement funds, unions, and other investors who are purchasing what they think are very safe investments. Once all the defaults start, they're worthless, and this crashes the economy.
1
Posted on 2/3/22 at 5:01 pm to winkchance
bullshite, the explosion did not happen because of racism and things like that. It happened because Angelo Mozilo at Countrywide was making some serious bank off of it in the early 90's and other lending groups did not want to be out of the game
Posted on 2/3/22 at 5:05 pm to GreatLakesTiger24
quote:
home buyers don't get nearly enough blame. just because you get approved for a loan doesn't mean you should take it.
I mean the same principle is happening with new pickup trucks
Posted on 2/3/22 at 5:08 pm to grizzlylongcut
The rating agencies and auditors. Banks and borrowers will use every loophole of course, but it was the rating agencies and auditors that were supposed to be raising alarms instead of looking the other way.
This post was edited on 2/3/22 at 5:09 pm
Posted on 2/3/22 at 5:15 pm to grizzlylongcut
I blame Gordon Gekko or ... greed
Posted on 2/3/22 at 5:19 pm to grizzlylongcut
Congress
Posted on 2/3/22 at 5:24 pm to GreatLakesTiger24
quote:
home buyers don't get nearly enough blame. just because you get approved for a loan doesn't mean you should take it.
Posted on 2/3/22 at 6:18 pm to Buryl
quote:
The way is spread to the rest of the economy was through the ratings agencies: Moody's, Fitch, and Standard and Poor. These frickers were instrumental in turning the bubble up to 11.
The way it worked was that the investment companies would package a number of loans together (known as an ABS - asset backed security) to be sold, but prior to this, they would send them to a rating agency for a grade. Higher grade, such as A+ or AAA, meant the ABS was worth more money on the market. The problem was that some of the ABS's contained up to 40% sup-prime mortgages and were basically not sellable.
Since the ratings agencies make money by providing the rating, the banks threatened to put their business elsewhere if the ratings agencies didn't find a solution. The ratings agencies "reviewed" the ABS's, and boom, that D- rating was now A+! They basically rubber-stamped shitty investments as good ones.
Now the ABS goes to the market, and you have major buyers like retirement funds, unions, and other investors who are purchasing what they think are very safe investments. Once all the defaults start, they're worthless, and this crashes the economy.
The top half of your post was correct....this 2nd half is so far off from how it works operationally and what happened that you sound like you got lucky in the first half
Posted on 2/3/22 at 8:13 pm to hubreb
quote:
The top half of your post was correct....this 2nd half is so far off from how it works operationally and what happened that you sound like you got lucky in the first half
I try to be factually correct in the information I post here. If my information is incorrect, I appreciate being called out. Were you in the industry in 2007-2008? If you have information showing where I'm wrong, don't be coy. Enlighten your ignorant OT brethren! Because pretty much every source I've ever read on the role of the ratings agencies says the same exact thing:
quote:
Criticism of Credit Ratings Agencies During the Great Recession
During the 2008 financial crisis, a lot of worthless mortgage-related securities were given AAA ratings: the highest and safest investment grade. This led to a series of events that contributed to the global financial meltdown. The credit ratings agencies aimed for increasing profits and market share by giving inaccurately strong ratings to underperforming assets. This conduct fueled the meltdown that ultimately led to tens of thousands of foreclosures. The credit ratings agencies were blamed for conflicts of interest and the flawed methodologies they adopted for rating financial products during the Great Recession.
Credit ratings agencies use two methods to assess risk and rate the creditworthiness of financial products and sovereign nations: “issuer pays” and “subscriber pays.” In 2016, the big three credit ratings agencies continue to work under the “issuer pays” model that led to the subprime mortgage crisis in 2008. The system allows a bond issuer to pay the ratings agencies for initial and ongoing ratings of a security. The credit ratings agencies tend to overrate the credibility of the debtors so as to not lose established clients. This, in turn, can lead to a biased analysis and faulty ratings.
Truthout.org
Posted on 2/3/22 at 9:47 pm to grizzlylongcut
Billy Clints and Barney Frank...as another thread had mentioned, call it a “social construct” around awarding credit to those not credit worthy
Posted on 2/3/22 at 9:59 pm to GreatLakesTiger24
quote:
those poor, helpless people!
There is a reason for credit scores. Financial firms were ignoring credit scores. If you are responsible for watching and that kid ask to play with a lighter and you say yes.. If the kid ends up burning himself do you blame the kid or the person who was responsible for giving the kid the lighter knowing what was likely going to happen?
Posted on 2/3/22 at 10:07 pm to grizzlylongcut
Barney Frank. The law lead to giving loans to people that could not afford them. Similar to student loans for degrees that will never generate a job that will pay for the loan.
Posted on 2/3/22 at 10:13 pm to grizzlylongcut
I blame 9/11 - money rates were reduced to practically nothing following it and the dotcom crash, our politicians basically demanded it, and our economy has been hooked like a junkie ever since.
Posted on 2/3/22 at 10:24 pm to grizzlylongcut
It was ultimately set in motion due to greed shrouded in “housing rights”.
Foreign investors see American mortgage-backed securities as the ultimate investment.
In the mid 90s, most folks who COULD get a mortgage already owned a home. Therefore, in order to satisfy the appetite for these securities (groups of mortgages packaged together as an investment), mortgage companies and well-meaning civil rights lobbyists pushed Clinton to sign the Fair Housing Act (something like that). This enabled creditors to accept all kinds of bullshite credit applications to feed these mortgage-backed securities.
But in order to keep feeding investors - many of them foreign - brokers had to keep coming up with new ways to keep marginal-to-bad credit risks buying AND/OR refinancing. Liar’s Loans, etc…
Ultimately, they ran out of fuel and didn’t realize that they had taken on more mortgages from the bad debtors than they had realized.
Then the government (you & I) bailed many of them out. At least the ones with DC connections, anyway.
Foreign investors see American mortgage-backed securities as the ultimate investment.
In the mid 90s, most folks who COULD get a mortgage already owned a home. Therefore, in order to satisfy the appetite for these securities (groups of mortgages packaged together as an investment), mortgage companies and well-meaning civil rights lobbyists pushed Clinton to sign the Fair Housing Act (something like that). This enabled creditors to accept all kinds of bullshite credit applications to feed these mortgage-backed securities.
But in order to keep feeding investors - many of them foreign - brokers had to keep coming up with new ways to keep marginal-to-bad credit risks buying AND/OR refinancing. Liar’s Loans, etc…
Ultimately, they ran out of fuel and didn’t realize that they had taken on more mortgages from the bad debtors than they had realized.
Then the government (you & I) bailed many of them out. At least the ones with DC connections, anyway.
This post was edited on 2/3/22 at 10:28 pm
Posted on 2/3/22 at 11:15 pm to TheAstroTiger
quote:
I was just a kid at the time so someone help me out here. Banks would offer crazy loan amounts that people were accepting. A ton of people foreclosed on homes and it created a bubble from so many houses being foreclosed on? Is that right?
Watch the clip below. It explains what happened and how. And how a small group of people saw it coming and made a shite ton of money shorting the MBS bonds. Also, watch Margin Call and The Big Short. Both great movies IMO.
YouTube
Posted on 2/4/22 at 1:39 am to grizzlylongcut
Shorting stock
The Federal Reserve
End of the gold standard
The New Deal
NAFTA
Dodd/Frank
Fannie Mae/Freddie Mac
Banking Greed allowed to make then pass bad loans to the above
Hedge Funds shorting
In that order the dominoes lined up for the greatest bailouts of private business the world has ever seen that opened the golden spicket and an event this country will never recover from
The Federal Reserve
End of the gold standard
The New Deal
NAFTA
Dodd/Frank
Fannie Mae/Freddie Mac
Banking Greed allowed to make then pass bad loans to the above
Hedge Funds shorting
In that order the dominoes lined up for the greatest bailouts of private business the world has ever seen that opened the golden spicket and an event this country will never recover from
This post was edited on 2/4/22 at 2:01 am
Posted on 2/4/22 at 1:47 am to SlowFlowPro
quote:is your law background always movie based?
funny timing I was just re-watching this scene and was to make a thread on the M/T board about it.
Posted on 2/4/22 at 2:11 am to grizzlylongcut
Government
Posted on 2/4/22 at 5:14 am to grizzlylongcut
1. The govt was strong arming banks into lending to people who had no business getting a loan. People with credit as low as 570 could get a mortgage.
2. When the banks opened up to those low credit people it forced other banks to compete. That led to variable rate mortgages. When rates went up and the economy went down people couldn’t afford their payment. These were the most popular loans at the time.
3. Stated income loans were brought about to help self employed borrowers get a loan. This became widely abused and made the situation worse.
4. Very little appraisal oversight. A lot of the appraisals were very inaccurate because they were requested by the lender, builder, ou the customer. This compounded the problem.
I don’t worry about the coming real estate correction being as bad. The lending practices today are VERY solid. Low rates, very few variable rate mortgages, you have to have 640 credit or better, Appraisals are required to be done by a 3rd party and the lenders or customers have no control over the appraisal. Today the lending is very clean.
2. When the banks opened up to those low credit people it forced other banks to compete. That led to variable rate mortgages. When rates went up and the economy went down people couldn’t afford their payment. These were the most popular loans at the time.
3. Stated income loans were brought about to help self employed borrowers get a loan. This became widely abused and made the situation worse.
4. Very little appraisal oversight. A lot of the appraisals were very inaccurate because they were requested by the lender, builder, ou the customer. This compounded the problem.
I don’t worry about the coming real estate correction being as bad. The lending practices today are VERY solid. Low rates, very few variable rate mortgages, you have to have 640 credit or better, Appraisals are required to be done by a 3rd party and the lenders or customers have no control over the appraisal. Today the lending is very clean.
Posted on 2/4/22 at 5:44 am to grizzlylongcut
Free money for houses.
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