New Study Shows Democratic Policies of the Clinton Era Caused the Financial Crisis
Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.
To satisfy CRA examiners, “flexible” lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.
To satisfy CRA examiners, “flexible” lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.
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The forced evaluation of the banks housing portfolios and the subsequent change in that method smacked of collusion between institutions seeking to drive out the smaller competition and a feckless untrustworthy government. However give the devil it's due. They won and were re-elected three times so far. Who says the Government Party method of blaming the other half of their own group doesn't work? Establishment got what it wanted. We got what we deserved . I'l lay you heavy odds the Government Party wins a with 95% plus of votes cast this time too. No change there.
I almost forgot. You must accept your losing ticket in the lottery of life. George bought all the winning numbers.
https://www.youtube.com/watch?v=g8D4AsLz...
2. Why did the banks make so many bad loans in the first place? they were pressured by the govt to do so. Another, they were probably making reasonable assumptions about economic growth and the growth in people's incomes, that did not happen.
"15% more default on 5% of loans increases the default rate by only 1% " At lower interest rates, it takes a very small default rate to wipe out earnings and start wiping out capital.
am I missing a caveat here?
-during the height of the "no income verfication" edict from federal government my mortage maker friend told me that they were instructed to make mortages regardless of the person's ability to pay. Otherwise. the lender would face federal penalities.
- I would drive by huge homes in Novi Michigan with a car in the driveway and no furniture inside. These were the first homes forclosed by the banks.
As per usual, its the long term effects of federal programs that create the hailstorm of adverse consequences. The "windfall profit tax" on the oil industry is another example.
Thanks for the post.
The real culprit in the mortgage debacle was thae ability of loan granters to make their money packaging the loans and then sell them and be free from any loss or liability when they defaulted.
The below was on db’s post two months ago.
• Posted by PeterAsher 2 months ago to 2008 Financial Crisis Caused by too Much Regulation
The rarely pointed out factor in borderline qualifiers going under is maintenance.
People who have not been raised in or owned a home have little awareness of the chores and expenses that are not encountered as renters. The best example is when the furnace goes, the owner has no funds to replace it and walks away.
When one tallies up all the time and money needed from lawn mowing to routine repair cycles up to big sticker items it can readily be seen that basing an already flawed budget analysis on ability to pay without having a line item for anticipating those costs was foolish.
Nevertheless; the mortgage debacle was just one of the factors contributing to “The perfect (debt) storm.”
My observations, back in early 2009 were that the root cause of this actual depression was the policies of credit card lending.
"This recession was not caused by a credit crunch and it was not caused by the sub-prime crisis. The cause was that the economy was built on a debt bubble that expanded to a level of unsustainable debt service. The capability to produce goods and services expanded to the money supply allotted to it, but an economy that attains equilibrium on the advancement of purchasing power must inevitably contract when that advancement can no longer be maintained. . Defaulting mortgage debt was the proverbial last-straw-on-the-camel’s-back, the final load on this unsustainable debt.
Debt service now claims a substantial portion of overall purchasing power. The portion remaining to drive the economy is therefore now less than it would be even on a no-credit, spend-it-as-you-earn-it basis. The economy that has expanded to fulfill the demand of earnings-plus-advanced-payment, must contract to the demand of earnings-minus-cost-of-debt-service. What for decades was an economy built on, “Buy now, pay later,” has become, “Pay now, buy later!”
http://takeamericaforward.com/economy/st......
This was further exacerbated by their ability to contractually raise interest rate to astronomical amounts. No additional economic growth is created out of consumer’s spending money being sent elsewhere as interest payment unless that money results in its receivers spending into the domestic economy.
Joe six-pack’s cash flow being transferred to a buyer of a custom wooden speed boat built at Lake Lugano doesn’t cut it!
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Of course it was not “just” the debt bubble.
There are factors affecting the production of goods and factors that drain that wealth.
Government service, welfare, higher prices paid for X amount of corporate shares due to the premiums of hedge fund activities, etc. Any activity that enables one to obtain purchasing power without producing goods or services of useful value diminishes the ability of the economy to sustain itself.
Rather than call it a debt bubble. Let’s call it an artificially expanded production facility.
I like to call this “The Starbucks” syndrome.
In the period of artificial abundance, created by lending “Printed money” that was not “backed” by someone else’s foregone purchasing power; people experienced a level of affluence in which they were willing to purchase things they could otherwise do without. More Starbucks opened up. When the artificially expanded purchasing power contracted, that kind of purchase is the first to go. Back to; make it at home, take a thermos to work. Many Starbucks closed.
We are on the Oregon Coast. The first business to go in the nearby small town on #101 was the hardware store; a year later, the small supermarket. Then last year, the pharmacy and this year, up the road, the only gift shop and restaurant on a twenty mile stretch. The Bobcat equipment sales and rental up in Tillamook is also gone.
Top-end, view-home activity is a small fraction of what it was before. The two design/build projects we have been doing were financed by the owner’s savings, earnings and borrowing against equity in other properties as construction loans are almost non-existent.
Where does the financial energy come from to turn this around? It would seem to require a “Sea change” across the economic spectrum:
Eliminate most of the welfare state by putting idle hands to work, rolling back government services to only what was essential (and only one agency per need), reversing the tax policies that drives production off-shore, eliminate all formal exchanges that trade “Betting paper” not backed by a physical asset and more that aren't coming to mind at this late hour.
Follow that up with revising the whole concept of bank lending to have credit directed much more to financing means of production and without leveraging via fractionalization.
I don’t see it happening other than “Rising from the ashes.”
Got Gulch?
We will suffer the "Death of a 1000 cuts" and this is a deep one.
Blaming the Clinton administration is slight of hand and misdirection.
One group has controlled Treasury for decades: the banking cartel.
They have been obviously bribing both the Dems and the GOP since the 80s (prior to that they were less obvious.)
Suggest everyone listen to the audio interview I linked to last week for good insights from Paul Craig Roberts:
http://www.galtsgulchonline.com/posts/26...