Democrats Caused Housing Mess

[HappySqurriel]

Jandre002 said:
Seriously, because a few congressman resisted regulations on Freddie Mac and Fannie Mae means that is the cause of the market crisis?

Investment have ALWAYS been loosely regulated. This is the way it has always been so don't act like the democrats resisted something that republicans had been pushing for years. By 2004 the markets were already screwed, they were sitting on mortgage backed CDO's without really having an exact value of their worth.

And the Gramm-Leach-Bliley Act in itself maybe didn't cause the whole crisis, but it did create higher instability in the financial market. For you all that don't know, during the Great Depression Congress made is so Investment banks and commercial banks had to be separate. The Gramm-Leach-Bliley Act allowed those two groups to be associated together. This is when Citibank and Travelers Group combined to make Citi Group. Anyways, what this allowed is for more people to get in to the field of trading mortgage back securities. What SHOULD have happened with the issuance of G-L-B Act was an establishment of more market regulation, whether it be the SEC or some new group, which should have oversaw this section of the market.

This all gets kinda confusing from here, but the bottom line is that by 2004, nearly every major financial institution would have been using the mortgage backed CDO's to raise capital for futher investments. CDO's are like super-bonds backed by mortgage, with higher returns than any other commercial bonds, it was all extremely lucrative but the risks were extremely high since every customer who defaulted on a loan would tag the credit of the bond and effect the payout.

2004 was way too late, and it was the fault of the repulican congress in the 90's and Bill Clinton for this mess. Any action by Congress at that time would have triggered what is happening now back then. It was a fragile situation and no one wanted to "burst the bubble". We were prospering until we weren't, but this all could have been avoided if we had set stronger regulations on this whole banking process back in the 90's.

The problem was caused in the 90's, but I think efforts to fix it in 2003/2004 would have been far better than letting it explode in 2006 ... House prices increased 22% from the 2004 until they peaked in 2006, and have only fallen 11% from the 2004 price. Realistically, the problem (should) have been fairly obvious between 2000 and 2002 but no one seemed to see the danger in allowing a massive bubble in the housing market