Final-Fan said:
Kasz216 said:
Final-Fan said:
mrstickball said:
Final-Fan said:
The way I remember it is that the loans I believe you're referring to didn't fail at the rate you're implying and that the actual problem was securitizing all the loans until banks had no idea WTF they were even trading and couldn't effectively renegotiate to avoid defaults. I guess you could blame government for allowing them to do that.
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You could also blame the governments for:
- Artificially inflating demand since the Community Reinvestment Act started & various acts in 1994 which not only drove up home ownership, but the price of homes as well (more demand = higher prices)
- Slashing the prime interest rate from 9% in 2000 to 4% in 2001, creating a culture ripe for all-time low interest rates
- Successively increasing rates from 4% to 8% from 2004 to 2005... Therefore when ARMs were re-negotiated (usually around 3 or 5 years), added on significant costs to homebuyers, making costs too high for them to continue the mortgages
- Fannie Mae & Freddie Mac which are government sponsored and were responsible for nearly 50% of home loans in 2008.
Government and business went hand in hand through the whole crisis. To ascribe 100% of the blame to lenders or the securitization of loans is crazy. It was a 50/50 proposition of government priming the pumps, businesses diving in and hiding toxic assets due to securitization tricks, and then stupid people buying into ARMs hook, line, and sinker.
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I didn't mean it was 100% due to securitization, just that you are overweighting the impact of the CRA loans. (Highly, I'd say.) I agree on the rest of it, although you say 50/50 but name three things ...
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Banks still new what they were trading. The thing was, they were all banked on their not being a nationwide and in some cases global housing downturn, basically because there never had been in history. Except maaaaaaybe the great depression but research tends to lean on the side of "not happened" from what I can tell.
The CRA loans ended up creating that global housing downturn, which the collapse.
The government made a seemingly impossible situation possible and it caused mass default.
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This prompted me to do a little poking around on the Internet, and what I've found is that the CRA is more responsible than I thought, but much less responsible than you say.
What I gather from what I read here is that the CRA didn't really do much harm directly, but when people pressured the government to lower lending standards (to get poor people more CRA loans), it resulted in lots of bad loans, not just at the CRA level but across the board.
It seems to me that my earlier view, that it wasn't bad CRA loans any more (perhaps even less) than bad middle class or upper middle class loans that caused the crisis; but the CRA played more of a role in the creating of that situation than I thought, because of CRA-related activism.
Feel free to show me better sources.
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From reading that I'm not sure where you got that opinion from it really. They state the other factors but they primaritly base it on loans that only happened due to the CRA, and CRA byproducts... like artificially inflated home prices, which was a cause of the CRA and Borrowers getting loans they couldn't afford.
Why wouldn't you consider any loan that was made thanks to the new CRA regulations a CRA loan?
Seems like we have a difference of definiton here more then any thing else.
Government found a way to make a previously impossible situation possible. The only funny thing is that looking back on it, we should of realized that this would of been the natural effect of the CRA... when the only people who were talking about it were the "economic crazies."
Guess they weren't crazy afterall. While I don't agree with everything they propose, it seems that Hayek and his Austrian school was right in that the economy is far more complex then modern economists are willing to admit.
I can't help but feel that tax cuts, tax credits, goverment works projects... they're all nothing but the economic equivelent of blood letting.
Everyone basically agrees that the reason the economy is stalling now is because of a combo of new regulations making lending iffy, and nobody asking for loans or expansion money....
and yet nobody is actually studying why this is, but instead stating as always that they're particular way will work, because they're particular economic model says it will, even though their economic models are never right.
