tag:blogger.com,1999:blog-15329279.post5211877791435138856..comments2023-08-25T05:18:29.312-06:00Comments on Madville Times: Paulson: Lack of Financing "Totally Unacceptable"caheidelbergerhttp://www.blogger.com/profile/03261598066395322681noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-15329279.post-26531881719874153352008-10-15T05:17:00.000-06:002008-10-15T05:17:00.000-06:00[Tony submits the following insightful comment. Ex...[Tony submits the following insightful comment. Excellent! I edit for minor language.]<BR/><BR/>Says Tony:<BR/><BR/>"Anon 8:19:<BR/><BR/>That is only part of the story. For a more detailed view, I would recommend:<BR/><BR/><A HREF="http://www.econbrowser.com/archives/2008/01/mortgage_securi.html" REL="nofollow">http://www.econbrowser.com/archives/2008/01/mortgage_securi.html</A><BR/><BR/>and<BR/><BR/><A HREF="http://www.ny.frb.org/research/economists/ashcraft/subprime.pdf" REL="nofollow">http://www.ny.frb.org/research/economists/ashcraft/subprime.pdf</A> [PDF alert!]<BR/><BR/>While the Community Reinvestment Act may have contributed there were three other features that were required for our current situation:<BR/><BR/>1. Improper rating of the securitized debts.<BR/><BR/>2. Predatory lending practices of the banks issuing the loans.<BR/><BR/>3. Fund managers are not required to distinguish between corporate and securitized debt.<BR/><BR/>The first is fairly obvious. As the housing bubble inflated, the "value" of securitized mortgages are computed daily as opposed to a multi-year or even multi-month average. This means that any artificial inflation in housing prices lead to dramatically over valued securitized debts with 15-30 year life times. The newly deregulated ratings agencies (thank you Bush) applied their magic formula a voila a variable value debt became consistent. Hedge funds then bought these way over priced debts.<BR/><BR/>The second point, predatory lending practices of the banks, is a two step problem. First, banks resell mortgages to form securitized debts the day they are issued. The local banks simply tack on a finders fee. They have nothing to lose other than their reputations. So, banks came up with a number of complicated repayement plans that made it appear as though low credit borrows could pay for their loan. Note that this only came during the last few years many, many years after the community reinvestment act.<BR/><BR/>The last point, fund managers are not required to distinguish between corporate and securitized debt, is again a lack of regulation problem. With corporate debt, detailed practices for evaluating and rating the debt are in place. Securitized mortgage debt though, is not (thank you bush). But, fund managers are not legally required to choose one or the other, just look at the debt rating. So, in the interest of finding the highest rate of return, many fund managers hopped on the securitized mortgage band wagon.<BR/><BR/>All three of the above were necessary to get us to where we are today and span both the government and private sector. There is plenty of blame to go around for a [snafu] of this proportion."<BR/><BR/>10/15/2008 12:26 AMcaheidelbergerhttps://www.blogger.com/profile/03261598066395322681noreply@blogger.comtag:blogger.com,1999:blog-15329279.post-88861564492721759032008-10-15T00:58:00.000-06:002008-10-15T00:58:00.000-06:00When the bill for all this comes due with interest...When the bill for all this comes due with interest, watch out! We point our fingers of blame in various directions; our children and grandchildren will point theirs at us.Stan Gibiliscohttps://www.blogger.com/profile/15455094392489031332noreply@blogger.comtag:blogger.com,1999:blog-15329279.post-11538744728359896472008-10-14T21:29:00.000-06:002008-10-14T21:29:00.000-06:00Let's not inject any common sense ideas into this ...Let's not inject any common sense ideas into this corporate welfare program. That would make too much sense and people may not understand the simplicity of it all.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-15329279.post-48618710000734944812008-10-14T21:28:00.000-06:002008-10-14T21:28:00.000-06:00Let's not inject any common sense ideas into this ...Let's not inject any common sense ideas into this corporate welfare program. That would make too much sense and people may not understand the simplicity of it all.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-15329279.post-1976131044683164392008-10-14T19:19:00.000-06:002008-10-14T19:19:00.000-06:00Actually you have to back up a little from the ban...Actually you have to back up a little from the banks to find the true cause of this mess. There was a little piece of legislation called the Community Reinvestment Act based on the fact that lack of finances was "totally unacceptable" as a reason to not qualify for a home loan. This act, along with pressure and intimidation tactics of organizations like Acorn, forced banks to make loans they knew were bad, no money down, low interest etc. <BR/><BR/>I don't like the bailout either. I don't like the shenanigans and outright criminal acts. I don't like that there is no oversight on these institutions. I don't like that the Dems blocked McCain's call to look into this mess back in 2005. I don't like Pelosi's partisan, hatefilled speech blaming all on Bush (surprise?) before the first vote. I don't like Obama's still promising everything to everyone even though we are broke. There's a lot I don't like.Anonymousnoreply@blogger.com