The Mortgage Mess Explained Simply

[RIJIMMY]

I read the transcript, great stuff - thanks hooper

[justplugit]

Good stuff, Hoop, Thanks.

I liked the quote-" Everybody deluded themselves,thinking they could throw out the old rules of banking."

We never,ever, would been involved in this mess if the old rules weren't thrown out, imho.

My understanding of the old rules of needing 20% down to obtain a mortgage and a limit on the amount you could borrow determined by your income was part of the Glass-Spigel act.

That act was thrown out during the Clinton Administration, allowing no down payment and inerest only payment loans. From what i see it was to make houses affordable to everyone and therefore a political move to get votes.

Looks to me like we were sold out for votes.

I would still like to know who initiated and threw out the Glass-Spigel act.

Can anybody shed any light on that? I have sent my congressman the question of who and why,but feel it will be awhile before i get an answer.

[striperman36]

Phil Gramm

[justplugit]

Originally Posted by striperman36

Phil Gramm

Source ,and what cronies joined the fray.

[striperman36]

Originally Posted by justplugit

Source ,and what cronies joined the fray.

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted 1999-11-12, is an Act of the United States Congress which repealed part of the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.

[justplugit]

Thanks, good stuff. Got some reading to do.

"Vote paves way for financial services modernization. " Pfttt- in this case it should of been -"No road like the old road."

[striperman36]

Originally Posted by justplugit

Source ,and what cronies joined the fray.

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted 1999-11-12, is an Act of the United States Congress which repealed part of the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.

[Mr. Sandman]

I have not listened to it yet but I will... but the one thing I don't understand, I have read in several places...while the amount of mortgage failures is large, the percentage of "bad" mortgages compared to the total is not. It is something like 10% of the mortgages which are bad, many of which could be restructured and only about small % are really bad. I don't understand how something less than 10% of the bad mortgages can cause this total collapse of these huge banks.
Also,they write off these as worthless...which they are not. There is a house that is worth something, it is not zero. It may be 20-50% less than a few years ago but it is not zero.

[spence]

Originally Posted by Mr. Sandman

I don't understand how something less than 10% of the bad mortgages can cause this total collapse of these huge banks.
Also,they write off these as worthless...which they are not. There is a house that is worth something, it is not zero. It may be 20-50% less than a few years ago but it is not zero.

The issue is that as the loans were lumped together and sold off in a bundle, they don't really know where the risk specifically is.

The government plan looked like it meant to buy blocks of risky loans to take the liability off of the lenders and sort it out themselves.

-spence

[Mr. Sandman]

Yeah, I understand the intent of the rescue package but I don't understand how when 90+% of the loans are sound how it could get to the point where you loose big banks like this. IMO this is largely psychological...probably a "vast left-wing conspiracy" to gain votes somehow
Honestly though, I hope this ship can be righted and sail on. It is very unnerving to watch play out... I am trying to concentrate on important things, like fishing.

[spence]

Originally Posted by Mr. Sandman

Yeah, I understand the intent of the rescue package but I don't understand how when 90+% of the loans are sound how it could get to the point where you loose big banks like this.

Well, it looks like the ones who were holding a large % of the riskier loans are getting hit the hardest. People were looking for new investments, and the credit default swap allowed for investments into securities that wouldn't normally be attractive.

Additionally the scheme gave companies false confidence that they didn't need to protect themselves from a large percentage of defaults.

So the economy slows down, foreclosures skyrocket, and the lenders don't have the resources to pay the bills for those holding the liability on the loan. It's like any business, at the end of the day you either need to have a black balance sheet or credit to get a loan. Lacking either and you can't keep the lights on.

At least, that's how I think it happened.

-spence

[striperman36]

Sounds about right to me.
I still don't think a 'shoot from the hip' bailout is the best way to go, glad to see some step back and think about it.

[Nebe]

Originally Posted by spence

At least, that's how I think it happened.

-spence

Something else to consider is that the higher reevaluations in the housing market was a windfall tax income for just about every town in America and helped shore up major budget shortfalls across the nation. That being said, it was in everyone's interest to see house prices go up- the home owner felt rich and the towns were taking in more property tax.

I feel like someone just pushed the reset button......

[Slipknot]

Originally Posted by justplugit

Good stuff, Hoop, Thanks.

I liked the quote-" Everybody deluded themselves,thinking they could throw out the old rules of banking."

We never,ever, would been involved in this mess if the old rules weren't thrown out, imho.

My understanding of the old rules of needing 20% down to obtain a mortgage and a limit on the amount you could borrow determined by your income was part of the Glass-Spigel act.

That act was thrown out during the Clinton Administration, allowing no down payment and inerest only payment loans. From what i see it was to make houses affordable to everyone and therefore a political move to get votes.

Looks to me like we were sold out for votes.

I would still like to know who initiated and threw out the Glass-Spigel act.

Can anybody shed any light on that? I have sent my congressman the question of who and why,but feel it will be awhile before i get an answer.

http://www.investopedia.com/articles...603.asp?Page=1

Conclusion
Although the barrier between commercial and investment banking aimed to prevent a loss of deposits in the event of investment failures, the reasons for the repeal of the GSA and the establishment of the Gramm-Leach-Bliley Act show that even regulatory attempts for safety can have adverse effects.


Dave, very good question
I bet they will be a while getting back to you
Maybe I should raise the question to my congressman as well
I don't think many around here have a clue what or how clueless Barney Frank is he is part of the problem, time for him to be part of the solution or join the unemployed