Quote:
Originally Posted by Bronko
Actually Spence is right. It wasn't all Clinton's fault. Jimmy Carter actually got the ball rolling with the Community Revinestment Act (CRA) which required banks to lend to poor, unqualified candidates in urban areas and "redlined" or prohibited wealthier borrowers fro participating. It wasn't until 1993 when Clinton increased access to mortgage money for poorer and distressed communities relaxing the CRA's standards even more.
Couple that with two decades of that horrendous lending practice with the ineptitude of leaders like Barney Frank who systematically denied any problems with Fannie or Freddie. Sprinkle in the requisite corporate greed, CEO payoffs and politicians taking cash "donations" from these same companies they are now assailing... voila...Mortgage Meltdown.
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Nope. Still not understanding the problem. The idea that it is all created by long-departed Democrats with a "sprinkling" of corporate greed is just spin to try the make the mess stick only to Democrats. Someone's been getting their briefings from AM radio by the sound of it. The proportion of mortgages that are not performing is bad, but not fatal by itself. If it were just that, banks and brokerages would be retrenching and building up capital, not vanishing utterly with a popping sound. Mortgages, good and ill, have been repackaged, sliced and diced in an awful lot of ways and those parts and packages, many of which may actually pay in the end, have become illiquid.
You don't make it to stardom in the financial world by making money for your institution. You make it by making more money for your institution than the other guy is making for his. The pressure to identify angles, inefficiencies and arbitrages is serious and the rewards if you do are staggering. So people sell a billion of this and buy a billion of nearly identical this, certain they're right about the latter being worth a shade more than the former. An awfully large proportion of financial crises consist in people being right, or only a little wrong, about the value of the two sides of their trade, but oblivious to the liquidity of one side. My understanding is, that's what's happening now.
If this were about a mortgage hangover from the Carter or Clinton administrations, nationalizing the mess would be a lot cheaper and quicker. The institutions involved would make the claim that "you made us issue these crap mortgages; now you can clean it up." That's not the problem. Nobody forced these guys to shove bizarre ARMS on everybody as hard as they could, to insure them and securitise them the way they did or to screw up their balance sheets the way they did. These are what M. Lewis called "big swinging d***s" who thought they knew everything and were wrong. Did you read about the AIG unit that sank that company? They thought they found a way to mint money and they were running the presses day and night. At no point was Jimmy Carter twisting their arm to force them to do credit default swaps or whatever the hell they were doing.
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