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The True Story of the Financial Crisis

By from the May 2011 issue

Its origins are in the federal government.

(Page 3 of 3)

Before leaving this subject, it is important to address one statement that has appeared again and again in the mainstream media, in statements by members of the Obama administration, and was repeated in the Commission report. This is the claim that Fannie and Freddie became insolvent because, seeking profits or market share, they “followed Wall Street” into subprime lending. This idea neatly avoids the question of why Fannie and Freddie became insolvent in the first place, and focuses the blame again on the private sector. The statement, however, as the following quote from Fannie’s 2006 10-K report makes clear, is untrue:

[W]e have made, and continue to make, significant adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet HUD’s increased housing goals and new subgoals. These strategies include entering into some purchase and securitization transactions with lower expected economic returns than our typical transactions. We have also relaxed some of our underwriting criteria to obtain goals-qualifying mortgage loans and increased our investments in higher-risk mortgage loan products that are more likely to serve the borrowers targeted by HUD’s goals and subgoals, which could increase our credit losses.

Subprime and Other Risky Loans Cause the Financial Crisis

WITH HALF OF ALL mortgages weak and of low quality by late 2007, an eventual financial crisis was a foregone conclusion. No financial system could withstand the huge losses that occurred when the delinquencies and defaults associated with 27 million subprime and other risky loans began to appear. Alarmed by these unexpected and unprecedented numbers of these delinquencies and defaults, investors fled the multi-trillion dollar market for MBS, dropping MBS values — and especially those MBS backed by subprime and other risky loans — to fractions of their former prices.

Mark-to-market accounting then required financial institutions to write down the value of their assets — reducing their capital positions and causing great investor and creditor unease. In this environment, the government’s rescue of Bear Stearns in March of 2008 temporarily calmed investor fears but created significant moral hazard; investors and other market participants reasonably believed after the rescue of Bear that all large financial institutions would also be rescued if they encountered financial difficulties.

However, when Lehman Brothers — an investment bank even larger than Bear — was allowed to fail, market participants were shocked; suddenly, they were forced to consider the financial health of their counterparties, many of which appeared weakened by losses and the capital writedowns required by mark-to-market accounting.

This caused a halt to lending and a hoarding of cash — a virtually unprecedented period of market paralysis and panic that we know as the financial crisis of 2008.

The Policy Stakes

THE FAILURE OF THE Financial Crisis Inquiry Commission to do its job is one more obstacle to persuading the American people that the Dodd-Frank Act is illegitimate and should be repealed. The act is far and away the most restrictive piece of legislation ever imposed on the U.S. economy, and it will have a long-term effect in slowing economic growth, just as the uncertainties it has created have already slowed the recovery from the recession. The DFA was sold to the American people by the media and the Obama administration as necessary to prevent another financial crisis, but as outlined in this article and made very clear in my dissent, the financial crisis was not caused by weak or ineffective regulation. On the contrary, the financial crisis of 2008 was caused by government housing policies — sponsored and promoted by many of the same people who framed and ultimately enacted the DFA. If we don’t learn that important lesson, we will make the same mistake again, and then we really will have another financial crisis. 

Page:   1 23

About the Author


Letter to the Editor View all comments (177) |

Dee See| 5.13.11 @ 6:47AM

"Americans are about to have the rug pulled
out from under them for good---"
-ALAN WATT
(essential online coverage)

RETRO-active impeachment of our past 4
CFR/RIIA/Chatham House/Tavistock set up
administrations and nullification of all facets
of the Bush/Clinton/Bush/Obama RED China
set-up, sellout and TREASON op.

And, as what our sources tell us is being
referred to as a Chinese 'birthquake', the very
possibly HAARP enhanced Fukishima
disaster, further explodes without coverage,
raining carcinogens and sterilants and death across the northern hemipshere----

HUAC meets NUREMBERG 2012.

NO KIDDING

SpiralArchitect| 5.13.11 @ 4:52PM

Spam is a dish best served fried.

Alan Brooks| 5.14.11 @ 12:34AM

"raining carcinogens and sterilants and death across the northern hemipshere----HUAC meets NUREMBERG 2012."

Yellow Matter Custard Dripping From A Dead Dog's Eye. Goo Goo Ga Joob

Alan Brooks| 5.14.11 @ 12:37AM

"Julius Streicher Nuremburg-HUAC-IDF Asshat..."

Alan Brooks| 5.14.11 @ 10:47PM

Senescent Wingnut ...

Alan Brooks| 5.16.11 @ 1:57AM

Crashing fast, stumbling, need more jenkem.

Alan Brooks| 5.22.11 @ 12:33PM

Your mouth writes checks your body can't cash, Tim* / Clint!

Doctor_X| 5.13.11 @ 7:36AM

Something needs to be done about the high cost of housing in certain metro areas. It is going to have a negative effect on the economy and I am an example of why.
I turned down a job in Boston MA that paid $125,000 a year, which is about 2 times the national average wage. Why would I turn down a high-paying job? Housing cost that’s why. If we apply the 3x’s your salary rule for how much house you can buy it comes out to $350,000. In Pittsburgh where I live $350k would buy a very nice 3,200+ sq foot home with some nice extras. In the Boston area I couldn’t even find a 1,000 sq foot fixer upper for less than $425,000! To live in Boston in a house like I have in Pittsburgh (2,100 sq ft paid $180,000 for it) I would need to make at least $170,000 a year! Even if I cut back and put down a huge down payment or invested extra money to fix up a house it would be smaller and I would still need to pull in at least $140,000 and drive over an hour one way to work.
How many other bright people turned down jobs at this Boston company for the same reason? How can companies afford to stay in high rent areas like LA, Boston and NY City?

Wayne | 5.13.11 @ 9:01AM

But you did do something about that high cost. By choosing to live somewhere else, you lowered the demand in Boston. Business must leave Boston to get their own costs down. Eventually Boston will become Detroit, and housing will be very cheap indeed.

Indy| 5.13.11 @ 1:26PM

Wayne, you are spot on, I know several people who have turned down promotions because of the relocation tied to it to move to states with high housing and high taxes...vote with your feet!

Shamus| 5.13.11 @ 3:11PM

Jobs with high pay can be had in Boston. So long as this is the case, real estate will be costly. So long as workers in Boston provide enough value to justify their pay, there is no reason Boston should follow Detroit. The problem in Detroit was that auto companies were paying so much for labor that they could not compete.

PolishKnight| 5.16.11 @ 9:45AM

Shamus, you missed the point: as workers refuse to relocate to high cost of living areas then this drives wages up (hence the demand by Republicans and Democrats alike for more H1B visas).

Eventually, though, even a healthy economy cannot prop up rising real estate prices forever. Eventually, buyers balk and this has helped to kill the rise in all metro areas and then prices become a simple calculation of rent versus buy. If renting isn't significantly less than buying, consider buying but ONLY if you can count on living there for at least 5 years because the Realtor mafia has a 5% tax on each purchase.

Boston and the rest of the rust-belt liberal states are going to be hit by a trifecta of liberal policies coming home to roost: global warming and high energy prices (how much to heat a boston home in winter?), suburban sprawl ("desegration"), etc.

This brings up the main cause of the housing bubble: most homeowners support government subsidies (and still do) because they think that housing is some magical force that can make everyone billionaires.

Shamus| 5.16.11 @ 8:07PM

Real estate prices are supported by prevailing local wages. If you can earn more living in London or Manhattan, then you will be willing to pay more for housing.

Housing prices face economic constraints and are distorted by government subsidies. Conversely, markets can remain irrational longer than we can remain solvent.

Anthony| 5.13.11 @ 10:41AM

A blessing in disguise Doctor. You'd hate living among all those lefty Massholes and obnoxious Red Sox fans, trust me.
Pittsburgh is far more sane and civilized.

stmichrick| 5.13.11 @ 8:25PM

Doctor X; what are you proposing? A subsidy?

What the companies offer and what you can afford is a decision YOU and THEY have to make. If they cannot get people to work for $ 125K in Boston, that is their problem. Many 2 income yuppie families can make it work or they would have made a change. My son recently took a job in Washington DC for $ 33K and shares housing because he is just starting his career and thinks it is worth it.

Come on; adapt!

PolishKnight| 5.16.11 @ 9:47AM

Hahahaha! Sounds like your son "adapted" by joining the Communist Party. When you can't beat 'em, tovarisch, join 'em!

In the meantime, this is why H1B's are flooding into those areas.

stmichrick| 5.17.11 @ 10:00AM

He works for a conservative - oriented foreign policy think tank.

Ya' think he should have moved to Iowa for that?

gary siebel| 5.14.11 @ 3:19PM

Just out of curiosity, why would you need 3,200 sq ft? What would you do with, or in, it?

Is it that you have so much stuff you have to store it someplace? Dancing classes, perhaps? Big parties? A cult? Conspicuous consumption? 12 kids?

I was raised in a lakefront mansion and I very much appreciated, and exploited, the fact no one knew whether or not I was home, sometimes for several days at a time. Since then I have reconsidered the concept of "need" when it comes to space, and I realize how incredibly lucky I was, in relation to the majority of the planet dwellers. Do you consider yourself lucky, or, as it appears, deserving?

Marxfreesociety| 5.14.11 @ 7:14PM

Gary, bad to judge people like you just did with Doc. Get over yourself and your perspective.

Mimi| 5.13.11 @ 7:43AM

I honestly believe that " THIS TOO WILL PASS". But our first effort must correct the disastrous election of 2008! We could have been well on our way to restoring our economy if the right policies had been done......instead what we have is a completely self-serving Democratic Party and PRESIDENT ! Stubborn to the HILT !
Taking care only their supporters and to this day continues....Companies must give a list of political donations and to what Party before any contracts assigned. Who do they think they are? HOW can they even think this anti-American stuff up? We did a great job in the Nov. 2010 election , to limit their power....We need to stay on course and defeat them completely in 2012. THIS TOO SHALL PASS!

RAMIII| 5.13.11 @ 10:54AM

Mimi, sorry to say so, but "this too shall pass" into something worse. The US $ has absorbed the cost incurred by the collapse of the Mortgage industry.

Our monetary policy is exactly the same as the policies that caused the housing bubble and its ultimate collapse!!

The current string of bailouts was started with George W. Bush. I liked him as President, particularily on foreign policy, but was astounded by the weakness he exhibited when confronted with the Bear-Stearns crisis.

Can't pin this on just the democrats -- it is in fact a symptom of the "Washington D.C. (Disease)"; an indictment of the sickness of our corrupted system.

Ned| 5.13.11 @ 11:24AM

I'm not concerned with blaming George, or even that scumbag in the White House now. What I'm concerned with is that the Dimwits refuse to see, and the Repubtards are falling flat convincing people that THIS HAS GOT TO STOP. Every dollar King Zero prints cuts into the value of our life's savings and investments. Inflation is already beginning to accelerate... and the morons in D.C. continue to try to piss on each other's pant leg, instead of dealing with it. I think we're done as a world power, and I *Know* we're done if Barry Bull$hit ("Sometimes I even believe my own BS") is re-elected... but I have yet to see a conservative Presidential candidate that I could vote for without holding my nose...

todd| 6.7.11 @ 2:13PM

nice post it reads like something out of a bathroom stall

Chris| 5.14.11 @ 3:49PM

I can pin this on the Dems; CRA of 1977 (Carter), 1992 (Clinton); and Barney Fank right smack dab in the middle. The CRA is a community organizers wet dream. "What you gonna do for the po people". Bush has a crisis. ObamaRahm didn't let it go to waste. We're hosed.

Roy| 5.14.11 @ 6:05PM

Chris, you are exactly right. The CRA was the yeast in the dough and raising the threshold to 30%, then 50% and finally to 55% in 2007 insured that there would be a disaster. Michael Lewis' book, the Big Short describes what happened. Anyone interested should read this book.

Jim| 5.15.11 @ 10:06PM

Clinton didn't become President until 1993.

George Bush, Sr. was still President in 1992.

This is a bipartisan failure.

Letscheck| 5.16.11 @ 2:28AM

The Dems started this in Congress and they continued it with their Pres.

It is all on the Dems and they will have to live with it on their backs forever.

The Republicans did their best to stop it.

It is all on the Dems.

Jobe| 5.13.11 @ 12:46PM

Frighteningly, leftists have absolutely no concern for the country as a whole. They look only at election strategies that allow them to keep "power". It is the only thing that they care about. A case in point is Harry Reid. He is in the process of flushing Nevada down the toilet, but he has managed to continue to be elected regardless. I must say that I have absolutely no pity for the people of Detroie, Los Angeles, Boston, Washington D. C. or any of the other cities that continue to elect leftists over and over again.

SpiralArchitect| 5.13.11 @ 4:55PM

Votes are not won by 100% of voter turn out.

Shamus| 5.14.11 @ 2:47PM

They are in North Korea.

todd| 6.7.11 @ 2:16PM

Your pity would be much better placed in Texas and Georgia or Mississippi and Missouri right now. Scatterbrained idiots buy flimsy drywall houses in the middle of tornado alley and have to pray for water instead of using viable conservation strategies. Put "power" in scare quotes all you want, its globalism that destroyed Detroit and conservativism's "nooo don't raise taxes, the base will grow" nonsense thats hurting California.

Margie| 5.13.11 @ 6:04PM

"We need to stay on course and defeat them completely in 2012. THIS TOO SHALL PASS!"

RIGHT ON, Mimi.

mike Kelly| 5.15.11 @ 7:50PM

AMEN to that Mimi, I can see 2012 from my house.............

mike Kelly| 5.15.11 @ 7:50PM

AMEN to that Mimi, I can see 2012 from my house.............

martin j smith| 5.13.11 @ 7:48AM

Much opf what you say may well be absolutely correct. I would say there is one factor missing: THE WILL OF ANY OPPOSITION TO SPEAK OUT WITH ENOUGH STRENGTH TO GET THE AMERICAN PEOPLE TO BE AWARE OF THIS SOONER. Though GWB may believe he is honorable by shutting up, in a case like this he was DISHONORABLE and so was the REPUBLICAN LEADERS.
IN FRACT I UNDERSTAND THAT OUR WONDERFUL INJUSTICE DEPT UNDER ERICK THE RED IS AGAIN DOING THE SAME
THING IN CERTAIN PARTS OF THE COUNTRY.
AND WHERE IS THE REPUBLICAN LEADERSHIT ? YOU GOT IT SHIT !!!!!!!!!!!!!!
THEY REFUSE TO SPEAK OUT. THAT IS THE PROBLEM. !!!!!!!!!!!!!!

JimH| 5.13.11 @ 8:03AM

Congratulations Mr. Wallison. This was the best concise explanation end to end that I've read. I showed it to some of my leftish friends and even some of them aknowledged the truth of it.

buckeyeman| 5.13.11 @ 12:47PM

Yes, a truly well-written summary, but we shouldn't forget the role of the repeal of Glass-Steagall, signed by Clinton but introduced by Phil Gramm and supported by many republicans. This lead to the formation of the MBS's (Mortgage Backed Securities) and CDO's (Collateralized Debt Obligations). This in turn lead to creation of the derivatives which served as insurance policies for the MBS's and CDO's but which ultimately could not fund the massive losses.

Also let's not forget what we all know but none (save me) dare to speak. The underlying motivation for this was largely...........race. Sure, there are poor white people and the redistributionists behind these many crimes were happy enough to redistribute to virtually anyone, but the force behind much of it was the desire to provide home ownership to blacks. There, I said it.

SpiralArchitect| 5.13.11 @ 4:57PM

Socialism often appears to be race related, especially in retrospect.

BackToBasics| 5.14.11 @ 12:53PM

from your post - "The underlying motivation for this was largely...........race"

Agreed. The Civil Rights movement did not spring up overnight but things seemed to take a turn for the worse after the riots in many cities in America in 1964-1967. I was young but remember the astonishment among whites who could not beleive that blacks would want to burn and destroy their own neighborhoods. And the whites were afraid that the destruction would spill over into their own neighborhoods. To this day, many of these neighborhoods never recovered in many cities escpecially in the northeast and midwest.

So what did the white politicians do, they began to massively increase governemnt spending for social services to "BUY OFF" the black population. At the time we had enough money to do so but it grew out of control in a hurry as we see now. Now about half of the country wants the same coverage regardless of race.

But in hindsight it is too bad that the governemnt responded inthis way. It would have been better to handle this with training, education, teaching more about self-reliance or even CCC, WPA-type work programs than welfare handouts. This country was great but could have been even greater, a paradise really, if more intelligent decisions had been made in the mid sixites than what did transpire.

BackToBasics| 5.14.11 @ 1:17PM

I will add that the response by the white politicians to buy off the black population was the easiest and weakest response they could have made. Training, and especially CCC-type programs, "You don't work, you dont get government money" would have been tougher.

It is interesting to note that politicians of all stripes have been making weak decisions EVER SINCE with some exceptions for Reagan. I respect Reagan but even he was weak in several areas such as Supreme Court justice picks, O'Conner and Souter were both weak picks, amnesty in 1986 for illegals, and not fighting to balance the budget.

Just to cite a few examples prior to the mid-sixites sissification of our politicians in both parties, Truman had some toughness, dropping the bombs on Japan for example, Eisenhauer had a successful and inexpensive Operation Wetback program to deal with illegals and stopped the illegal onslaught that would have ensued then for about 30 years, Kennedy ordered the printing of US Treasury notes which some say he did to weaken the Federal Reserve.

What Republican leaders do not seem to get at all these days is that if they'd stand on principal, enough people would continue to vote for them that they'd be reelected with no problems!

albert constantine jr.| 5.15.11 @ 9:18PM

Actually, Souter cannot be blamed on RWR, that was George H.W. Bush. Justice Kennedy was the post-Bork (and dope smoking Professor) selection, if my recollection is accurate.

Dee See| 5.13.11 @ 8:05AM

PLEASE let's not buy into the Rockefeller Foundation psy op. of 'compliance and prostration'. It's time to act.

The cultural subversion of our churches and
society has been underway for well over 6 decades. Take a look at virtually any of
what's there. Take a good look.

PLUS

Aside from just plain old 'on the take' corruption
in Washington, we also frankly wonder just
what kind of blackmail op. is underway in this,
the age of absolute cyber surveillance.

It must be pervasive judging by the unnatural
lock step we're witnessing.

Get everyone you know to march on the New York offices of the
Federal Reserve and the
capstone, ultra-rich, TAX FREE, culture subverting, anti-republic and sovereignty
conspiring 'benny violent' foundations this
July 4th.

Across all boards, one and all should be there.

The criminal INTER-national banking cartels
and their minions MUST face investigation,
dismantling and justice.

"Remember folks, Globalism, 'Free Trade'
and EUGENICS (---and TREASON) are always
intertwined. ALWAYS-----------"
-ALAN WATT

That's right ------------------ALWAYS.

Melvin| 5.13.11 @ 8:20AM

Any commission instituted by the government, should be immediately dismissed as a farce, that the outcome was pre-designed to cover up things that the government didn't want the public to see.
I and millions of Americans can't escape that gut feeling that there was criminality involved with Fannie Mae and Freddy Mac.
"As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.
Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.
Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses." Sigmund, Carl and Alfred at WordPress.
People, if the above isn't considered White Collar Crime I don't know what is. Just because Franklin Raines, and Jamie Gorelick don't wear hoodies when committing their crime doesn't exempt them from any criminality. The rotten part about his is, Raines and Gorelick are just the tip of the iceburg. These two rats were too greedy and their cheese was too heavy and they couldn't run away and hide fast enough.
I don't know what agency outside the government could investigate this mess. Look at the hell raised by then Speaker of the House Dennis Hastert when the FBI went into Congressman Jefferson Democrat Louisiana Congressional Office during the bribery and corruption scandal.
The main point is crimes have been committed against the American people by," Crony Capitalism." All branches of government have been perverted by greed, graft, and corruption. Not only are elected government officials part of this scheme, unelected bureaucrats facilitate political cover for them, by being the go betweens, between government agencies to make these schemes appear legal.
Are we going to let this stand, and let these Government and Wall Street Career White Collar Criminals just walk away with suitcases full of tax payer funded cash, or are we going to force the judicial system to put these people where they belong. In a cell with Bubbah, and it isn't Bill Clinton, while Bubbah whispers in they're ear, "Squeal like a pig boy. From film Deliverance"

Anthony| 5.13.11 @ 12:09PM

An excellent post Melvin. The answer is, of course, any crime committed under the auspices of the ruling class, is per se, not a crime.
Hence, Raines and Gorelick, the author of the famous "wall", created to prevent government agencies from co-operating with one another, which led directly to 9/11, would be in prison, but for their ruling class immunity.
This is the systemic government corruption that has us Americans ready to man the pitch forks. These corrupt bastards not only ruined our country, they made $millions in the process.
The ruling class in France lost their heads for the "let them eat cake"mentality. Image how many guillotines we need for these modern day elites!!

buckeyeman| 5.13.11 @ 12:55PM

Quite true, Melvin, but once again this "Crony Capitalism" has nothing whatsoever to do with actual capitalism. It is in fact the opposite. Government intrusion into markets, special double secret deals for the "cronies", political protection from civil and criminal prosecutions, forced taxpayer funding of private greed are all anathema to real capitalists. "Crony Capitalism" can be compared to Robespierre's "Committee for Public Safety" - both are intentional misuses of language intended to mislead the uninformed and gullible into equating two dramatically different concepts.

Vic| 5.13.11 @ 10:47PM

None dare call it by its real name: fascism

Ore Gone| 5.13.11 @ 4:30PM

I think you are mistaking greed for capitalism. Capitalism is a good driving market force and when applied with some sense of ethical behavior works wonderfully. Greed and corruption appears usually in the form of some government intrusion in that market.

Gordon W.| 5.13.11 @ 8:23AM

I don't think the commission's ultimate analysis differs from this at all. The only difference is the outcome. The commission thinks that, because the industry made these choices when it wasn't regulated and didn't make these decisions when it was regulated that the logical conclusion is regulation is needed. Your conclusion on the other hand is that government made an environment where the industry must make these decisions. This is false.

One aspect of your analysis and the commissions is both of you agree that securitization was what allowed so many sub-prime loans to be made. Derivative speculation was not allowed until glass-steagal and housing bubbles did no result from securization of mortgages. Securitization of mortgages is allowed and 10 years latter there is one of the worst financial crisis in near term.

Indiana Alex| 5.13.11 @ 8:47AM

Derivative speculation was not allowed until glass-steagal?????!!!!!!!

Isn't it so much easier to just squawk "Halliburton", than to pitch garbage like this?

Melvin| 5.13.11 @ 9:21AM

It's both sides, Republicans, Socialists Democrats, Communist they're all in it, to one degree or another.

Nunya| 5.13.11 @ 6:47PM

Agreed.

big bob| 5.13.11 @ 10:36PM

Most derivatives are initiated as hedges, not speculation. The derivatives on the CDOs and other securities were usual and customary to hedge the known risk. I'm not sure what you mean with this statement about glass-steagal.

Johnny| 5.13.11 @ 3:33PM

The point is, he federal government directed that there be these sub-prime mortgages in the first place. Let's make sure everyone can afford a home of their own, you know, the regular libtard stuff.

Purpleguy| 5.13.11 @ 7:27PM

Since the "home of their own" and "chicken in every pot" ideas came from the FDR era, how did we manage from the '30's until now? The tax code promotes home ownership with the mortgage deduction and has for decades. Why all of sudden did it change? It's the lack of federal oversight when Glass-Steagal control was completely removed and Non-Banks entered the mortgage industry. They saw mortgages as just another asset to be bundled and sliced and diced, and with the CDO vehicle, overleveraged all over the place. When the cracks appeared, the whole scheme came crashing down - it was not subprime mortgages as the instigation of the crash - it was what Wall Street did with them, treating mortgages like poker chips - and they lost big. Without the control of Feds, the boys played and went off the deepend - to all our detriment - it's that simple. You can watch CNBC to learn it in detail.

Mike C| 5.16.11 @ 2:26PM

uh, purple guy, if the loans aren't bad and don't go bad, no secured instruments have any trouble at all. What you are saying is like if the government requires a chef to use bad food in his restaurant, and his customers get sick, then it is the fault of the bad pots the food was cooked in. When the source is rotten, all else after will be rotten. I can guarantee you that no matter what the instrument funding the bad loans was, the result would have been the same.

mames| 5.13.11 @ 9:15PM

It really is simple. Government dictated this losing investment process aided by the SEC who allowed mortgages to be bundled and sold as investment vehicles. It was a no win for everyone but allowed the perpetrators off scott free, especially Freddie and Fanny and the Attys General who threatened the providers if they did not make these bad loans. Now housing of all forms is affected by this loss of value and going the short sale route is hindering property values to be reset for the original owner and new owners are being underwritten by the Feds all over again.

big bob| 5.13.11 @ 10:43PM

This is a common misunderstanding, because our elected politicians will end up in jail if anyone ever really discovers the truth about this mess.
Securitization was possible BECAUSE Fannie Mae and Freddie Mac were refocussed to guarantee all their mortgages. They completely skewed the risk/reward ratio. That's why the derivatives did not reflect any unusual risk, because Fannie Mae and Freddie Mac reported them out and delivered them to the bankers without anything unusual to note. This stopped after Fannie Mae and Mr. Raines were fined $400 million, but that was a bit late for all the loans made prior to that fine, (and protected from scrutiny by Messrs. Dodd and Frank). Once risk was mitigated, or so everyone thought, securitization was a piece of cake. The real disaster was the mark to market of the mortgages. When that was reversed in March of 09, it is what reversed the market. (check out the indices!!). NO this disaster is the direct result of government forcing its way on the housing market. Now they are forcing their way on almost every other market we have...Heaven help us.

Mike Kelly| 5.15.11 @ 8:26PM

Gordan,
Your point well taken, The repeal of Glass/Steagal was in part a cause of this melt down so why was it not reeacted in the DFA

tsd| 5.13.11 @ 8:23AM

Thanks for another conformation on what happened... any intelligent person should / would know this. As you say it has been going on for years.... and our so called leaders just keep making it worse. Our only hope and solution will be to find real leaders to bring us out of this mess. So far all the wind bags on both sides are nothing more than political whores with they're hands in the cookie jar. Maybe it has not gotten bad enough yet to forge out of suffering the real people of principal it will take to make our country great again!

mames| 5.13.11 @ 9:18PM

This activity is active treason via the Federal agencies who go about their business without oversight by Congress who should have never set them up in the first place..

BobS| 5.15.11 @ 6:24PM

All things that have a beginning have an end.

Trebuchet| 5.13.11 @ 8:42AM

Here's another scenario for you:
1991 Penny Pritzker, a Lib Dem, of Superior Bank comes up with the Mortgage Backed Security to sell portfolio's of Sub Prime loans from her Bank.
1995 JP Morgan comes up with the Credit Default Swap as a Hedge against any loss they may incur from the purchase of the Sub Prime tier of CDO's.
2000, ACORN goes after Ameriquest and Ameriquest makes a big Donation and teams with ACORN to sell their 100% no Down no Doc loans. Paul Sarbanes tells the then CEO of Ameriquest Kirk Lang in front of the Senate Banking Committee "you guys do it right".
2003, Roland Arnall of Ameriquest, after years as a liberal Democrat, changes parties and backs Arnold S. for Gov. over Gray Dufuss and becomes a supporter of President Bush. Arnall becomes a Neo-Con and finances a private intelligence gathering community headed up by Michael Ledeen. The Left headed by George Soro’s unsheathes the long knives.
2005, Eliot Spitzer a Democratic Presidential hopeful goes after Ameriquest.
2005, John Paulson the head of Paulson & Co. Hedge Fund has a lunch meeting with Soros and they begin buying CDS's against Ameriquest CDO's and shorting the ABX. George Soros nephew is the largest investor in Paulson’s fund. Paulson and Goldman Sachs set up the Abacus Fund loaded with companies that are buyers of Ameriquest CDO’s. As an aside, Soros warns his close associates Herb and Marion Sandler, the owners of World Savings the originators of the Adjustable Rate Mortgage, to sell out which they did just before the crash making a cool 21 Billion dollars.
As more CDS's are bought, automatic triggers for drops in ratings from Moody’s, Fitch, MBIC etc are triggered.
2006, Ameriquest can't sell CDO's because the ratings are dropping. The Hedge Fund Sharks smell blood and circle, buying every CDS they can get and begin buying them against the other Sub Prime CDO's from other Investment Banks and Lenders and anyone who bought Sub Prime CDO's.
2007 New Century and Ameriquest are bled to death (Citigroup led by a Lib Dem, Robert Rubin, picked up the pieces of both) and fold. Paulson makes 14 Billion, Soros makes 13 Billion. The Hedge Fund Managers go into full feeding frenzy and buy CDS against anything that lends money and then begin using Naked Shorts to make sure the ratings drop on the Investment Banks making their CDS explode in value. Also, the companies issuing the Mortgage Bonds can’t find enough crappy loans to issue bonds on to create the other side of the CDS trade so the start writing phony Bonds backed by nothing.
2008 Bear Stearns is nearly driven into the dirt by the Hedge Funds and the game is exposed.
2008 The FED steps in and backs Wall Street making CDS held by Hedge Funds worth pennies on the dollar and the redemptions begin as wealthy Sovereign Funds and Pension Funds put sell orders in to get their money before the Hedge Funds go belly up. Hedge Funds sell everything in sight to cover the redemptions, almost crashing the stock market and commodities. Almost 50% of Hedge Funds are gone now.
Soros has purposefully crashed the Mortgage Market, the Housing Market and the US Economy with two outcomes in mind. 1) Cut off funding for the Conservatives (Real Estate, Home Builders and Mortgage Industries are big contributors to Republicans) and 2) Crash the Economy and insure his candidate Barrack Obama is elected President.

Wayne | 5.13.11 @ 8:57AM

But it looks like Paulson was complicit. When Paulson told Bush he need 750 billion dollars, he should have been fired immediately and Bush should have then appointed a task force to evaluate the problem. As me Dad use to say, whatever you do in haste, you get to repent at leisure.

CopyKatnj| 5.13.11 @ 10:24AM

Trebuchet, this explanation is one that I have believed from the start. Bravo.

Mimi| 5.13.11 @ 10:32AM

If what your saying is true...Looks like Old Soro's and nephew Soro's and old and young Paulson need to be measured -up for ORANGE jumpsuits. The Sandler's need to fork over some dough...like taxed? Goldman's need to be looked at....AND while your at it find out the REAL-DEAL on Sen. Schumer and Indie-Mac !!

big bob| 5.13.11 @ 10:45PM

what did you want to know about IndiMac?

SpiralArchitect| 5.13.11 @ 5:22PM

Soros is just one more demonic bastard.

Nunya| 5.13.11 @ 6:51PM

Trebuchet, EXCELLENT post. Thank you.

Purpleguy| 5.13.11 @ 7:31PM

Your last paragraph is pure paranoia and speculation - but it is your right to spew forth.

Trebuchet| 5.15.11 @ 10:21AM

You sound like you've been spewed on a few times.

Gary| 5.13.11 @ 8:49AM

Here's the short version. This was caused by the constant hammering home of the very compelling, Liberal/DC sales pitch, which is... "Something for nothing."

Wayne | 5.13.11 @ 8:51AM

While I don't dispute what the author has said, there is more to it.
1. It was a California housing bubble. It did migrate to Arizona and Nevada, because Californians started speculating in those states also. The only exception is Miami. North Carolina real estate for example only went up 2 or 3 percent a year.
2. The Feds artificially kept rates low making it easier to borrow.
3. The Feds depended on computer models to measure risk. GIGO just as the global warming models. Greenspan admitted if he had 10 more years of data, he would have predicted the problem. So he ignored COMMON SENSE and the EXPERTS for results from an inadequate computer model - his reaction - oh well.
4. Banks used inadequate risk assessment formulas. They ignored the increase in housing valuations. Common Sense tells one that housing prices can not continue to rise, as they did in California 20 to 50 percent a year without eventually crashing, yet these banks just merrily kept financing the loans.
5. Meaningless mortgage insurance that went belly up immediately upon the crises.
6. The packaging of loans into derivatives that was sold as conservative, stable assets by banks and wall street.
7. 110 percent mortgages and no doc loans.
8. We have for some reason not held those who defaulted on their mortgages responsible for the income they received (different between mortgage and what the house upon default is worth), this increasing the benefit for defaulting on a mortgage.

SpiralArchitect| 5.13.11 @ 5:29PM

The nNevada market had some other factors that helped it into the toilet.

Mainly Las Vegas. Homes built as fast as possible everywhere possible. This was made easy by these crazy and often mandated mortgagues.

When the SHTF people slowly noticed wages decrease & some stop. The casino & expo business is a mainstay for income in souothern nevada, only thing close is the mining industry (down too, strange - OK, not really that strange).

Now people from abroad have less income and certainly have to think domestic before vacations etc. Now the income base on a whole in LV is in jeopardy... I am sure most TAS readers can see / already know where this went from there.

It is said it is cheaper to build new or simply tear down the 'new' (even unsold) homes as the repair costs are more than makes it worth while. Further, most are in neighborhoods that are so minamally populated they are true ghost towns (yes, new, expensive homes).

Always nice to opperate your criminal activities under a shield of immunity from prosecution.

R Martin| 5.13.11 @ 8:56AM

Unfortunately Barney Frank and his ilk have so successfully demagogued the economic breakdown issue and shifted blame from themselves to the financial services industry that repealing DFA is going to be harder than repealing Obamacare.

Note how Wall Street firms are literally loathed by much of the public and how they are described in such vitriolic terms. And that demagoguery is continuing. SEC actions are taken on strictly political divisions, the CFTC is considering action against Goldman Sachs on the flimsy grounds that in dealing with principal brokers GS should be able to discern which transactions are really for the brokers’ clients and there are untold lawsuits in the wings based solely on the false premise that banks caused the financial meltdown. The sad and obvious conclusion is that as government actions against regulated financial institutions grow successfully, more and more transactions will flow to unregulated entities thereby increasing financial sector risk, exactly opposite to what the government purports to be doing.

We still have a capitalist economic system, and a strong financial sector is essential for that system to work and create prosperity. Government action to weaken that system is appalling and must be stopped. Mr. Wallison’s piece is a much needed effort to get the facts straight, but I wonder how widely it will be noticed.

Purpleguy| 5.13.11 @ 7:33PM

The American Public knows the real story and what is presented here isn't it. You can watch CSPAN, CNBC, read several books on the subject (note I don't mention newspapers or MSNBC or Fox News) if you want to really learn from an objective point of view. But it's your right to drink the KoolAid.

big bob| 5.13.11 @ 10:52PM

No, this IS the real story. I assure you, no one on any of the media networks you mention understands even half of the what went on in this collapse. For example, just a teaser question: what did Schumer hope to accomplish on the Weds. when he released a copy of the email to IndiMac bank? What good could have possible come from the leaking of that confidential memo? Answer: nothing. He knew it would push the bank into insolvency. What he hoped to accomplish, I don't know, while I have suspicions. But this is absolutely the truth, and if you think you can refute it with platitudes, you're seriously mistaken. You actually state that the networks you mention are objective? I don't think so. Yeah, I know you mention CSPAN, but they have no standard for whom they present. The claim of objective is irrelevant there.

crooked wren| 5.13.11 @ 9:08AM

WHY the push to lower standards of underwriting? Was it to make fast money and get out? Was it an act of political and social ideology?

If you want to hurt the dollar -- and you are attempting to undermine sovereignty of a country -- and you are working with global govt. types who, as stated the UN's Agenda 21 (approved by both Bush Sr. and Clinton), believe private property is one of the foundations of social injustice -- you might look to crashing the housing market, mightn't you? Killing two birds with one stone, so to speak.

Just sayin'.

James Solbakken | 5.15.11 @ 5:31PM

13 years ago I was at a city council meeting in Walnut Creek, CA, trying to fight a handgun ban, which we lost, btw. But at that meeting there was also an agenda item regarding promoting home ownership in the city. I asked the council how it was that a bunch of communists saw fit to promote home ownership, and told them I smelled a rat. Now I know that what I smelled was what you just said, crooked wren. You gotta hand it to the psychotic, megalomaniacal collectivists, they sure are clever when it comes to their cahootancies. They fixed our wagon but good.

Melvin| 5.13.11 @ 9:24AM

I have personally corresponded with my Congressman and Senators, about the request from Fannie Mae and Freddy Mac last week for another 5.8 Billion Dollars.
I guess Barny hasn't swiped enough yet.

SpiralArchitect| 5.13.11 @ 5:31PM

My Congressman just filled the seat of the soon to be prosecuted US Senator. Too bad it was not the other Senator.

Purpleguy| 5.13.11 @ 7:35PM

That's because your soon to be prosecuted US Senator is a slimeball. Funny how both D's and R's all do it - but only the R's get caught and held accountable - are they just dumb or more corrupt?

big bob| 5.13.11 @ 10:54PM

Like Maxine Waters? where is she by the way? I can't imagine what would have happened to her if she had been a republican...just sayin!!

RWinks| 5.14.11 @ 11:02AM

In case you haven't noticed, the prosecuters are Democrats. Ensign being prosecuted because he supposedly lied to investigators investigating something not illegal while Frank, Dodd, Waters, Rangel and many other known criminals walk. Laws don't apply to Democrats, which probably accounts for so many of them ignoring the law.

Purpleguy| 5.14.11 @ 3:13PM

Prosecutors are objective lawyers in the justice department - just like they were under Bush.
Moreover, the Senate Ethics committee voted unanimously to forward their recommendation to the justice department with that recommendation to indict him. Had he stayed, their vote also would have recommended to the Senate to expel him - that's why he quit one day before the vote was made public. Oh, and the Ethics committee is exactly 1/2 D's and 1/2 R's, and the vote was unanimous - like I said, he's a slime ball and may have implicated his parents to, the complete a* that he is. Spoiled rich slimeball that got caught. Senator Coburn may also be implicated trying to implement the cover-up. Another winner, that one - and he's a doctor?

big bob| 5.15.11 @ 10:17AM

sure...just like Orwell's book 1984. Sure, everything's legit...NOT!!!

JmsA| 5.15.11 @ 12:45PM

"Prosecutors are objective lawyers in the justice department..." You mean, like the ones that engaged in prosecutorial misconduct against Senator Stevens of Alaska?

Purpleguy| 5.15.11 @ 7:02PM

The left cannot be blamed for any of this because they are trying to do what is right. I live to serve obama and left.

Hillel| 5.13.11 @ 9:56AM

The "community banking act" requirement that banks loan n% locally, was triggered by a Boston Federal Reserve study that showed that minorities were denied loans disproportionally. AT THE TIME I asked if they had controlled for credit history. This question was answered by a study which showed that the difference between minorities and non minorities disappeared when the history factor was plugged in. The Boston Fed refused to debate.
The question is why such an obviously flawed study was submitted and accepted. (If I spotted it it was obvious).

SpiralArchitect| 5.13.11 @ 5:32PM

The answer is obvious as well.

Anthony| 5.13.11 @ 10:02AM

I guess I would ask why you would allow yourself to participate in this dog and pony show farce of a Commission, constituted by Ds, in order to give them cover to pass the Dodd-Frank bill that they intended to pass.
This is the deceptive and corrupt way Washington does its business, with phony commissions with preordained conclusions in order to give cover to these bastards.
We need a major overhaul in Washington and the way Washington does business. The moral and intellectual corruption from both sides is destroying America, and they either don't see it, or don't care.
If the ruling class doesn't wake up soon, they will be in for a very rude awakening. That rumble in the distance is not thunder!!!

RAMIII| 5.13.11 @ 11:01AM

Umm Anthony -- This Author dissented!! So cut him some slack and read the dissent before you lump him in with your cookie cutter mentality. There is a reason one must draw distinctions -- it is required for intelligent discourse.

Anthony| 5.13.11 @ 11:38AM

Umm RamIII, I KNOW he dissented you idiot!! hell, if he didn't, he'd be no better than the selected D hacks chosen to put out this pre-ordained garbage, and my comments would have been far harsher.
My question to the author was why participate and have your good name associated with a congressional dog and pony show, not to mention the time and energy involved, for a B.S. report, dissent or no dissent.
A valid question to ask, perhaps a bit too nuianced for you.

RAMIII| 5.13.11 @ 11:59AM

In order to have a valid dissent, you have to participate in the process. Just sayin' . . .

Anthony| 5.13.11 @ 12:24PM

Fine, we'll agree to give the author credit for his efforts at dissent, for the sake of not making this report a complete farce.
I bet his dissent got as much play as the Majority Report. (not)
He's a better man than I, with far more tolerance for Washington-style B.S.
Have a good weekend, BTW,your first post was spot on.

RAMIII| 5.13.11 @ 12:43PM

Enjoy your weekend as well.

You are indeed correct that the dissent got NO play -- which also indicates that the deck is stacked against those who don't participate in their "groupthink".

I also agree with you in the need for a major overhaul -- it's hard to see how it will be accomplished.

Steve A| 5.13.11 @ 10:27AM

It's all Bush's fault. He let people keep more of what they earn & this cost the Government. Rich people are sitting on their $$. Companies refuse to hire in order to make Obama look bad. It is a conspiracy.

Melvin| 5.13.11 @ 10:38AM

Obama doesn't need George Bush to look bad. He is doing that very well on his own

SpiralArchitect| 5.13.11 @ 5:34PM

Yup, never any issues of corruption nor stupidity before Bush - ROFL.

...you funny!

Oldefarte| 5.13.11 @ 11:15AM

My scanning of commentary here seems to indicate that some of you still don't fully understand Peter's point, which is that this entire banking/real estate/credit/housing crisis began in 1977 with the Democrat-dominated passing of the CRA. In wild Bill's terminology, IT'S THE DEMOCRATS STUPID! Democrats initiated and intensified their housing socialization/government welfare policies in 1977 by forcing banks/financials to provide mortgage loans to financially indigent borrowers [and the rest is history]. My first purchase of a home in 1972 required 30% down for a FIXED mortgage. Recently, welfare recipients practically can secure a $200000 mortgage using governmental welfare INCOME as a basis for a mortgage that reppresents 1% of the entire mortgage amount. Of course, there was a financial crisis from this stupidity/socialism, and the only amazing feature of same was that it took 35 years for the bubbled-crisis to occur. As Forrest once said, STUPID IS AS STUPID DOES!!!!!!!!!!

Jack London| 5.13.11 @ 12:24PM

You must be stupid if you believe this. The vast majority of risky subprime loans had nothing to do with the CRA.

C Harris| 5.13.11 @ 1:09PM

No Jack, you are the one who is stupid. If you would have read the article, you would have seen that it was the CRA along with other bad liberal government policies of encouraging and forcing lenders to make these bad loans to the poor that caused the subprime l0an mess.

Jack London| 5.13.11 @ 2:19PM

No - the article says no such thing. In fact it is devoid of the truth that the rapid equity cash in and remortgaging boom after 2000 driven by securitization and unregulated lending drove the housing bubble over the cliff. And surely you can't be saying we need more government regulation - that's contrary to the voodoo economics you free market freaks love to preach.

Vic| 5.13.11 @ 11:15PM

Free market freaks??? We haven't had a free market sense at least Coolidge. Government meddling created this crisis. It seems you advocate more of the same.

Oldefarte| 5.14.11 @ 11:22AM

No, you're the fool for speaking '''''STUPIDLY''''' ["Jack London| 5.13.11 @ 12:24PM.You must be stupid if you believe this. The vast majority of risky subprime loans had nothing to do with the CRA."] Not only are you thus for stating that, but you obviously don't know your ARS FROM A HOLE IN THE GROUND concerning the history of this situation. Ever heard of AFFORDABLE HOUSING, DA? Well, for your ignorant information, that liberal Democratic terminology began with the 1977 CRA enactment, which as this author accurately/correctly states was the beginning/initiation of these socially/radically extremists-Democrats' governmental assault upon the banking/housing/financial industries and now/eventually the GD taxpayers of this country are now faced with having to pay for these housing/mortgage giveaways through governmental taxiation and foreclosures of these unaffordable-uncreatively financed bankruptcies. Banks/financials, after being forced thus by the government in 1977 to lower/dilute their mortgage underwriting standards of typically 30% down fixed mortgages, resorted to devising financial underwriting methods in order to profitably survive this governmental dictation. The banks initiated what has become known as 'CREATIVE FINANCING', whereby these indigents-borrowers were allowed [due to the CRA] to shamefully qualify for mortgages with 1-3% down payments, for the newly created ARM's [alternatives to FIXED mortgages], to have their decrepidly too-low income levels qualify for mortgages, etc. It was/is the socialist/extremely radical Democrats' system of using the power of government control to initiate/foster their WEALTH REDISTRIBUTIVE political agenda regarding the ownership of real estate-housing to their indigent constituents via governmental dictation. Once again you are either a fool or are speaking '''''''STUPIDLY"""""! Take some free advice, and remedy your apparent ignorance by reading/researching this subject instead of STUPIDLY spouting off your comments reactively!!!!!!!!!!!!!!!

Trinacria| 5.14.11 @ 11:48PM

Jack, you ignorant slut! Surely you aren't claiming that a law that mandated the provision of loans to people who cannot possibly repay them had nothing to do with the crisis marked by....wait for it....people failing to pay their loans?

big bob| 5.13.11 @ 10:56PM

And what do you know about any of this? Hmmm?

Lullabys, Legends and Lies| 5.13.11 @ 1:26PM

Oldefarte: The CRA was started by Old Jimmy Douche Bag Carter himself, to rebuild the Cities that were burnt down during the riots of the 70's.

In the Bronx, they burnt down so many buildings there, that the place looked like a real War Zone, which was dramatized well in the movie Fort Apache, The Bronx (with Paul Newman). So today, where that precinct once stood, there's a housing project that's locally called Carter-Town (I think they did this same idea in other Cities too, but I'm from the Bronx, so this is what I know). So after burning down all the building where they were living, the City tore down all these building, and built single family homes in their place. Then they offered these great mortgage deals to the families that were burnt out by the fires in the first place, mostly welfare recipients (possibly to the very same people who started the fires?), to give them ownership, thinking that this would make them care more about their community, and their homes too.

These families would never had qualified for a normal mortgage (and rightfully so in most cases), but in their quest to rebuild the Bronx, and their need to redistribute the wealth around like all good Socialist like to do (the Democrats), they made these deals anyway. Now from what I saw in the Bronx, this program worked there, the area came back to life by the mid-1990's, and Carter-Town is still a nice little community within the Borough. I guess the ownership idea appears to have worked (duh!!)? But to expand this idea Nationwide, offering thousands of unqualified People/Families mortgages, what the fuck were they thinking? They weren't, the didn't care!! This idea worked on a small scale project like the Bronx, but even there, it should "never" have been offered at all. If you don't have the money, the down payment, or the job, then you get turned down for the mortgage, it's that simple!! It's called common friggin' sense!! Basic Economics!! But thinking the Democratic Party has any common sense, explains how the 2008 Presidential Election ended up the way it did, there are a lot of People in America who just don't have any common sense at all, and just want to steal money from their Taxpaying neighbors, like good Socialist love to do.

So Carter's guilty for starting this, Clinton's guilty for expanding this, and Bush is "most" guilty for not stopping this when he had the chance (the old go along, to get along, I guess?)!! Guilty, Guilty, and most Guilty!! You expect this from the Democrats (they're Commies anyway), but when a Republican buys into this crap, he can never be forgiven for selling out his soul, and his Nation's economy!!

big bob| 5.13.11 @ 10:58PM

He attempted 14 different times to hold the GSEs accountable. Frank and Dodd shot him down each and every time. He was not a king as we have now and took his powers seriously. I do not agree with quite of few of his decisions, but he did what was allowed via the Constitution, not what he WANTED to do, like we are getting these days from the WH.

Oldefarte| 5.14.11 @ 11:31AM

LLL: You're absolutely correct, and furthermore, Barney Fagfrankfurter conspired with his then boyfriend [who was a director at HUD] to explode this CRA of 1977 and its AFFORDABLE HOUSING real estate redistribution even more. Correspondingly, now/presently we have El Chosen One's/Democrats' WELFARECARE inactment that adds to their constituent indigent class' housing welfare by providing them health insurance/medical care welfare to boot. It don't get no better than that [especially if you make $20000/year and have a house full of chilluns to take care of], huh?????????

Jobe| 5.13.11 @ 2:05PM

In 1978 I bought a 40,000 dollar house and put 15,000 dollars down. The people next door bought a similar house, secured a 40 year mortgage, put nothing down, and had a payment under 100 dollars per month. They were never going to own the house, and, sure enough, they walked away 5 years later, leaving the inside of the house a shambles, and the government (that is, the taxpayers, you and I) holding the bag. Guess what the government did then. The FMHA sold the house to another indigent, and repeated the entire process.

Wayne | 5.13.11 @ 4:05PM

Your right, I don't appreciate this point. The GOP has often run interference for the Democrats, enabling them. Also the Federal Reserve and Alan Greenspan was a major playing in the collapse as was Bush's own administration and "I have to go against capitalism to save capitalism" remark.

Oldefarte| 5.14.11 @ 11:36AM

Wayne, I think that Bernanke might be even worse than Greenspan could have ever been, considering his current QE2 explosion of our dollar/money supply in order to skid the financial wheels for El Chosen One's/Democrats' wealt redistrubutive agenda. In the not too distant future we'll all be paying $5 for a loaf of bread, $200 to fill up our automobiles with gasoline and [if ther are re-elected next year] a 300% increase in our governmental taxes paid!!!!!

Wayne | 5.15.11 @ 12:40PM

Can't argue that. I have been on the "eliminate the Federal Reserve", as well as the "get us out of the United Nations" for about 40 years now. Too much power in the hands of too few people and you get corruption every single time.

Dave| 5.13.11 @ 11:28AM

A good article, but you left out the original sin: the Federal Reserve's inflation of the money supply. All that money came from somewhere. That somewhere was the Fed. Now, Fannie/Freddie, CRA, the mortgage interest deduction, capital gain exemption, etc., all those things were why the excess liquidity ended up being channeled to malinvestment in housing. But if not for those factors, investors would have sent the liquidity to some other asset class.

Or put another way, without the Fed, all of our housing policies, while still very bad, would not have been able to do as much damage. There simply would have been no fuel for the fire. Any discussion about the causes of the financial crisis that doesn't start with the Fed will indeed lead to history repeating itself.

axbucxdu| 5.13.11 @ 4:47PM

Bingo! What are "insitutional" investors (read foreign central banks) to do with all those FRNs that are turned into them by their domestic producers exporting to the U.S.? Well, they have to be laundered of course. Enter Fannie, Freddie, along with the U.S. Treasury to address just such an emergency.

All Wallison and anyone else has to do is examine what's happened from the perspective of fiat money...

SpiralArchitect| 5.13.11 @ 5:38PM

Jackson had it right about central banking.

big bob| 5.13.11 @ 11:00PM

That was NOT the original sin. It didn't help, but it was not the primary cause. As with much of the chaos now, it is the direct result of congress meddling with the private sector, in this case housing. That was the intent with the 1977 CRA.

axbucxdu| 5.14.11 @ 12:26PM

"Under every stone lurks a politician."
Aristophanes, Thesmophoriazusae, 410 B.C.

big bob| 5.13.11 @ 11:00PM wrote:

"...As with much of the chaos now, it is the direct result of congress meddling with the private sector..."

Dave's right, and there's no greater intervention into the private economy than that committed by the monopoly of government sponsored fiat money.

None of these recessions, depressions, panics, or corrections are remotely possible on this, a global scale, without this primary and fundamental distortion of private transactions.

Something for nothing begins and ends with the progs monetary "system", and corruption naturally thrives where the competition has been eliminated.

Our money racket is Don Corleone gone public, so these historical events are not unexpected. It'd be a miracle if shit like this didn't happen...

The conduct of perennially flim flamming pols is only a sideshow in these historic fiascoes.

Mike 3/505| 5.13.11 @ 11:29AM

When will folks learn? When government idealogues attempt to defy economic gravity by forcing banks to make hi risk loans or force
Insurance companies to accept new patients w/pre-existing conditions, they set the entire economy upmfor collapse.

Mike| 5.14.11 @ 12:32PM

Mike

An old 82nd trooper? I was in 2/508 for a while.

Mike Johnston
SFC USA (RET)

Lullabys, Legends and Lies| 5.15.11 @ 6:01PM

Mike(s): It's All American Week this week at FT Bragg, starting Monday morning, with the entire Division running up and down Longstreet, and ending Thursday afternoon out on Pike Field for the Division Review. This is the first time the whole Division has been together for this event since 2006, so it should be something to see.

Airborne!!

cicero| 5.13.11 @ 12:05PM

Trebuchet is exactily right in his analysis. The real problem, though, came when our government stepped in to rescue the bankers that got caught on the wrong end of the stick. Had Bush, and the Obama had done nothing, the investment bankers, and the hedge fund operators (including those hedge funds set up within banks) would have gone belly up. The bankers would have had to explain to their shareholders why they lost all that money, and after the lawsuits, would have had to give up the multiple mansions, and the fancy lifestyles. They would also have been put in a position that they would never work in the industry again.
This was all made possible by the REPEAL of
Glass-Steagal and the cozy relationaship between the bankers and the polititions. If the government had just done nothing, it would all have been over in about 2 weeks; the destroyed banks and hege funds would have had to sell their assets to viable entities ( see the sale of Lehman Bros. assets to Barkley Bank, and the sale of Bear Stearnes to Chase/JPMorgan), and there would have been no housing crash. Only about 4% of the mortgages were defaultable. While the sales value of the housing stock would have declined a bit, it would not have been the disaster it is now.

howard lohmuller| 5.13.11 @ 1:40PM

Mr. Wallison is right. The mortgage market collapse was not caused by the private sector aka capitalism. It was caused by Federal Government Housing Policies. The Feds have insisted that weak management and fraud in the banking and real estate industry were the cause, not the government's give away housing policy designed to get and keep voters.

Milton Friedman taught that the cost of pollution clean up must be built into the price of every product. Pollution in the mortgage market is foreclosure. It can be forecast. Each prime loan made is priced to allow profits even though a forecast number of loans will end up in foreclosure. The subprime loans were made at roughly the same price (interst rate and fees) as prime loans. The credit default swaps (insurance policies) were supposed to guarantee monthly payments to investors whom owned the mortgage backed securities. The insurance policies were too cheap because rating agencies did not rate the risk properly. More investors and speculators bought credit default swaps than the cash flow that was insured. Then, the collapse of investors, banks and insurance companies in 2008.

The new mortgage industry created by the Obama Administration has excluded or thrown out the small operators (mortgage brokers) in favor of larger lenders (banks). The mortgage industry is national now so the Feds have more control over lending practices, licensing and police power.

To get the housing market going again, terms will have to loosen up. Subprime loans, however, will have to be for first time owner occupants only. Investors and others would use the prime market. Subprime borrowers would pay a higher interest rate than prime borrowers, say 2.25%. A funding fee of 2.25% could be rolled into the loan and the 2.25% higher interest rate would flow to Fannie and Freddie each month as reserves against foreclosure. After 5 to7 years, the higher interest payments to Fannie and Freddie would end.

Today's America requires more home ownership for increasing numbers of self employed small business people whom need space to store tools and equipment. These folks often cannot meet the credit, down payment, job and income verification requirements of prime loans. We can
revive the housing market by bringing back the subprime market for first time buyers provided they pay their way with a higher interest rate.

Jack London| 5.13.11 @ 4:10PM

Although you say some accurate things about appalling risk management by the investment banks (unregulated of course), you are wrong to say 'It was caused by Federal Government Housing Policies'. The CRA and F Macs were small part of the noughties housing boom and bust.

big bob| 5.13.11 @ 11:02PM

No, they were the prime reason. Again, do you actually understand anything of this process? Do you even know what a GSE is and how it works? If you did, you wouldn't be making these silly assertions.

Oldefarte| 5.14.11 @ 11:38AM

BS.........prove it [which is impossible since there's a ton of documented evidence in existence to the contrary]! Do your research before stating STUPIDLY!!!!!!!!

Oldefarte| 5.15.11 @ 2:45PM

PS [from Wikipedia]:
"....Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[98] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[105] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country....."

Indy| 5.13.11 @ 1:43PM

I agree with many of the comments posted. For those of you who want to read more on this subject, I recommend a short book by Thomas Sowell, The Housing Boom and Bust. He does an excellent job of explaining the soaring cost of real estate in places like CA.

Two politicians deeply tied to the bust are Barney Frank and Chris Dodd...really scary that they provide the "remedy in "Dodd-Frank"

It seems this country is run on polling and the media pounded poll after poll on how the American people supported Dodd-Frank...folks here know the devil is in the details but most citizens have no idea how damaging this legislation is, the GOP totally dropped the ball on this, they simply should have said no to any bill that did not reel in Freddie and Fannie. Scott Brown easily rolled over, the theater of voting yes on something to tackle evil Wall Street was just too attractive to him.

Below is a link to an article by Sowell but it's better to read the book

http://www.nationalreview.com/.....mas-sowell

John| 5.13.11 @ 2:53PM

The ineptitude of the Federal bureaucracy is truly astounding, but some blame must also fall on the home buyers who assumed ever-increasing property valuations and eternally low interest rates when financing their overpriced home purchases with ARMs.

And I'm curious about another issue little discussed in the aftermath: What percentage of mortgage applications were fraudulent?

See also Financial Fiasco: How America's Infatuation with Home Ownership and Easy Money Created the Economic Crisis, by Johan Norberg (2009)

tom of the missouri| 5.13.11 @ 4:24PM

I agree with you about the govt. incentives and mandates for sub-primes and the criminal enterprises other wise known as Fannie Mae and their brethren Freddie Mac, etc (also don't forget the still not prosecuted criminal executives like Franklin Raines and Jamie Gorelick who looted the places for their own personal gain while supervising their institution's destruction) , however you left out two major additional causes:

1) The Community Reinvestment Act (CRA) of the 70's under Carter and greatly expanded by Andrew Cuomo in the Clinton years. This act required all banks to invest money in housing in areas that they would not normally rationally invest in. I am not sure but I think this is at least partially why the banks were holding subprime securities in their portfolio's in the first place. These holdings met the CRA's requiriements for making stupid risky loans. These loans of course later caused their insolvency which then led the Fed on a currency debasing (read: robbing the citizens of their wealth) printing spree to bail them out of.

2) Govt Created Moral Hazzard in our banking system. What I mean here is the moral hazzard created when the Fed govt continously bailed out large financial institutions when they failed over recent decades. The executives running these institutions knew they would not be allowed to fail (i.e, knew they would be bailed out if they failed) so they had ever incentive to gamble their shareholder's assets on ever risker schemes to boost profits (i.e, sub prime investments and the sub-prime securitization and derivatives business) which all created windfall pay for themselves.

In sum, I think to leave out these two "private" institutional issues in discussing these the causes of the financial crisis leaves a lot out. I put "private" in quotes of course because given even pre crisis bank regulation which essentially already massively and completely regulated every aspect of banking, they were already effectively government institutions. Thus, end the end, yes, government is essentially the sole culprit.

Dave| 5.13.11 @ 6:44PM

The government could have just bought a copy of Crash Proof by Peter Schiff to find out what was about to happen and why. Also his 2006 mortgage bankers speech in which he told 2000 mortgage bankers what was about to happen and why.

tucker | 5.13.11 @ 7:43PM

It all started with Clinton's CRA legislation back in the 90's. If you want a clear understanding obtain Paul Sperry's book "America's Greatest Bank Robbery". Mr. Sperry identifies all the players. It's incredible how the majority of lending institutions were forced by the "power's to be" in the government to lower their underwriting
standards. Get the book and educate yourself.
Maybe one day we will see indictments; trials with juries sifting through all the spin and the "blame game". The Angilides Commision was a waste of taxpayer's 10 million dollars.The corruption is beyond corrupt!

J. Campbell| 5.13.11 @ 7:55PM

This article is quite good but fails to show the role of ACORN and a variety of its affilliates and socialist supporters, together with cabinet and government administrators - esp in the Clinton years - in advancing these policies through community action/intimidaation. Secondarily, it fails to show Barak Obama's role and suppprt of these organizations, that also explains by his admnistration is busy promoting the same policies right now -despite the collapse of the mortgage/ insurance markets!!

Kristal| 5.13.11 @ 8:35PM

Excellent detailed analysis of the housing bubble.

Just one more example of what we get when voting for liberals to run wild.

In the 60’s, I was radicalized by “The Power Elite”, by Mills.

Later, I “grew up”, and threw away such “crazy” leftwing fantasies.

NOW---well, who thinks the current power elites aren’t basically just doing what they want, and the results ain’t pretty.

The RICH are different from the rest of us!

And, don’t they not only know it, but ACT ON IT!

wodiej| 5.13.11 @ 8:58PM

In a nutshell, people were given mortgage loans who did not qualify under normal credit guidelines. They didn't qualify obviously for a reason because they dumped their mortgage and are deadbeats.

LiveFreeOrDie| 5.13.11 @ 10:17PM

I personally knew and knew of several families who lost their homes. It was because they lost their jobs and couldn't find new ones. "Toxic Loans" my ass, people qualified for loans based on their income and then it disappeared. It was a recession with huge unemployment. Why is this never a part of the discussion?

simon templar| 5.15.11 @ 1:05AM

Did it ever occur to you that these people had borrowed too much and were given a loan that they obviously could not pay either through savings, other collateral, or the other spouses income? Long ago in a far away land you could not buy a home without showing a 20 percent down payment and some form of colateral as in savings to meet the mortgage payment when in stress. Most of these idiots sailed right through without any of this and were patted on the bottom and given loans.

charles794| 5.13.11 @ 9:21PM

Why should an individual mortgagee bear responsibilities for fluctuations of the financial market (on which he has no influence)? If the value of his property drops below the size of his mortgage it should be the mortgagor's problem - not the mortgagee's! Unlike the mortgagees, the lenders DO have the ability to influence the markets.

big bob| 5.13.11 @ 11:05PM

So you are asking why the people who are borrowing the money should bear the responsibility for fluctuations of the markets? Are you serious? It's not their money!! They agreed to pay the banks back, period. Why shouldn't they be responsible? The banks don't have to lend!! We are seeing that now, in fact.

post*tenebras*lux| 5.13.11 @ 11:23PM

Subprime again? Reelection time to hand out the cash and/or houses to people that can't afford them. AND, by the way, Bammy is going to diss Israel's prime minister Binyamin Netanyahu next week when he comes to Washington for those who don't know. Bammy will be giving a speech to the Arab nation pushing Israel to give up land to his buddies, the Palestinians. Mr. Netanyahu will be ambushed by the President Of The United States! Every time Bammy goes against Israel, we get a natural disaster, watch for it.

Joseph Gause| 5.13.11 @ 11:46PM

Purple Guy: Are you a moron?

simon templar| 5.15.11 @ 1:07AM

No, he is what is called a useful idiot.

Bornorange| 5.14.11 @ 8:09AM

Nice aticle. The bubble begain earlier than 1997. In 1993, examiners upped the pressure on banks to make sub-standard loans. Since approximately 40% of Americans have sub-standard credit, the demand for housing jumped dramatically and prices began to soar. When individual, inexperienced people found that they could buy a property, do minimal upgrading and "flip" it in a few months for enormous profits... the demand rose even faster. When homeowners recognized that their property values doubled they often sold or took "equity" out. (my home, worth less than $140K in 1994 sold for $275K in 2004)

The "fair-housing" push by Frank, Dodd and others had kicked off a price escalation spiral that was unsustainable. When the music stopped, credit insurers, banks, "flippers", investment banks, and citizens were caught without a chair.

By the way, they are at it again. Regulators in New York have mandated that banks must increase lending to the sector of the public who have incomes below a targeted amount. We need to make this public and get it stopped, now!

gary siebel| 5.14.11 @ 3:26PM

Partisan crap. You neglect to mention Reagan's fake solution to the inflation problem, namely, his removal (via Volcker) of the cost of a new house from the Consumer Price Index, which unhinged the housing market from reality, allowing the eventual uncontrolled growth in lending. The interest rates on real estate loans would have skyrocketed, thereby acting as a market cooling system, if the costs had remained tied to the CPI.

big bob| 5.15.11 @ 10:23AM

Whoa, oh my gosh. Now there is an in-depth analysis and connection of the dots!!! Yep, removing the cost of a new house completely did us in!! The CRA of 1977 and it's augmentation in subsequent years had no bearing,...it was that dadgum index. With a direct connection to uncontrolled growth in lending, (????). How do you connect those two dots??? Pray, teach us!! We need to review the construct of the CPI so that we can get back on track, right? Definitely.

BoxwoodDE| 5.14.11 @ 3:57PM

"If there is doubt that these lessons are important, consider the ongoing efforts to amend the Community Reinvestment Act of 1977 (CRA), which currently requires all insured banks and S&Ls; to make loans to borrowers at or below 80 percent of the median income in the areas the banks service. "

The author of this article misstates the lending requirements of the Community Reinvestment Act (see above). The only requirement is that the property being financed be located within a census tract in which the median income is less than 80% of the median income of the county in which the property is located.

There are no CRA requirements with respect to the borrower, only the property which is being considered for financing.

Leeman Brothaz | 5.14.11 @ 4:15PM

WALL STREET bankers release music video "Greed Is Good" which blames consumer behavior for the financial crisis -

http://www.youtube.com/watch?v=EoMpcz0S3hc

BusinessBank| 5.14.11 @ 7:37PM

I agree with many of the findings, however, I don't think it was taken into account that the Federal Reserve had artifically lowered rates during this time frame. When the housing market took off and the bubble was being created, Fed Chairman Greenspan did nothing to address the issue. He wanted to take a bow and have everyone think that he had done a wonderful job moving the economy forward. However, his financial policies had the opposite effect and when he knew the backlash was going to hit, he retired and left the mess for someone else to clean up.

axbucxdu| 5.14.11 @ 9:54PM

Imagine, critics on both the left and right whistling past the graveyard that is the Federal Reserve. The apparent sidestep by both sides indicates the role played by central banking in this mess will not be questioned, at least in the short term. Hence the cure will invariably set the stage for even more serious unintended consequences down the road.

The indifference to Greenspan and his interest rate policy is really no surprise, since all these analysts are products of ideas from a bygone era, a past that believed in the obvious supremacy of a central bank. Their imagination is therefore too limited to examine the limits of central banking much less to consider any other alternatives. Anyone that does, is immediately branded a crank.

The current crisis should be an opportunity to seriously reexamine our monetary system and the problems it has caused, but based on the FCIC's report and Wallison's dissent I'm not encouraged that any such review will occur.

big bob| 5.15.11 @ 10:27AM

There would have been no discussion of the Fed had our esteemed politicians, namely Dodd and Frank, done the job they were supposed to by keeping tabs on the GSEs, Fannie Mae and Freddic Mac. Not only did they ignore the abuse, they encouraged it. The Fed had nothing to do with this, and had our leaders actually done the right thing, we would not even be talking about the Fed, or any other scapegoat you can fabricate. That's why there is, what do you call it? indifference??

axbucxdu| 5.15.11 @ 2:20PM

I believe what I said is that there will be NO discussion of the Fed's enabling role in this episode. That's a shame.

Politicians not doing their jobs? Oh my, who'd a thunk it? Now that's a scapegoat. Historically, what far more often than not has been their "job"? See Aristophanes above...LOL.

These disasters are going to continue like clockwork, as they have for millennia, so our focus should be toward limiting the turmoil they cause. The damage here would have been limited were it not for the Fed's global influence. You however, seem to prefer a different preventative, the white knight on the unicorn: the pol that does his "job"...that's not a shame, that's what I'd call indifference to reality.

Thom| 5.15.11 @ 3:43PM

While I agree with the thrust of the author’s outline, there was some more government actions involved in the mechanics of the default on a grand level here. It also can’t be discounted that the mortgagee’s ignorance or outright stupidly was required to make all this happen too. During the 6 years of my run up in assessed values of my home to over double what it had been at the start of the run up I went from a Wrap Mortgage, to an ARM line of credit, to a conventional and now on my second refinance without a dollar up front. I’ll pay off my mortgage in about 5 years…. And the person that transacted all this was the same and that sourcing bank is now owned by another because of the buffoonery of their subprime practices mostly in urban areas. For a host of reasons I was never a credit risk but that can’t be said for the bulk of the subprime market.

During this run up in assessed values, my property tax and home owner insurance added another month and a half to my annual cost of ownership. Such things will drive a certain percentage of the subprime market into default simply because there is no income to absorb such an increase. Most urban areas are controlled by Democrats thus these politicians see these absurdly inflated assessments as “free money”. It is not a stretch to say that what Democrats do in Washington DC benefits local Democrat politicians. The Democrats that control my local government stated at least five reasons why they needed my money more than I and would not lower the tax rates down to offset the unrealistic increases in assessments over 6 years. Outlying non Democrat controlled areas did. To date, my assessment, rate reduction has barely approached one 16% year increase. What housing bubble burst? Meanwhile more and more houses go empty while people walk away from their mortgages….. and the local government loses some of that “free money”.

The FEDs’ run down and then up in Federal Reserve discount rates combined with ARMs was the second government mechanism driving defaults. Long before the bubble burst and people started to walk away from mortgages worth more than street value, people started to default when the ARMs started to climb adding hundreds to a monthly mortgage amount. Someone who had property that doubled their property tax bill, doubled their home insurance bill and then had the effect of going from a 2% load to a 6% loan overnight were looking at a grim situation. I avoided this by refinancing twice, made possible by my credit history and rating. Those that cashed out the equity in their inflated evaluations and/or simply bought more mortgage than their income could support using traditional models were victims of their own ignorance and government’s infinite capacity for defying the laws of diminishing returns. “Government” not only set the stage for all this but directly benefited from the tax bubble created by the massive run up in assessments. From one hand of government to the other hand of government.

As is often said, just follow the money from those that enable the transfer to those that get the benefit……

Keyser_Soze| 5.15.11 @ 5:49PM

This article represents why I have absolutely no faith in the government running anything.

RS| 5.15.11 @ 5:51PM

Excellent article - but you only got half way there. The housing correction was only a $30 billion problem until until mark to market accounting multiplied the problem through the reporting of false losses - and threatened the capital of every Investment Bank. The multiplier of M toM created more of the crisis the the orginal housing correction. ... Please keep going - the truth needs to be told.

RS

Wayne Lusvardi | 5.15.11 @ 6:59PM

I haven't time to read all the above emails. But aren't all those bad mortgages the "symptom" and not the "cause" of the crisis? What caused the policy for risky mortgages? I believe it was the lack of family formations to prop up the investment markets - for the young to buy homes and start businesses and the old to loan young families money for their retirements. The problem was demographic at its base. The policy makers tried to shoe horn the "rentier class" into housing to try and prop up the base of families but it didn't reduce the number of dependent families so it failed. Actually it increased the number of family economic wipeouts making it worse. And what was driving all this? Why the need for unions to make over-market returns on their investments to plug their underfunded pension funds. Only the unions and the large state pensions had enough market power to influence the whole food chain of real estate finance - bond rating firms, mortgage underwriting standards, redlining laws, etc.

Tatanka| 5.15.11 @ 9:43PM

It was high oil prices that pushed the mortgage crisis over the edge. Now we are facing the same oil price pressures. We may see a major unexpected downturn in housing as a result.

PolishKnight| 5.16.11 @ 9:54AM

Nonsense.

High housing prices and speculation not by wall street, but by most people who bought into the traditional, daresay conservative, thinking that "housing prices ALWAYS go up!" helped to create a bubble that had to burst.

When housing prices rise to the point when few people can afford to buy them, then by definition a correction is required. But this wasn't just government fueled speculation. Most people had generations of home ownership in their blood that believed that housing bubbles didn't exist. "People can't live in stocks" they would say.

There was no government mandate for the Bank of Iceland or Russian Treasury to buy the mortgage securities, but they did because many of them believed the same thing. If a condo in Moscow could go for a million bucks, then real estate is safe AT ANY PRICE.

Even now, housing is still overpriced by a factor of 2 in most places. If you factor in cost of living into the market such as higher oil and therefore inflation, then people can afford to pay even less.

PerryM| 5.15.11 @ 9:58PM

Government is ALWAYS the problem and NEVER the solution.

Sadly many citizens have it bass ackwards.....

Dee See| 5.15.11 @ 10:39PM

FURTHER, as we write, the world's most
awesome, and dubious, nuclear disaster
in history ----covered up by the globalist
'EUGENICS friendly' media ---is now admitted
to be ---------------------FAR worse than orginally
admitted.

The spewing is also set to not just continue
for the next 10 months at this rate ----BUT
indefinitely.

---------------KEEP following those globalists,
those biz nihilists, and most of all ---those
third generation EUGENCISTS.

-----------------------JUST KEEP A GOIN'...

Sacastic1| 5.16.11 @ 9:37AM

Any commission without Jamie Gorelick cannot be taken seriously.

Tom Kiernan| 5.16.11 @ 11:35AM

You are right on the money in your analysis. There are also a few other issues that are seldom
or never mentioned. First, the rating agencies have received a "pass" on their total negligence or lack of knowledge of the products they underwrote as A rating or better. These were clearly junk bonds from anyone who knew about what was being securitized.
Second, the borrowers themselves. No where have I ever read an article concerning the borrowers and the fraud that was done. It is a federal crime to fraudulently lie on an application for a mortgage. However, most if not all were fraud. Also a subject never mentioned. This would mean that the homeowner was also "a problem" that caused the crisis. The underwriting standards you mention were practically nil as time went on. The criteria for a loan; no money down, no income verification, 600 FICO scores and little else required. Basically if you applied you were approved! Now due to the prices of homes, most people couldn't afford it. They fraudulently lied about their incomes to qualify and thus a federal crime was committed. However, to date, I have not read of a single homeowner ever prosecuted for this crime. All onus was put on the banks. New homeowners were allowed to play poker with our money and no stake in the game! They could bet the pot and not be responsible when they lost. Now I am not saying they were totally to blame but to pretend they had NO IDEA what they were doing is an outrage.
So here we are years later and still dealing with the situation and still paying for it!

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kristi99 | 5.18.11 @ 5:00AM

... And via Fannie Mae and Freddie Mac government was and is encouraging securitization which in itself is fundamentally flawed and basically a fast way to create debt: http://blog.logicoffinance.com.....-debt.html

Cecily| 5.18.11 @ 3:03PM

http://mobile.salon.com/tech/h.....index.html

Lily| 5.19.11 @ 12:16AM

I knew this article was absurd when it immediately started laying the blame for the financial crisis on CRA, and then went on to lie about the requirements of CRA. The ONLY thing CRA requires of depository institutions is that they not redline neighborhoods where they also take deposits. To qualify for a CRA loan, one must still meet the qualifications and be a good credit risk. At the regional bank I work for, CRA loans are among the safest loans on our books. It's time to stop using CRA as a diversionary whipping post and deal honestly with the TRUE causes of the crisis.

Mark A. Sadowski| 5.22.11 @ 1:45PM

If this whole article rests on Edward Pinto's "research" then it has a foundation of quicksand.

The key phrase is "other risky mortgages." In 2008 there were only 4.8 million subprime mortgages. Pinto reaches his 26.7 million figure by adding in 21.8 million mortgages with greater than 90% LTV rates and with FICO scores of between 620 and 660. Pinto claims that these "other risky mortgages" had delinquency rates similar to subprime mortages. However that is not true. The serious delinquency rate on a subprime mortgage was 28.3% as of 2010 Q2. The serious delinquency rate on Pinto's high LTV and low FICO score categories was 8.5% and 10.0% respectively. This not much higher than the 6.8% serious delinquency rate on conforming loans.

There are other serious methodological issues with Pinto's research, such as his claim that 2.24 million subprime and other high risk loans were CRA in origin. More credible sources put that figure at only 0.38 million, and their delinquency rates were similar to similar loans not originated to satisfy CRA guidelines.

The real problem was the subprime loan market, And private label securitization was responsible for 84% of those mortgages.

Of the 3.9 million loans in serious delinquency as of March, 2009, only 32 percent of seriously delinquent loans were attributable to the federal government, despite the fact that the federal government owned or guaranteed 67 percent of all outstanding mortgages. If the government truly held three-quarters of all high-risk mortgages, one would expect to see its share of mortgage delinquencies at a roughly equivalent level. Conversely, private-label securitization, which Pinto essentially ignores, was responsible for 42 percent of all serious delinquencies, despite only generating 13 percent of all outstanding loans. These data clearly contradict the findings of Pinto.

For a more complete takedown of Pinto's "research" see this:

http://www.americanprogress.or.....pinto.html

todd| 6.7.11 @ 2:12PM

Nothing about the affordability in housing act mandated 20 million subprime mortgages be issued, and nothing compelled banks to load up on these things to the detriment of smarter investments. Go back and do your research.

Mortgages refinancing | 10.8.11 @ 6:59AM

In Europe the same thing is happening. In the past years everyone could get a mortgage. Now the economy has been bad for a few years more and more people can't afford their mortgage payments. Rules for getting a mortgage are far more strict, which causes the house market to crash. Houses can only be sold which huge losses.

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