beliavsky[at]aol.com writes:

- quote -

Thanks for the pointer. I very very highly recommend Gordon's
book _Empire of Wealth: The Epic History of American Economic Power_
It was one of my favorite books of the last few years.

He seems to put put a new book every 2-3 years and may be due.
I wonder what he's coming up with next.


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An article from Commentary magazine "Speculators, Politicians, and
Financial Disasters" by historian John Steele Gordon at
http://www.commentarymagazine.com/pr...f-crowds-13180
puts the current crisis in context. Here is an excerpt:

Even after the end of Jim Crow in the 1960’s, the effect of redlining
lingered, perhaps more out of habit than of racial prejudice. In 1977,
responding to political pressure to abolish the practice, Congress
finally passed the Community Reinvestment Act, requiring banks to
offer credit throughout their marketing areas and rating them on their
compliance. This effectively outlawed redlining.

Then, in 1995, regulations adopted by the Clinton administration took
the Community Reinvestment Act to a new level. Instead of forbidding
banks to discriminate against blacks and black neighborhoods, the new
regulations positively forced banks to seek out such customers and
areas. Without saying so, the revised law established quotas for loans
to specific neighborhoods, specific income classes, and specific
races. It also encouraged community groups to monitor compliance and
allowed them to receive fees for marketing loans to target groups.

...

Forward again to the Clinton changes in 1995. As part of them, Fannie
and Freddie were now permitted to invest up to 40 times their capital
in mortgages; banks, by contrast, were limited to only ten times their
capital. Put briefly, in order to increase the number of mortgages
Fannie and Freddie could underwrite, the federal government allowed
them to become grossly undercapitalized—that is, grossly to reduce
their one source of insurance against failure. The risk of a mammoth
failure was then greatly augmented by the sheer number of mortgages
given out in the country.

That was bad enough; then came politics to make it much worse. Fannie
and Freddie quickly evolved into two of the largest financial
institutions on the planet, with assets and liabilities in the
trillions. But unlike other large, profit-seeking financial
institutions, they were headquartered in Washington, D.C., and were
political to their fingertips. Their management and boards tended to
come from the political world, not the business world. And some were
corrupt: the management of Fannie Mae manipulated the books in order
to trigger executive bonuses worth tens of millions of dollars, and
Freddie Mac was found in 2003 to have understated earnings by almost
$5 billion.

Will Trice wrote:
- quote -

doesn't home ownership leads to greater stability in the
economy. People are less prone to give up an asset (however
defined) they have invested time, labor, and money in. The
volatility in the current markets is what is making
everybody crazy. Surely stability is a good thing economically.

Chip

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On Sun, 26 Oct 2008 23:30:28 -0500, Don <dwzimm[at]telus.net> wrote:

FROM THE MODERATORS:

Posters are reminded that this is a financial planning newsgroup;
there are other newsgroups available for those who wish to discuss
other topics.

Thank you.


-HW "Skip" Weldon
Columbia, SC

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On 2008-10-26 19:28:58 -0700, Will Trice <not[at]monitored.net> said:

- quote -

In a just society, one would expect home ownership to be attained by
the people of various minority groups to about the same extent as the
population as a whole. If this is not the case, and if certain
minorities are noticeably excluded from priviliges such as home
ownership, for whatever reason, something is out of balance, and
corrective measures are in order for the health and well being of the
nation. One can argue that this is a more important long-term goal than
the current financial health of banks. But it seems to me that lenders
could have helped minorities to some extent (along the lines of
"affirmative action") without subprime lending as a whole getting out
of control like it did.

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-Will

william dot trice at ngc dot com

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Don wrote:
- quote -

This is something that I can't quite bring myself to grips with. Why is
a greater rate of home ownership, above some rate that doesn't require
relaxing mortgage rules, a greater good? (Note I'm leaving out the
question of minorities here.)

-Will

william dot trice at ngc dot com

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On 2008-10-13 08:49:51 -0700, beliavsky[at]aol.com said:

- quote -

It is not realistic to blame the mortgage meltdown on just one thing.
Undoubtedly a combination of economic influences were at work. While
the push for home ownership by minorities and equitable lending
practices may have contributed to some degree, it surely is not the
only factor and probably not even the major factor.

There are considerations here that go beyond what is best for the
nation economically and financially. Greater minority home ownership
and well being is desirable for the general improvement of our society
and for the nation's overall welfare, irrespective of its financial
impact.

Beware of authors who want to blame our financial troubles on minority
groups and turn attention away from scams and the corporate greed at
the root of the problem. Some of those authors may feel guilty about
the questionable business practices of themselves or their associates.
And some may be using the lending crisis as an opportunity to spread
their personal prejudices and distase for various minority groups.

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honda.lioness[at]gmail.com wrote:

- quote -

I think so many factors came together that we can't narrow it down to
even just a few.

The interest-only option ARMs were a financial time bomb defying any law
of common sense. Common sense forces me to ask "what is the normal,
non-bought-down rate on this loan, and all else being the same, what
will it adjust to if rates stay the same in two years?" then "what if
rates are up, what is my maximum payment?" The fact that loans were made
which could not be paid after the first rate adjustment was criminal. I
don't know what percent of failed loans fall into this category.

The subprime loans that were offered at a higher rate due to bad credit
or undocumented income were not quite as bad, but any change in income,
any brief period of unemployment and these were ready to default as well.

Whatever the motivation, there are better ways to get people into their
own homes. In hindsight, a rate buydown to permanently lower the fixed
rate mortgage would have been a bargain for the taxpayers. In hindsight,
neighborhoods of McMansions would be better off with zoning waivers
allowing a set of smaller homes instead of fighting lower income housing
and now having the foreclosed mansions around them.

Joe

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On Oct 18, 2:15 pm, beliav...[at]aol.com wrote:
- quote -

The NY Times article does not assign blame as you do. Its focus, as
far as today's crisis is concerned, is on foreclosures on low income
homeowners. The Times article does not examine speculation, for one.

We continue to disagree on the other article, which examines both low
income foreclosures and speculators, placing the bulk of the blame on
speculators. Re-reading the last few sentences of the abstract you
quoted makes this clear.

Elizabeth, if it only were that simple.

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<beliavsky[at]aol.com> wrote in message
news:0cbcfd90-80aa-48ef-894c-c799b8846bd9[at]79g2000hsk.googlegroups.com...
- quote -

Additionally, this was a major push from ACORN, and, at the time, Obama was
working for Woods, which funded this push by ACORN. It can be easily be
concluded that, at least to a major extent, this Obama funded push from
ACORN to lessen the lending standards is at the base of our current economic
problems.

Elizabeth Richardson

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On Oct 17, 12:55*pm, honda.lion...[at]gmail.com wrote:
- quote -

It is documented in the article I cited and in a current story in the
New York Times:

http://www.nytimes.com/2008/10/19/bu...9cisneros.html
Building Flawed American Dreams
New York Times | October 18, 2008 | David Streitfeld and Gretchen
Morgenson
SAN ANTONIO — A grandson of Mexican immigrants and this city’s first
Hispanic mayor, Henry G. Cisneros has spent years trying to make the
dream of homeownership come true for low-income families.

As the Clinton administration’s top housing official in the mid-1990s,
Mr. Cisneros loosened mortgage restrictions so first-time buyers could
qualify for loans they could never get before.

Then, capitalizing on a housing expansion he helped unleash, he joined
the boards of a major builder, KB Home, and the largest mortgage
lender in the nation, Countrywide Financial — two companies that rode
the housing boom, drawing criticism along the way for abusive business
practices.

...

Homeownership has deep roots in the American soul. But until recently
getting a mortgage was a challenge for low-income families. Many of
these families were minorities, which naturally made the subject of
special interest to Mr. Cisneros, who, in 1993, became the first
Hispanic head of the Department of Housing and Urban Development.

He had President Clinton’s ear, an easy charisma, and a determination
to increase a homeownership rate that had been stagnant for nearly
three decades.

Thus was born the National Homeownership Strategy, which promoted
ownership as patriotic and an easy win for all. “We were trying to be
creative,” Mr. Cisneros recalls.

Under Mr. Cisneros, there were small and big changes at HUD, an agency
that greased the mortgage wheel for first-time buyers by insuring
billions of dollars in loans. Families no longer had to prove that
their incomes would remain stable for five years; three years
sufficed.

And in another change championed by the mortgage industry, lenders
were allowed to hire their own appraisers rather than rely on a
government-selected panel. This saved borrowers money but opened the
door for inflated appraisals.

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- quote -

I would if I saw one assigned the heavy lifting jobs. But I do not see
any women assigned these jobs, with good reason.

Obviously no fire department would risk a lawsuit, never mind
another's life, by assigning the heavy lift jobs to someone not
qualified.

You email me some citations showing there is a serious problem with
women firefighters and police, and then we can talk, albeit in
private, since this off-topic jabberwocky by the previous poster has
no place here.

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On Oct 17, 11:55*am, honda.lion...[at]gmail.com wrote:
- quote -

And you'll never see that on the news. But just take a look at a
150lbs firewoman and wonder if she'd be able to carry you on her
shoulders out of a burning building.

Just because nobody complains out of fear of persecution or
vilification, it doesn't mean that there aren't objectionable policies
put in place everywhere just to appease the political correctness
police.

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On Oct 13, 8:49 am, beliav...[at]aol.com wrote:
- quote -

I wonder whether a clarification here might be appropriate. The
article you cited ultimately concludes speculators (not non-Asian
minorities) took advantage of loosened standards to gamble and then
went broke. From the article's conclusion:

"The hypothesis that currently seems to best fit with the evidence
suggests that housing speculators were taking out many loans with the
hope of a quick and profitable turnover. These housing speculators did
not much care about the terms of their mortgages because they didn’t
expect to be making payments for very long. But it is clear why they
would prefer adjustable-rate mortgages. The hypothesis also is
consistent with speculators often lying about their income on their
loan applications and taking out teaser rates so they would qualify
for larger loans, so they could make a bigger bet on housing."

Just saying your sentence above, I am sure unintentionally, seems to
assign blame to those who wanted more non-Asian minorities to qualify
to own a home. I do not think this is reasonable.

- quote -

The SAT is criticized because it predicts not too badly freshman year
GPA but nothing else of use; not final GPA, nnor class standing, nor
dollars earned subsequently, etc.

- quote -

Is there such criticism? I have not noticed any complaining about a
police or fire person not being able to do her job because of physical
weakness.

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On Sep 22, 1:00*pm, "Gil Faver" <rowdy'sb...[at]xxyz.com> wrote:
- quote -

I think part of the problem is that the government pressured lenders
to abandon their traditional underwriting standards because they
resulted in a higher proportion of non-Asian minorities being rejected
for mortgages. It is the same "logic" that causes the SAT to be
criticized because students from different racial and income groups
get different scores, or that causes police and fire departments to
lower physical standards in order to hire women.

This is discussed in a report

http://www.independent.org/pdf/polic...trainwreck.pdf
Anatomy of a Train Wreck
Causes of the Mortgage Meltdown
Stan J. Liebowitz
October 3, 2008
Why did the mortgage market melt down so badly? Why were there so
many defaults when the economy was not particularly weak? Why were the
securities based upon these mortgages not considered anywhere as risky
as they actually turned out to be? This report concludes that, in an
attempt to increase home ownership, particularly by minorities and the
less affl uent, virtually every branch of the government undertook an
attack on underwriting standards starting in the early 1990s.
Regulators, academic specialists, GSEs, and housing activists
universally praised the decline in mortgage-underwriting standards as
an “innovation” in mortgage lending. This weakening of underwriting
standards succeeded in increasing home ownership and also the price of
housing, helping to lead to a housing price bubble. The price bubble,
along with relaxed lending standards, allowed speculators to purchase
homes without putting their own money at risk. The recent rise in
foreclosures is not related empirically to the distinction between
subprime and prime loans since both sustained the same percentage
increase of foreclosures and at the same time. Nor is it consistent
with the “nasty subprime lender” hypothesis currently considered to be
the cause of the mortgage meltdown. Instead, the important factor is
the distinction between adjustable-rate and fixed-rate mortgages. This
evidence is consistent with speculators turning and running when
housing prices stopped rising.

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Chip wrote:

- quote -

He was referring to credit default swap (CDS) agreements. The original
intent of the CDS market was to allow a lender to "insure" a debt
instrument from loss by transferring the risk of default to another
party. So for example an investment firm might buy a mortgage-backed
security for income. The MBS might pay 6%. Perhaps the investment
company wants to mitigate the risk that the MBS positions will default
so they turn to another party, maybe an insurance company like AIG, and
pay them 2% to insure the MBS against default. If the MBS defaults, AIG
makes the investment company whole and receives the MBS in return to try
to wring whatever value out of the MBS that they can. Kinda like car
insurance, when Allstate totals your car they might tow it off and sell
it for scrap to at least get some money out of it.

Part of today's problems came about when CDS contracts started to be
used for shorting companies. So for example, if I wanted to bet against
Citigroup I could buy a CDS against one of their bonds, without even
owning that bond. If Citi gets in trouble, I could sell the CDS for a
profit. If Citi gets in so much trouble that it defaults on the bond I
bought the CDS against, the CDS seller must pay me as if I owned the
bond, and I go out on the market and buy the distressed bond at a steep
discount to give to the CDS seller. I heard on NPR that some 80% of CDS
activity was this type of shorting.

-Will

william dot trice at ngc dot com

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"kastnna" <kastnna[at]auburnalum.org> wrote in message
news:537585b9-d679-4ffe-8741-c893a9ae2712[at]f77g2000hsf.googlegroups.com...

- quote -

There's another point here that I think often goes unnoticed: When
governments set out to enforce minimum standards, those minima often become
de facto maxima.

In other words, the plus side of requiring everyone who practices medicine
to meet particular requirements is that you can go to anyone with an MD
degree and be sure that that person has met those standards (in the absence
of fraud, of course). On the other hand, there is little incentive to
compete based on higher standards--especially in the presence of third-party
payers--because for such competition to be worthwhile for the doctors, they
have to charge more for their higher credentials. And in a regime where
most people think that anyone who meets the standards is interchangeable
with anyone else, such competition is hard to manage.

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<BreadWithSpam[at]fractious.net> wrote
- quote -

Are you sure that these takeovers are better than their not
having failed at all? Nor I am the least bit happy that now
banking is becoming concentrated in the hands of a few
corporations, with Citigroup's hands in particular to be
said to be particularly unclean. Sandy Weill of Citi was a
huge backer of the repeal of Glass Steagall. Now we have the
former CEO of Goldman Sachs running the banking system. I am
uninspired. Paulson might do okay, but it is staggering that
he cared so little about the appearance of a conflict of
interest. Ethics will return to this country, including
recognition of what keeps our economy safe. But this is a
hard lesson.

A review of the history of Glass Steagall, in particular why
back in the 1930s it was designed to build firewalls between
between investment and commercial banks and insurance
companies, is what convinces me that its repeal was an
enormous mistake. Its repeal allowed and/or promoted massive
leveraging via the packaging and re-selling of subprime
mortgages into nonsensical packages, supported by those only
experienced with numerology and aiming for a quick buck for their
companies.

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honda.lioness[at]gmail.com writes:

- quote -

Are you sure that's true? Note that the repeal of it
via Graham-Leach-Bliley allowed the creation of
JPMorgan Chase, Bank of America and Citigroup in
their current incarnations - these are the same
companies which have been taking over other failed
companies like ML, Countrywide, etc. It might be
possible that had GLB not happened, those latter
companies might not have failed, but that's hard
to demonstrate, especially when some of the failures
were straight i-banks like Lehman and BS.

It's not obvious that the repeal of Glass Steagall is
what allowed those bank conglomerates to be so strong -
but it's also not clear that the creation of them, in and
of itself, has led to great danger or failures.

If you're looking for specific events on which to
hang more of the blame, think about the expansion of
the subprime market (especially Fannie and Freddie's
participation therein). Think, too, about the effects
of Mark-to-Market, which allowed i-banks to mark *up*
prices of assets to absurd levels during the bull
market for crappola (and thus book massive profits
and pay their executives even more absurd bonuses),
and which is now forcing them to mark those same
assets down - but with the loss of liquidity, the
new marks are at least as bad as the old ones.

Note that TARP gives the the SEC authority to
suspend FAS157 (the mark-to-market rules) for any
issuer if they determine that doing so is "necessary
or appropriate in the public interest and is
consistent with the protection of investors." And
TARP also orders the SEC to conduct a study on M2M
considering the effects of it on balance sheets,
impacts on bank failures in 2008, etc. etc and
requires that report to be submitted to Congress
in 90 days (starting a few days ago). That report
should make for some fascinating reading. (Secs. 132, 133).

Meanwhile, the next shoes to drop will be the
upcoming settlement of CDSs - in particular, Lehman's
this friday.


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