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There have always been "bums" trying to get loans.

As someone who worked in mortgage lending before the death of "Glass Steagall" I can assure you the reason my bank didn't loan to "bums" was because WE "the bank" would be left holding the worthless piece of paper and eat the loss. Since we didn't want to take losses on bad loans we lent out CAREFULLY.

When risk became separated from lending there was no longer an incentive to lend carefully because the banks could bundle and ditch the lousy loans on unsuspecting investor. Investors who were assured that the bundle of loans was rated "AAA" by the likes of a Standard and Poors. So the "bums" who invested got taken for a ride too.

These loans became a bunch of financial hot potatoes that could be tossed around until the hot mess imploded.

Again the CORE problem was when banks could lend yet did NOT have to carry the risk for the loans they made.

(Btw-this was a repeat performance of the overly inflated stock market prior to 1929. Ask yourself why Canada did not experience the same problems, because they kept and enforced the rules which prevented the "incentive" to make bad loans to begin with.)

no no no. you can't put all the blame on the banks. if people didn't have adequate funds they shouldn't have signed. paying interest only is the most retarded thing i ever heard of, why would anybody do that? my car finance company is happy to give me a deferment where i have to only pay the interest. i had to do it twice in hard times. to do that every month doesn't make any sense. it's like selling your soul to the devil.

sure there are catostrophies in people's lives but not that many people at the same time. the banks did sucker people but mayby they should've thought long term, maybe sat down with a financial advisor before signing something they wouldn't be able to afford. banks are always going to be evil, that's why you have to think about what you are signing.

i give it a 50/50 blame.
 

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Another way to frame it -

50% of the problem was banks given the 'opportunity' to make subpar loans and not hold them

Other- 50% of the problem was the banks dumping the loans on the market and unsuspecting investors.

Too much easy credit lead to overly inflated housing prices which encouraged a typical reaction we've seen before of overly optimistic investing. Let the good times roll. Some more sober voices tried to cool it down and one economist who warned about the imminent collapse was labeled Dr. Doom (Nouriel Roubini).

When the line between "commercial" banks and "investment" banks was erased (see Glass Steagall again) the barn door was left wide open for what happened and all the horses were out. It's happened before and probably will again because we always forget the lessons of the past and are doomed to repeat them.
 

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I hear so much about why the housing boom to bust happened ...and so much is directed at the financial institutions and governing agencies which regulate the industry. I guess it's always easiest to point the finger elsewhere....

I think the part of the housing/credit debacle which is always overlooked was the part of the loan process where during the closing...they put a gun to your head and forced you to sign the line.

SuperG
 

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Human nature on both sides of the equation. No one put a gun to the lenders head either ya know.

People being overly optimistic and biting off more then they can chew have ALWAYS existed.

Couple that with DE-incentivizing caution on the part of the humans running the banks and there you have it. They took that ball in their greedy hands and ran with, some knowing full well they were taking advantage of the new wide open barn door.

We managed these two realities quite well for many years post Great Depression. Then we forgot, dismissed, demeaned and thought we could party like it's 1999 ... Forever.

That's the key, managing the two realities.

Clearly history has proven time and again that it must be managed.

Glass Steagall was actually are very elegant management tool. It used incentives to encourage banks to make a choice. Incentive One, FDIC insurance for banks that wanted to be "commercial". The carrot being FDIC insurance was a huge draw for depositors post 1929 crash. The "cost" for the bank was they could NOT play loose and fast on the investment markets with deposits or loans.

The other option banks could choose was "investment" banking. Incentive - more potential profits, downside higher risk and no FDIC insurance. They were less regulated and the public could choose based on where their comfort level was. Fact of the matter was most average folks choose the commercial banks for the security.

High rollers who could afford to take gambles could go with "investment" banks.

But if an investment bank went belly up it didn't take the whole system crashing down with it, because of the separation.

There are ways to manage systems that encourage good behavior on the parts of all concerned.

Make no mistake though, the breech in the system was not the average borrower, they were minor actors in this mess, it was allowing bankers to make bad loans without worry of taking a loss. They opened up the credit floodgates and set the stage for the crash to come.




I hear so much about why the housing boom to bust happened ...and so much is directed at the financial institutions and governing agencies which regulate the industry. I guess it's always easiest to point the finger elsewhere....

I think the part of the housing/credit debacle which is always overlooked was the part of the loan process where during the closing...they put a gun to your head and forced you to sign the line.

SuperG
 

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In other words Super G, we took a relatively stable post Depression System that worked and broke it.

Why?

Because "History is what you remember".

(1066 and All That, Sellar and Yeatman)
 

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Gwenhwyfair,

I appreciate your thoughts regarding the rationale, the players, the impetus, the greed, the rosy picture being painted and all the other components going on behind the scenes...but.....in any industry/business/consumer product, one needs a base of consumers..whether it be at the retail or wholesale level. The culpability of all too many has changed dramatically since the Great Depression. Credit was utilized to a much lesser degree with the disciplines of the Greatest generation....perhaps their house was the entire debt load many from that generation carried versus the debt load of the Boomers. The Boomers financed pretty much everything, including their futures and the futures of their children...I suppose they had a good reason since the leaders of our country and the captains of our industries had no problems piling up huge debts...all based on betting on the come...or maybe not even that...maybe just a simple disregard for the outcome of their financial lack of austerity...as long as it could be passed off on someone else..i.e. the masses.

I liken the credit problems this country has to drugs. Illicit drugs and those who make bank from the sale of drugs rely on a consumer base...all willing based on their own free will.....no different than getting in over one's head with excessive credit. Just because one can qualify for lines of credits via financial institutions and regulations...does that mean one should take opportunity? I promise you, if the citizenry of this country had the financial disciplines of those who lived through the Great Depression there would have never been this credit malaise and fall out this country experienced.

I'm all about culpability...and many of the components you cite which were integral in the process ( high rollers etc.) would have never had the opportunity to take advantage of the speculative investments and leveraging they took part in..IF..the base consumer was not involved....but they lined up to leverage away their lives..willingly and in doing as such, opened the floodgates for the manipulators at the top of the "food chain" to take the average Joe to the hoop....and they did..

Oh, when I compare the Greatest generation to the Boomers..I do this in a sweeping generalization fashion since I fully understand there are exceptions to each generation.

SuperG
 

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The greatest generation didn't require credit as much. Not an apt comparison but I won't get into it as it surely will take a political turn.

Really, the fact of the matter is, we a had a fairly stable banking system until risk was decoupled from the lending process. Countries like Canada which did not loosen up credit didn't take a dive like we did. Rarely in economics do we get such a test of theory in reality. There it is though, for those willing to compare, the evidence.

That's it in a nutshell and that's not a generational affliction either. We had a similiar depressions in 1873 and 1893.


Gwenhwyfair,

I appreciate your thoughts regarding the rationale, the players, the impetus, the greed, the rosy picture being painted and all the other components going on behind the scenes...but.....in any industry/business/consumer product, one needs a base of consumers..whether it be at the retail or wholesale level. The culpability of all too many has changed dramatically since the Great Depression. Credit was utilized to a much lesser degree with the disciplines of the Greatest generation....perhaps their house was the entire debt load many from that generation carried versus the debt load of the Boomers. The Boomers financed pretty much everything, including their futures and the futures of their children...I suppose they had a good reason since the leaders of our country and the captains of our industries had no problems piling up huge debts...all based on betting on the come...or maybe not even that...maybe just a simple disregard for the outcome of their financial lack of austerity...as long as it could be passed off on someone else..i.e. the masses.

I liken the credit problems this country has to drugs. Illicit drugs and those who make bank from the sale of drugs rely on a consumer base...all willing based on their own free will.....no different than getting in over one's head with excessive credit. Just because one can qualify for lines of credits via financial institutions and regulations...does that mean one should take opportunity? I promise you, if the citizenry of this country had the financial disciplines of those who lived through the Great Depression there would have never been this credit malaise and fall out this country experienced.

I'm all about culpability...and many of the components you cite which were integral in the process ( high rollers etc.) would have never had the opportunity to take advantage of the speculative investments and leveraging they took part in..IF..the base consumer was not involved....but they lined up to leverage away their lives..willingly and in doing as such, opened the floodgates for the manipulators at the top of the "food chain" to take the average Joe to the hoop....and they did..

Oh, when I compare the Greatest generation to the Boomers..I do this in a sweeping generalization fashion since I fully understand there are exceptions to each generation.

SuperG
 

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Gwenhwyfair,

I must politely disagree....the debt load on the average citizen today far exceeds the debt loads on our predecessors.

SuperG
 

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A long and sordid story....but in a nutshell powerful men who assured politicians, almost from day one, they would play "nice" if Glass Steagall was pushed into the trash bin.

We includes us as well for not paying attention.....

That includes me, I knew something was going awry when I saw all these crazy loans and zero down deals. I did not realize the depth of it at the time. I did warn some friends from buying and helped my fiancé' get out of his house before the implosion. I just didn't realize at the time the complex instruments CDS s, secondary markets and how tangled this had gotten with speculation and how wide spread it was.




Who is "we".....???

SuperG
 

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No "require" is more apt.

I can use a less politically charged example.

Consumerism was in it's infancy.

They did switch from "iceboxes" to refridgerators though.....but there was less "stuff" to be bought over all.

Again look at 1873 and 1893, it's not necessarily a generational difference. It's human nature.


I agree...but you really need to think about those words and ask yourself why? I might substitute the word "desire" for "require"

SuperG
 

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I was citing the differences between the Greatest generation and Boomers....not the late 1800's...which would have been the Lost and Interbellum generations.

Greatest generation is described as being born between 1910 and 1925..give or take a few years.

What once was "human nature" is no more....let me use ..living within one's means as a prime example.

What is considered "needs" in today's society was a privilege or luxury decades ago. I could cite hundreds of examples but I think you get my drift.

I agree with your ..who is "we" response...yes, basically all of us..but most importantly the electorate.....we have what we have voted for and allowed.

You seem to defend consumerism as a necessity like food and shelter. I would tend to disagree with the significance you place on consumerism..almost as if, we have no choice, which of course we do. However, the way consumerism has been brought to the table, one could argue it is almost one's "patriotic" obligation to partake in this activity....but of course it is not...it's just been ingrained in so many over the years that it is "normal" to have a negative balance sheet.

Throughout most all of history, there has always been a similar predicament regarding needs, desires and " stuff" to buy. Greed has always existed as long as humans have walked on this earth...however the difference is what each newer generation feels they are entitled to...austerity in financial practices has been tempered as every year goes by due to this sense of entitlement. However, any extended duration of tightening credit policies and not allowing the consumer to patronize themselves via credit they shouldn't participate in does have a positive effect on the problem not worsening ( time frame Jan 2009 to current ).....much of the lessening of American debt load from 2009 to 2012 is artificial as many credit companies wrote off seriously past due debt...but the juggernaut keeps plowing forward so it seems.

SuperG
 

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Human beings have not changed that much so my comparison is apt.

One of my favorite sayings is "humans, trying to manage a modern world with 10,000 year old software". I can't take credit for that but cannot remember where I heard it.

Our technology has exceeded our ability to manage it humanely but that's another topic!


Anyhoo, here's the thing, your argument is downright Dickensian.

I will always reject an argument framed that the poorest, least educated people are the cause of the downfall of a vast financial sector populated by many powerful and knowledgeable people, including bankers, real estate brokers, developers, mortgage originators, loan services and on and on. People who all stood to gain the most as long as the party went on.

Many of these sub par loans would NOT have made it past the application process back in the 80's and early 90's because most of them had huge red flags in their history, credit record, employment and income that said..."No loan for you". Hence the term "subpar"

If someone you knew, personally, walked up to you and asked for a large loan and you *knew* they had a bad track record and lent to them anyway, well then the fingers should point at you the lender. No one forced you to lend to this person, you knew it was a big gamble and therefore I wouldn't have much sympathy for you as the lender.

Originators can pull credit, run back grounds, verify employment they have many, many more tools for determining credit worthiness then I did when I worked in mortgage lending.

I'd also like to address the comparison to "drug users". None of the borrowers (unless they lied on their application) were committing a crime. The irony here, Super G, is we had similar melt down with the Savings and Loans back in 1980s.

The big difference between the S&L crisis and the latest financial meltdown was people were actually tried and sentenced for what happened with the S&L mess and they weren't the "little guys". No one (to my knowledge) has been tried and sentenced for the recent "Great Recession". That's pretty ironic don't you think? This time it's about blaming and the least powerful, least knowledgeable people of the entire downfall.

It's really a false moral equivalence and to be honest it depresses me when I read and hear harsh indictments on a large group of fellow Americans. I don't like to get out in the emotional weeds of these issues. What made those in power at some of the largest financial institutions feel "entitled" to ignore history, caution and then demand to be bailed out in the end? I'm sure there are some who would be happy to have debtor prisons again. Ugggghhh :( :( is all I can say.

The basic facts are:

1) We had a working system that kept a balance between the competing drivers of lending and borrowing. Therefore we know, regardless of who you want to blame, these sort of problems can be largely prevented.

2) Proof of this is demonstrated in countries that did not and do not buy into the "if people would just be more responsible" meme (who I'm sure have their share of greedy and/or irresponsible citizens).

I think the more we attack and blame each other (a bad habit somewhat unique to the U.S. amongst developed countries) the worse things will become because it doesn't solve problems based on realities that exist now and have always existed, it creates resentment and potentially chaos and I don't like chaos......


It was the best of times, it was the worst of times.


Anyhoo, I want to end this post with something important. I appreciate your posts and find you to be thoughtful and intelligent. I usually agree with you, 99% of the time and am disagreeing with you on this one particular topic only and none of my thoughts are meant against you personally or generally in any way.





I was citing the differences between the Greatest generation and Boomers....not the late 1800's...which would have been the Lost and Interbellum generations.

Greatest generation is described as being born between 1910 and 1925..give or take a few years.

What once was "human nature" is no more....let me use ..living within one's means as a prime example.

What is considered "needs" in today's society was a privilege or luxury decades ago. I could cite hundreds of examples but I think you get my drift.

I agree with your ..who is "we" response...yes, basically all of us..but most importantly the electorate.....we have what we have voted for and allowed.

You seem to defend consumerism as a necessity like food and shelter. I would tend to disagree with the significance you place on consumerism..almost as if, we have no choice, which of course we do. However, the way consumerism has been brought to the table, one could argue it is almost one's "patriotic" obligation to partake in this activity....but of course it is not...it's just been ingrained in so many over the years that it is "normal" to have a negative balance sheet.

Throughout most all of history, there has always been a similar predicament regarding needs, desires and " stuff" to buy. Greed has always existed as long as humans have walked on this earth...however the difference is what each newer generation feels they are entitled to...austerity in financial practices has been tempered as every year goes by due to this sense of entitlement. However, any extended duration of tightening credit policies and not allowing the consumer to patronize themselves via credit they shouldn't participate in does have a positive effect on the problem not worsening ( time frame Jan 2009 to current ).....much of the lessening of American debt load from 2009 to 2012 is artificial as many credit companies wrote off seriously past due debt...but the juggernaut keeps plowing forward so it seems.

SuperG
 

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P.s. My focus is primarily on the real estate/mortgage lending aspect. Credit cards/consumer lending are a different animal (some similarities but not entirely).

I'd have to go into the industrial revolution, post industrial revolution, modern economic drivers to make my points about that...and I'm tuckered out. ;). Lol!

A point that I will make in general is I don't think one can have a fair discussion of these types of issues when taken out of historical context.

How we get "here" matters because these problems don't happen in a vacuum and most really are preventable......if we only paid attention to the past and overall trends.
 

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Gwenhwyfair,

Oh, of course this exchange is completely friendly...spirited debate and difference in opinions is what makes us all better for the exercise.

We simply have a difference in opinion....I don't mind that at all. As a matter of fact, if all we did throughout life was talk to "mirrors"..I'd become bored and be less informed on my opinions and tenets of life.

My opinions regarding finances were most likely shaped by my parents, who came from nothing and through hard work, good fortune and always understanding their position in life achieved the "American Dream"....hence I am a hard-nose about personal financial conduct and take the subject as a process which is entirely incumbent upon the individual not the institutions. I wholehearted agree with you that, the powers to be allowed the masses to indulge themselves in a fashion which was a losing proposition ( for the consumer mostly ) from the inception of changing monetary policies from what they previously had been.

Here's a small example of what I witnessed years ago during the housing boom to the fall out resulting in the subprime mortgage crisis. Two employees, who had seemingly proven themselves as somewhat savvy in the personal finance arena, jumped all over the ability to take out numerous mortgages and parlay these loans into the acquisition of numerous rental properties. When their credit worthiness reached a point to where it seemed exhausted...along came another option..provided by the lenders...the "liar's loan" SISA and NINA loans. I recall asking these individuals what the downside of these loans were and the answer was a few points higher in interest rates..that's all..no big deal. At this point, I knew something stunk.

Now, here's where I lost some respect for some of my fellow humans..during the foreclosures and fall out at the consumer level, what did these previously honorable individuals do when the balloons triggered ( which they were well aware would take place )? Well, they took the revenue from the rental properties and funneled it into their homesteaded property knowing this asset would not be liquidated in their pending bankruptcy or foreclosures on the other properties. The extended period of time before a foreclosure could be initiated and property ceased ( new regulations ) allowed them ample time to milk the system....wonderful, isn't it. When I asked these particular individuals if they had any guilt over their actions they plainly stated " Heck no, it's their fault "....wow ! ... I replied " how is it their fault for loaning you money"..I didn't get much of an answer.

So, at the end of the day, I will meet you half way...the lure of cheap money and a lack of qualifying loan performances adequately, combined with unreal real estate appreciation was just too much of an enticement for too many to resist. Yes, the "string pullers" at the top of the food chain made it possible to happen but participation by the consumer level was integral in order for the grand scheme to be successful....and the transfer of finances from those lower down on the ladder to those at the top became a reality. I guess it takes two to tango as they say...except one of the dance partners got taken to the hoop.

All I know is...thanks for the exchange AND...I have the most wonderful GSD !


SuperG
 

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Wow, SuperG and Gwenhwyfair you both sound like really intelligent people and both have presented a lot of facts of history. I have enjoyed reading your comments regarding the credit/debit mess. Maybe you could get together and write a magazine article on the subject. You certainly could not do any worse than the so called "professionals" in finance in discussing the situation.
 

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Wow, SuperG and Gwenhwyfair you both sound like really intelligent people and both have presented a lot of facts of history. I have enjoyed reading your comments regarding the credit/debit mess. Maybe you could get together and write a magazine article on the subject. You certainly could not do any worse than the so called "professionals" in finance in discussing the situation.

Thank you! :) Very nice of you to post this.

(Hehehe I still don't know how to train a dog to IPO3 though and boy would I love to learn more about that!).
 

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Thank you! :) Very nice of you to post this.

(Hehehe I still don't know how to train a dog to IPO3 though and boy would I love to learn more about that!).
:thumbup:
 
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