Breakdown of today's housing crisis: How we got to where we are today.

This video is being thrown around.  Who here can answer its claims?

Who is responsible for the housing crisis?

The housing bubble caused it
1.    1977 Community Reinvestment Act Created by Jimmy Carter
2.    1995 - Clinton Administration updated to create and push subprime loans.
3.    2003 - Bush tried to stop it
4.    2005 - McCain tried to stop it

Somebody help explain this.  It will be in the next news cycle.

Tags: Bush, clinton, Economy, Fannie Mae, Freddie Mac, mccain, obama (all tags)

Comments

12 Comments

Re: Breakdown of today's housing crisis:

You are misguided.  Legislation created 30 years ago http://www.ffiec.gov/hmda/, cannot explain what has occurred in the past two years.  There is an explanation, yours isn't it.

by ChitownDenny 2008-09-28 12:44PM | 0 recs
Thanks for the clarity...I guess

HMDA enacted during the Ford administration is the same as Community Reinvestment Act?  

by Classical Liberal 2008-09-28 01:21PM | 0 recs
Re: Breakdown of today's housing crisis
Same path to the same end; Right-wing talking points.  
What has occurred over the past 2-3 years is different from what was legislated 30 years ago.
by ChitownDenny 2008-09-28 01:39PM | 0 recs
Be for real

10 minutes and not one mention of Credit Default Swaps? Nothing about Phil Gramm?

There is plenty of blame to go around, and I am deeply suspicious of a video that assigns 100% of the blame to Dems and 0% to Republicans. Especially when there are a bunch of "and therefore"s crammed into 3 second strobe flashes.

Sorry, this fails the smell test.

Moreover, risky mortgages were only part of the problem. The wider problem is that the derivative market mispriced this risk, distributed it, and multiplied it.

Yes, multiplied. Credit Default Swaps are very much like insurance policies, with one big difference. You can buy multiple CDSs on the same underlying assets. So, a default on a 250,000 mortgage might results in millions of dollars of obligation.

The second (or third) part of the problem is that this subprime debt was packaged and redistributed as investment-grade (AAA) debt. Oops, now it works it's way into pension funds.

The point is, the subprime mortgages were a problem, but it took Credit Default Swaps  and some shady securitization practices to make them a crisis. Remember Chris Dodd saying "securitized debt"? There you go. That should be a KEY POINT of any explanation of the issue, and this little hitjob bypasses it entirely.

I'm not going to spend two hours debunking the video, but simply from the above observations I can guarantee you it will be debunked.

by Neef 2008-09-28 02:59PM | 0 recs
Thanks I was looking for some meat

So I understand your argument.  

Businesses like Fannie Mae and other mortgage/investment giants are to blame for the problem and Republican's by extension for allowing them to do it through legislation passed in 2000.

I have to admit my eye's started crossing when reading about Credit Default Swaps and derivative markets.  

by Classical Liberal 2008-09-28 04:37PM | 0 recs
Any normal person

gets a headache when talking about derivative markets, so I'm with you there. As for the current crisis, there is blame enough to go around.

Here's how I have come to understand the current crisis:

Suppose you are a reckless driver, and I write you an insurance policy. If you crash your car (as is likely) I lose money, but I was prepared for it, and one car settlement won't bankrupt me.

That's pretty much the mortgage crisis in a nutshell.

However - let's say you convince me to write you TEN policies. Sure you have to pay ten premiums, but you know damn well how bad you drive, so chances are you won't be paying for long. I, on the other hand, have to pay you TEN TIMES the value of your car when you crash. Should ten policies on one car be illegal? Yes, if I was an Insurance company. But if I sell you a Credit Default swap, it's unregulated. If I do this often enough (I'm loving all those premiums), my liabilities balloon to ten times the value of the assets I am insuring.

That's the damage Credit Default Swaps added.

Now say I get nervous about all these wildly inflated policies I am carrying. I package them up as securities, where the premiums are sort of like dividends. I sell these securities to people who are simply looking for investments.

Well, guess what? I am no longer liable when your car crashes, the person who bought the security is. They may not even be aware that they're on the hook, but on the hook they are.

Since I can sell off these bogus policies, I start writing a bunch of them. You like to drive at 90mph with a bottle of Jack in one hand? NO PROBLEM. I'll insure you 20 times, and sell the policies to some pension fund. Next!

This is what happened with "bad securitization".

The upshot is, when you crash your car it's not just me paying you off. It's some unknown number of investors paying you over and over, some of whom were not even aware they might owe you.

Finally, the people who are holding these securities realize they are simply little time bombs. They want to sell them off, but everyone is wise to the scam. No one wants them, and so the price of these securities plummets, but the risk stays the same.

That, I believe, is where we are now. People are holding securitized mortgage-backed Credit Default Swaps, and not a small number. Trillions of dollars worth, and yet no one will touch them with a ten-foot pole. The "bailout", if I'm not mistaken, is going to buy a lot of this trash, to keep the price up.

So, you see how the mortgage stuff WAS the seed of the crisis, but it was not the driving force to catastrophe.

by Neef 2008-09-28 06:11PM | 0 recs
Thanks for taking the extra time

That jives with the NYT piece I found and it seems to make some sense.  I still don't understand why the risk was not assed correctly to the "driver" in your analogy.  

Whether I had 1 policy or 10, my preimums should be offsetting the cost to insure.  Why were people like me who "drive 90 with Jack in their hands" not charged higher interest rates and what would drive a company to want to do things that will bring their downfall.

I guess it comes down to short-sighted greed.  It doesn't make me want to support a bailout though.  Maybe it is going to cushion the upcoming fallout, but I don't think it will stop it by any means.

by Classical Liberal 2008-09-28 07:34PM | 0 recs
Re: Be for real

Let me add a few things to the debunk list.

1. The video claims St. McCain cosponsored legislation and came out against Fannie-Freddie in 2006. Well, the legislation was started by three other senators in 2005 and he signed on sixteen months later as an additonal cosponsor and made a total of ONE speech on the subject. The three worked a whole lot harder than he did and he never mentions them.

2. CRA is about redlining, the refusal of banks to give mortgages in respect of real estate in various particular communities. It does not require a bank to issue subprime mortgages, only that it show reasonable efforts to give mortgages in formerly redlined area. I have long lived in Harlem and mortgages given to gentrifying white folk for Harlem brownstones satisfied CRA. It's not a race issue, exactly.

3. Obama's former law firm suing Chicago banks was not because they didn't give subprime mortgages but because otherwise equally qualified African Americans couldn't get mortgages from them. This I know in the NY case from personal experience, When my AA husband and I ('white') applied for our mortgage, I would get it if I were the lead borrower, and he would not, on the very same financials. It's also the problem of lenders that with equally qualified financially borrowers, whites could get the fixed thirty year but AAs would be offered less favorable terms. Nothing about remedying that situation required any bank to issue ARMS and Optional ARMs or No-Docs.

by Christy1947 2008-09-28 05:33PM | 0 recs
Re: Breakdown of today's housing crisis: How we go

Barney Frank is one of the main problems

http://www.youtube.com/watch?v=VgctSIL8L hs

by gunner 2008-09-28 03:10PM | 0 recs
Re: Republican lies

The bad mortgages were overwhelmingly written by unregulated non-bank lenders, financed by under-regulated investment banks (such as Bearn-Sterns and Lehman brothers) using completely unregulated credit default swaps. The pure investment banks got into the dangerous waters of credit default swaps partly to compete with the new hybrid investment/commercial banks, which came into being as a result of Republican deregulation.

Fannie and Freddie were not brought down by directly backing low-income mortgages. The mortgages to low-income home buyers that Fannie and Freddie directly backed were overwhelmingly fixed rate loans with a very low default rate. As the housing bubble began to fail, congress pushed Fannie and Freddie into the business of buying up the supposedly AAA rated portion of the mortgage backed securities that Lehman, Bear-Sterns and AIG were generating. When this turned out to be garbage, Freddie and Fannie went broke.

Fannie and Freddie failed partly due to their ability to corrupt congress, which allowed them to remain under-capitalized, but that is because they were huge for-profit corporations with an extremely cozy relationship to congress, not because they were supporting low-income home-buyers.

In 2000, republicans pushed through the law that forbade regulation of credit default swaps (the same sleazy law that created the Enron loophole). Without that law and the resulting explosion of credit default swaps, the collapse of the housing bubble in the last 2 years would have looked a lot more like the collapse of the housing bubble in 1990: some lenders lose some money, some borrowers lose their houses, a lot of home owners end up underwater, but the Financial industry would not need a $700 billion bailout.

Honestly, I didn't even watch the Republican propaganda video in the OP. Same old bullshit.

by letterc 2008-09-28 03:30PM | 0 recs
Classic Liberal is his way of telling you...

He is a Republic.

They do that trick all the time.

Here's why I am a TRUE liberal they say, then the spout 35 minutes of Rush style talking points.

Revisionist history clap-trap.

These same people try to blame the original S&L crisis on the Dems these days...Ignore Keating and Neil Bush along the way.

by WashStateBlue 2008-09-28 04:57PM | 0 recs
Re: Fannie and Freddie

A couple of questions for the more knowledgeable:

1. Did Freddy or Fannie start buying nonconforming mortgages? If so, how many? I thought that the point of Fannie-Freddy buying them was that it stood behind the ones it bought and resold.

2. What is the actual default rate on the Fannie-Freddy mortgages?  How many of them are the subprimes?

3. Are we actually talking about defaulted mortgages here or the fear of those owning the mbses that their slice of the portfolio may be no good in some proportion? Or is it the non-Fannie-Freddy ones altogether that are causig the problem.

by Christy1947 2008-09-28 05:16PM | 0 recs

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