There is plenty of blame to go around.

The government deregulated the financial industry under Clinton in 1999 and that left them free to venture into riskier and more diverse areas. (In my opinion, there has never been a deregulation, or free trade agreement for that matter, that actually did what it promised. Can you say airlines or telephones? )

The financial industry, whose top executives saw another opportunity to get rich with little risk or social conscious, jumped right in. They invented all types of new ways to lend money. Greed overcame prundence and everyone was happy for a while.

Joe Sixpack, who of course is not a financial wizard but always hoped to have a nice car and own a home, bought on credit which was freely offered to him. After all the guys at the car dealership and the mortgage company told him he would be fine. And back then he still had a good job at GM.

Then the jobs dried up and housing collapsed.

Yes everyone is to blame. But Joe just wanted a better standard of living. He was ignorant.

The government is what the government is. They muck up everything they touch.

But the financial industry behavior is criminal. They should know better, after all they are the experts.

But no consequences, so guess what - in a few years this will be history, taxpayers will have footed the bill and we can start the cycle all over.

That is what happened after the Savings and Loan Crisis of the 1980's and early 1990's. Corporate welfare at it's best, all in the name of saving Joe's bank account or 401K.

So 10 or 20 years from now Joe will be living in his 69 Chevy, the government debt will be 660 gadzillion dollars, but the AIG executives will still be coming to work in limos and sitting around the boardroom figuring out how they can rape us this time.

But the most interesting thing I think is if we gave all the money to Joe and people like him instead of AIG, we have just as good a chance of getting out of this mess and all those average people would be able to pay off their homes. Same cost to me the taxpayer but the money goes to more deserving folks, or at least less guilty folks.

But what do I know, I try to always pay cash.

This little article might make some feel better.

http://biz.yahoo.com/cnnm/080918/091...&.pf=taxes

Good thing the tax payers bailed out the stocks, the crude oil slip below $100.oo a barrel. Now its back above $100.oo and who knows where it will stop, $200.oo a barrel? :roll:

Well, the good news might not be so good now. Seems no one really knows how much all this is going to cost, yesterday the mid billions, then last night it was up to a TRILLION dollars, now one report is up to 2 TRILLION dollars. Point is they have no real idea. These derivitives are so complicated and so highly leveraged, they have no idea. One report warning of the coming disaster a year ago, had the total exposure at 9 TRILLION dollars!!!! Remember our entire national debt is 9.6 trillion.

The CEO's and top managers of these companies, should be throughly investigated, and brought to trial. It was solely their pure GREED and incompetence, that has led to the demise of some historically strong companies with excellent reputations. Lehman Bros., was founded in 1858! The shareholders, pension funds and retirees that invested in those companies have lost billions of dollars of their savings.

In 1995 (updated CRA regulations), the government forced banks into riskier investments. They didn't allow it. This is the biggest misconception about the whole deal. It was a regulation problem, not a deregulation problem. The whole point of the new regs was that they would measure how many loans were actually made, rather than the old way of measuring how many times the banks tried to make loans. In order to comply, banks had to scrap their standards. The GSE's would be the backstop anyway, so the banks were content to obey the law even if it made no business sense.

Then the lenders sold everything off to Fannie Mae and Freddie Mac. Then Fannie and Freddie turned them into CMO's and sold them to Wall Street. Everybody made money and the government helped "promote low-income housing"... until values fell and the payments stopped. I'll say it again - There was no other way to comply with the Clinton administration's regulations. The regs dictated that loans be made to "underserved" borrowers and communities, not just offered. Until 1995, offering loans to poor people and then turning down their applications because... well... they were poor... was enough. Not anymore.

The report generated by Clinton's administration in April of 2000 found that In case you don't speak BS, I'll translate: 80% more loans went to low-income borrowers and 60% of those loans went to people buying homes in neighborhoods that were above their income levels. Yeah, that should work out great until, say, 2008.

Some more tidbits that they were oh so proud of back then:
It's 196 pages of this stuff, with more detail coming later in the report. This report was not a criticism. The Clinton administration wore it as a badge of honor. The Bush administration had a "compassionate conservative" image to uphold, so they weren't willing to cut off the money train when they came in. And now we're shocked that the companies making the loans, buying the loans, and headed by the political cronies are going belly up? If we're that uninformed, then we deserve whatever government we get.

On the Wall Street end, those guys should have known better. I kept my clients clear of that crap and I'm an uneducated nobody. The guys running their firms into the ground and making millions of dollars are ridiculous. I doubt that they broke any laws though. One of those things.

On the banking and lending end, those guys were doing what the law required. All of the hand wringing and political posturing is so disingenuous that it honestly makes me nauseous. The polls show an opportunity, so let's ignore the part that was caused by the government hope for people to go bankrupt... sick.

A important question might be "how many of the loans in the LMI areas have gone bad?" and the 80% and 60% increases might be somewhat misleading, depending on the number of loans there were previously. If there was 10 loans made, a 80% and 60% increase doesnt mean much overall.
Some of the companies that speialized in "sub-prime" loans made billions of dollars. If you want a "traditional" mortgage you go to a bank and have your financing in hand BEFORE you go shopping for a home. Now days the builders, and the real estate agents already know where to steer potential "low income" buyers, and it is not a bank.

If there were ten loans made, your man Clinton wouldn't have been beating his chest about low-income housing. I'm not sure where you're going with this one, but it's right there in the quoted text - $460 billion from 1993-1999. Obviously they didn't all go bad, but this crisis wasn't the result of conforming mortgages. The 60% is even more alarming than the 80%. So we stuck 80% more people with loans that they may or may not afford, okay. The fact that 60% of those people were buying measurably over their heads is insane. The report concluded that (a) those people moved into higher income neighborhoods as a result of the legislation, and that (b) this was just swell.
They all did. That's the point. The feds pass a BS regulation. Companies (like Countrywide, ring a bell?) know they'll be able to sell their garbage loans to Fannie and Freddie, so they're happy to go right along. Fannie and Freddie know that the government (at least implicitly) has their backs, so they're happy to go right along. Bush steps in and doesn't want to be the guy to "hate poor people." Guys like Raines and Johnson make tens of millions of dollars as they run the companies into the ground. Very few politicians of either party are willing to stand in the way, since these are their fundraisers and buddies. (One notable exception, but you won't hear his name on MSNBC for obvious reasons.) The first link in the chain that didn't have a built-in reason to be reckless was Wall Street. You could argue that they wound up being the most reckless of all. Those people were idiots to get so exposed to this stuff without massive cash reserves. All you hear now is "greedy Wall Street" though. No mention of the actual root of the issue. They (the candidates) are playing people for idiots, and people are proving them right.

Before this legislation, you could still find investors to fund non-traditional mortgages. As a high-risk borrower, you paid through the nose for interest. Therefore you had to buy a crappy house in order to afford the payments. There was a market for crappy houses and the big banks didn't get too exposed to garbage loans. That's why the system never got in this kind of jam before.

Under the new CRA rules, people were buying more and more expensive houses and refinancing the hell out of them every time the value went up (also in the quoted text - 77% of the loans were refi's). There was no longer a market for crappy houses, so we just kept building new ones and getting oversupplied, and the government was forcing Fannie Mae and Freddie Mac to hold way too much risky paper. For them to comply and hold enough low-income loans, they essentially became the buyers of every subprime loan that anyone wanted to unload. There's plenty of blame to go around, but I am seriously getting tired of hearing about how we need government babysitters to prevent the problems that they specifically created.

I agree, Fannie and Freddie have been almost like a political slush fund for every politician on Capitol Hill for years. They were untouchable. But virtually every politician benefitted from their money come campaign time.
It will be interesting to see if those 2 CEO's will receive their "golden parachutes," a reported $7 and $9 million.
But there now seems to be a consensus that these "investment" banks need some further watching. As do the creators of exotic derivitives. And Wall Street itself. For too long they have been allowed to argue "free market" and we "can police ourselves" and too often they need a "bailout" to keep their "house of cards" from crumbling and taking all of the legitmate banks, investment banks, brokerages, small investors and the whole financial system down the drain with them.
The mortgage mess will not be that hard to solve, as you have a real asset, property. Thus a reasonable value can be determined and set. The difficulty and real trick is trying to figure a value of a complex derivitive, that is based on a overpriced "exotic" mortgage that has been over leveraged upteen times. It will most likely be a number pulled from thin air, and soon forgotten.
But it is good the "Afred E. Newman, what me worry" administration is trying to figure it out. They may a least provide some stability for the time being.
Countrywide, smart money is on Marillo going to jail. Countrywide made IndyMac. Unmade it also. But Countrywide, being unable to pawn it's worthless loans to legitimate banks, bought small IndyMac and used it as a clearinghouse for their worthless paper. Once a "bank" had the paper it was easy to pass off to Fannie and Freddie.The Fed, or regulators also passed some of the "loans" off to Fannie and Freddie when they took over IndyMac. But stated at the time that there was no problem because Fannie and Freddie were so big and they had plenty of capital to take on the additional loans.

Whatever consenus may exist about investment banks is at best an uninformed consensus. People who think Wall Street is unregulated just don't know what they're talking about. Stop by and have a cup of coffee with the compliance officer at your local brokerage office someday. We couldn't even fart without filing the proper disclosures beforehand. They need tighter margin requirements, pure and simple. Anything more will amount to destructive interference.

As usual Gordo, my (decidedly conservative) opinion is that you've missed the point. This was not caused by a free market. This was caused by a government mandated market. Those derivatives were the only way for such massive amounts of garbage paper to be moved. If they weren't moved, Fannie and Freddie wouldn't have the cash to buy more garbage paper. Since the law required them to hold more garbage paper... there we go.

Where the free market came into play was at the third level of the game. The investment firms wanted to show returns to their investors, but the growth in this country was largely in housing. They took big gambles and they lost big money. If the margin requirements were tighter, they couldn't have gotten so tightly wound. The CEO pay is an unfortunate psychological deal for those of us in the middle class, but it only really matters in the case of the guys like Raines who were cooking the books to earn bonus payments. In an odd twist, Raines supported Bush's proposed reforms in 2003 and his Democrat buddies in Congress blocked them. (I'm sure I linked the New York Times article at some point in this thread.) Maybe Raines got religion somewhere along the way.

Of course, if the Wall Street firms hadn't been able to leverage to the extent that they did, the companies at levels one and two of the game would have faced sanctions under the 1995 guidelines for failing to loan enough money to lower-income people. That's the whole point that you seem to prefer to ignore. Before the 1995 re-write, subprime loans couldn't be securitized. I know you're looking for a Bush angle here, but there isn't one, so I'll repeat myself. Before the 1995 re-write, subprime loans couldn't be securitized. They had to be put into securitized form so that they could get passed on to Wall Street, providing the money for the GSE's to loan. It was not simply a matter of greed (although that plays a role), but a matter of law.

The idea that Wall Street is some kind of Wild West is a load of crap. It hasn't been that way since the 1930's. There is plenty of regulation. Poor reporting and an unwillingness to crack down on abuses is where things go awry. "Alfred E. Newman" tried to fix this. "Whatever is your pet name for Senator McCain" also tried to fix it. Their efforts were unsuccessful, so they don't amount to much, but it's nothing short of lying to suggest that this was some kind of freewheeling 'anything goes' kind of deal. It was forced by laws written in the 1970's and updated in the 1990's.

I worked on the floor of the CME for 2 years. Trading violations occur daily, both on the floor and in the back offices.
I also appraised real estate for 8 years until the S&L crisis drove me out of work. I saw this disaster coming 4 years ago. And you sure can't hang everything on a law passed in 1993. The "intent" of the law was to keep mega banks from entering into "minority" neighborhoods and sucking all the money out and not re-investing in the neighborhood. Now, if Congress was paid off by some special interests and then manipulated and drove loopholes in the law, that I do not know.
Now if the CEO's and their top managers are so smart, why didnt they figure it out before they lost all of their shareholders money? Don't you think they have some fidicuary responsibilty to the shareholders? And where were the accountants? Aren't these companies supposed to be filing forms with the SEC or some gov't agency? Isn't the SEC or some gov't agency supposed to be reading these filings? This didn't just occur overnight. I'm no genius, but I saw it coming 4 years ago, with the type of mortgages they were writting out there. And not all these people are poor, far from it. The poor neighborhoods here have only seen a modest increase in foreclosurers over typical years,(although higher than normal to begin with) the big increase is in the middle and upper middle income brackets. So called white collar workers.
My point is you can't lay the entire mess on Congress or Clinton as you might be trying to do. Our economy can handle the bad mortgage debt, that is no problem, maybe a 4-500 billion more or less. The problem is arising from the complicated derivitives being peddled on Wall Street, which so far no one has a inkling of what the amount is or what the amount may even be in the future. But I'd be willing to wager, it's going to be a heck of alot more than they are saying today.

I think it was Karl Marxx that said "the greed of capitalists will cause them to devour themselves from within." Or something similar. Maybe we have reached a point where our coporate leaders and gov't leaders have become so corrupt, we are nearing that point. Or maybe, we as a society have become so corrupted, that our "leaders" are simply a reflection of ourselves.