jonbig, If i were a hippy I would shower, so let's get that one straight. I beleive that subprime has complex roots, but I also think there is one undeniable fact: CDOs made the whole debacle much worse than it had to be. So follow the money- why were CDOs created? A: because people didn't know how to handle shitty loans. Why were shitty loans started? A: Because people like Clinton and the Acorn boys leaned on banks politically. Now once CDO's came around, I agree that they stimulated all sorts of people lending money not because they were politically pressured, but because they thought CDOs made the loans less risky. Then enter the brokers who didn't give a shit one way or another. But the first cause was political pressure to make shitty loans, and that pressure came from Clinton.
here's the deal - the warning shot has been fired over your head - take heed the bullets name is obama. now you can set there and get annihilated or you can do like me and get your bags packed and make plans to get the hell out of town. all the bitchin in the world isn't going to change anything - it's like the employees of corporations who stock went from 20 dollars down to 20 cents DUH at what time during the ride down did you not think hey i better be looking for another job? exactly the same with the us - the ride has been good and long but now come the due theory. the us is due really bad times and so at what point of this ride down don't you ask yourself i better be looking for another country? after all that's what brought my folks here in the first place gens ago. I don't have that flexibility for a lot of reasons, I'm going down with the ship.
There's nothing wrong with a CDO. A CDO has as much to do with shitty loans as it does to A paper loans. They can be used for any kind of debt. Why were CDOs created? A: because people didn't know how to handle shitty loans.This doesn't really make sense, given the nature of a CDO. CDO's are simply an instrument used to bundle a bunch of loans. They could be cars, boats, land, houses etc. There is nothing wrong with the concept. These things were invented before I was born. The issue is rising demand for for subprime backed CDO's. You said to follow the money, well the money wanted more subprime CDO's. Actually, I don't think FNMA even messed with any CDO's, but that doesn't matter. I see now that you've backed down from your original position (of some months ago) and now simply state that it all started with Clinton and the CRA. I don't buy that either (though it really has little to do with the actual spreading of subprime loans, which is the point). I don't buy it because the Clinton's involvement in the CRA was around 93, which was a good 5-7 years before subprime loans really began to take off (in origination amount and as a percent of market share). The only possible scenario I see is that Clinton somehow forced banks into taking loans they wouldn't normally take (I've yet to see real proof of that). They funded the loans and FNMA sold them. Then the rest of the market suddenly realized how much money they could make if they just had a way to hedge the risk. Enter the CDS and voila, crisis. But that's pretty damn thin. And even if it were somehow true all you would have proven is that CRA gave the rest of the market a bad idea, which they exploited. Or something. I don't buy it. Sorry, Clinton and the CRA played a very very small, if any roll in the subprime crisis.
There is plenty of proof that CRA and people like ACORN strong armed banks, you have to want to find it. Incredibly this bank http://boston.bizjournals.com/boston/stories/2009/03/16/story3.html?page=1 just found itself in trouble even after all the crap that just happened. CDOs have been around since the late 80's but the first subprime mortgage bundle didn't happen until the late 90's. Economics isn't linear, the storm that was the mortgage crisis had to have a catalyst and it was clearly shitty loans which people had to figure out how to handle. So ask yourself what was the source of the shitty loans? The source of the shtty loans was political pressure for subprime to underserved minorities. Wall street's answer was CDOs and the accompanying CDS. For sure they didn't have to take it to the extreme they did, but it all would not have happened without shitty loans existing in the first place. A secondary catalyst that came later was the 2001 introduction by David X. Li of Gaussian copula models, which allowed for the rapid pricing of CDOs and seemingly well understood risk. The sad sad fact of all this is now it is being used as an excuse towards statism and socialism- enter the image master onto the stage ready made for a bullshit artist. btw, He said a few weeks back that gov't would not use the bailout to tell GM what plants to close and make business decisions, more words designed to say what he thought wanted to be heard by the masses. Just another example though of how he says one thing but actual policy and ramifications are something else. http://www.businessinsider.com/barney-frank-intervenes-to-keep-open-massachussets-gm-facility-2009-6