Wall Street's self-dealing caused financial crisis

Discussion in 'Wall St. News' started by wilburbear, Aug 28, 2010.

  1. zdreg


  2. They all suck. and until there is large scale incarceration, it can't be put to rest.

    Just look around and see the pain. Somebody different is going to pay. And I think it's coming pretty quickly. It'll be interesting who they leave standing. Can't take them all, or this piss poor excuse for capitalism will totally collapse, as opposed to the limping monster we now have.

    I see it being like WWII when Patton became a military Governor. He put a couple of Ex Nazis in charge, because they were the only sons of bitches who knew how to run things.

    The things you are about to see will truly amaze you. Late but happening.
  3. The Government Intervention caused this mess. Suddenly everybody forgot about the Housing Act reform in 1995, the repeal of the Glass-Steagal Act in 1999, Fannie Mae, Freddie Mac, The FED playing with interest rate with disregard and etc etc etc.

    In 1995, Fannie and Freddie were given permission to enter the subprime market and regulators began to crack down on banks who were not lending enough to distressed areas. Several attempts were made to rein in Fannie and Freddie, but Congress didn't have the votes to do so, especially with both organizations making significant campaign contributions to members of both parties.

    Even the New York Times as far back as 1999 saw exactly what might happen thanks to this very unfree market, warning of a need to bailout Fannie and Freddie if the housing market dropped.

    Complicating matters further was the 1994 renewal/revision of the Community Reinvestment Act of 1977. The CRA requires banks to to make a certain percentage of their loans within their local communities, especially when those communities are economically disadvantaged. In addition, Congress explicitly directed Fannie and Freddie to expand their lending to borrowers with marginal credit as a way of expanding homeownership.

    What all of these did together was to create an enormous profit and political incentives for banks and Fannie and Freddie to lend more to riskier low-income borrowers. However well-intentioned the attempts were to extend homeownership to more Americans, forcing banks to do so and artificially lowering the costs of doing so are a huge part of the problem we now find ourselves in.

    While all of this was happpening, the Federal Reserve, nominally private but granted enormous monopoly privileges by government, was pumping in the credit and driving interest rates lower and lower. This influx of credit further fueled the borrowing binge. With plenty of funds available, thanks to your friendly monopoly central bank (hardly the free market at work), banks could afford to continue to lend riskier and riskier.

    The final chapter of the story is that in 2004 and 2005, following the accounting scandals at Freddie, both Freddie and Fannie paid penance to Congress by agreeing to expand their lending to low-income customers. Both agreed to acquire greater amounts of subprime and Alt-A loans, sending the green light to banks to originate them. From 2004 2003 [corrected on 10/19/08] to 2006, the percentage of loans in those riskier categories grew from 8% to 20% of all US mortgage originations.

    And the quality of these loans were dropping too: downpayments were getting progressively smaller and more and more loans carried low starter interest rates that would adjust upward later on. The banks were taking on riskier borrowers, but knew they had a guaranteed buyer for those loans in Fannie and Freddie, back, of course, by us taxpayers. Yes, banks were "greedy" for new customers and riskier loans, but they were responding to incentives created by well-intentioned but misguided government interventions. It is these interventions that are ultimately responsible for the risky loans gone bad that are at the center of the current crisis, not the "free market."

    Finally, Is Not wall street the ones who have this country on the verge of a economic collapse.
  4. zdreg


  5. Excellent article, thanks. But none of that would have happened if the FED had not kept rates artificially low. When there is so much demand for money, rates should go up. Instead, rates were going down. FED and China kept pumping cash into the economy like crazy. My theory is that all that happened because the demand for Chinese goods had to be maintained high. They did not care what will happen in the USA. Just think about it. They are not stupid and the results are indicative of the motives.
  6. What rubibond007 said.

    Government set up an environment that would fail.