The current crisis was caused by home mortgages that went bad. How did those things cause that?

And Barney Frank was running around telling everyone there was no problem. He's a fine one to be writing laws to fix it.

Yes that is correct, it was home mortgages that went bad. The primary underlying cause was that the underwriting standards for non GSE mortgages was relaxed to the point that loan officers would fabricate underwriting information. Borrowers (who should know better, but very few understand mortgages) were told they could afford a home and were provided payment information based on a teaser rate of say 1% (which would go up quickly). The credit risk would be sold off as the loan was sold and they would pocket the money for originating the loan, the purchasers would sell of the credit risk and make money by selling the securities. This started back around 04/05 and is what the FBI stated and asked for more enforcement. Bush responded by cutting their investigation budget. This was the fraud stuff that Frank wanted legislation against (consumer protection as it was not considered consumer fraud at the time).

As mortgages became easy, demand and prices went up, so more people wanted homes, or multiple homes they could flip. When the bubble burst – even good mortgages went underwater, demand fell, and as the job losses in the construction industry created other job losses so even people who did qualify could no longer afford their payment – a ripple effect. The side effect was a sudden panic in extending any type of credit which led to a credit crunch outside the mortgage industry, which impacted all businesses and even municipalities.

Rating agencies and realtors were also involved – not to over simplify. The normal book of business purchased by the GSE’s had a very low default rate. It was the securities and structured deals outside their mainstream business – encouraged by their overseer at OFHEO that triggered their collapse.

So what Frank said was true at the time, based on his knowledge of their standard book of business.

(09-14-2012 07:17 PM)dcCid Wrote:  You used January because it works in Bush's favor, Feb or even July is probably a better starting point due to laps time.

Reading is clearly not your strong suit. Pick one set of dates, and use them for both. You can NOT use one for one, and one for the other

I used January, even though Obama was President. I SHOUD have stopped at December.

Quote: While removing regulation and fraud investigations that caused the current crises.

Ibid to what Owl said. You won't win this debate. Ask your friends.

(09-14-2012 08:30 PM)Owl 69/70/75 Wrote:  The current crisis was caused by home mortgages that went bad. How did those things cause that?

And Barney Frank was running around telling everyone there was no problem. He's a fine one to be writing laws to fix it.

I'll take a slight issue with this. When clinton took office, with the help of Barney Franks, he increased the leverage allowed for holders of mortgage securities from around 4.5% to more like 2.5% adding iirc, 3 trillion dollars in leverage to the mortgage market. This was the STATED goal of the legislation. Taking leverage from 4.5 to 2.5 doesn't sound like much, but consider that it means that while you could originally control $1 billion in mortgage balances with 40 million dollars in capital, you can NOW control almost $2 billion. Obviously, this magnifies the damage done by a small change in default rates or property values.

More significantly... the mortgage crisis wsn't caused by lots of defaults. It was caused by the evaporation of the liquidity that supported the market. DIRECTLY related to Clinton and Franks. The heavy defaults came later, when the ability to sell and refi blew up.

Don't get me started.

DC, I;m being polite when I tell you to take my word for this.

(09-14-2012 09:20 PM)Hambone10 Wrote:  

(09-14-2012 07:17 PM)dcCid Wrote:  You used January because it works in Bush's favor, Feb or even July is probably a better starting point due to laps time.

Reading is clearly not your strong suit. Pick one set of dates, and use them for both. You can NOT use one for one, and one for the other

I used January, even though Obama was President. I SHOUD have stopped at December.

I was saying use the same for both. The president does not take office until the 20th of January. So January is not logical.

Quote: While removing regulation and fraud investigations that caused the current crises.

Quote:Ibid to what Owl said. You won't win this debate. Ask your friends.

I have talked with friends on this many a time. Our frustration is that congress will not get into the details.

(09-14-2012 08:30 PM)Owl 69/70/75 Wrote:  The current crisis was caused by home mortgages that went bad. How did those things cause that?

And Barney Frank was running around telling everyone there was no problem. He's a fine one to be writing laws to fix it.

Quote: 
I'll take a slight issue with this. When clinton took office, with the help of Barney Franks, he increased the leverage allowed for holders of mortgage securities from around 4.5% to more like 2.5% adding iirc, 3 trillion dollars in leverage to the mortgage market. This was the STATED goal of the legislation. Taking leverage from 4.5 to 2.5 doesn't sound like much, but consider that it means that while you could originally control $1 billion in mortgage balances with 40 million dollars in capital, you can NOW control almost $2 billion. Obviously, this magnifies the damage done by a small change in default rates or property values.

More significantly... the mortgage crisis wsn't caused by lots of defaults. It was caused by the evaporation of the liquidity that supported the market. DIRECTLY related to Clinton and Franks. The heavy defaults came later, when the ability to sell and refi blew up.

Don't get me started.

DC, I;m being polite when I tell you to take my word for this.

The leverage was only for GSE MBS's (and probably GNMA's). Not Private MBS's. The liquity crises was triggered by the default of the private securities.