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It was the government forcing banks to lend to people who would normally not qualify for mortgage loans that caused the crisis in the first place. The people wh

It was the government forcing banks to lend to people who would normally not qualify for mortgage loans that caused the crisis in the first place. The people who the banks accurately predicted couldn't pay and were normally denied loans were instead actually given loans, subsequently couldn't pay, aaaand everything collapsed. I think that the securitization and sell off of these mortgage backed securities were the banks trying to pass the hot potato off onto somebody else. They knew it would blow up, only the financially illiterate, and busybody do-gooders in government with a regulatory gun to the banks heads didn't see it coming with predictable results.

icebraining 8y ago
"Several candidates made the argument at the debate that the government forced mortgage lenders to make bad loans. But in reality, most subprime loans were made by companies that were not subject to any kind of federal regulation." "No executive of a major mortgage company said at the time that the government was forcing them to make subprime loans. They said they did it because they thought they would make money. And even now, after the crash of the housing market, with all the temptation to point fingers, it is awfully hard to find a mortgage executive who echoes the argument" https://www.nytimes.com/2011/11/10/us/politics/the-role-of-regulation-in-holding-back-business.html?ref=presidentialdebates https://www.nytimes.com/2011/11/10/us/politics/the-role-of-r...
- Someguywhatever 8y ago
  Was there some incentive from government then, was there some kind of deregulation or some other kind of regulatory change? Why would this subprime lending begin in the first place do we know?
  - mikeash 8y ago
    Subprime is a great way to make money if you can manage the risk. Before the crisis, people figured out that if you bundled a lot of them together and sliced up the bundle in clever ways, you could shuffle the risk around and manage it better. People who wanted riskier assets could get them, and people who wanted safer assets with lower returns could get them too. Except this only works if you actually evaluate the risk correctly. If you underestimate the potential for large-scale default due to, say, a sudden drop in house prices, then everything gets screwed up, and people who bought “safe” assets suddenly find themselves losing their investment.
Marazan 8y ago
Absolutely false. The subprime crisis was not caused by 'government mandated' lending to traditionally undeserved parts of the population. Anyone pushing that narrative is trying to pushing a implicitly racist 'reason' for the financial crisis: "it was all them loans to the black people that did it" .
- Someguywhatever 8y ago
  Ok well I'm out to lunch then, I read that somewhere but can no longer remember where.
barbecue_sauce 8y ago
The government? It was demand for mortgage-backed securities (viewed as traditionally safe assets for investment) from investment funds that led to more and more lenient mortgage qualifications to increase supply, weakening the previous strength of those securities overall that, through layers of financial indirection (see tranches), were not valued correctly until too late (with the subsequent credit default swap responsibilities crippling interbank loaning). This was targeted predatory lending, often targeted at people who already had home equity in some form. This was not something significantly exacerbated by the FHA.
- Someguywhatever 8y ago
  ah ok, so demand for MBS --> led to some kind of lobbying for deregulation---> which led to the deregulation actually happening ---> which led to unscrupulous individuals subprime lending so they could package it up as MBS and sell those off to make money

icebraining 8y ago

"Several candidates made the argument at the debate that the government forced mortgage lenders to make bad loans. But in reality, most subprime loans were made by companies that were not subject to any kind of federal regulation." "No executive of a major mortgage company said at the time that the government was forcing them to make subprime loans. They said they did it because they thought they would make money. And even now, after the crash of the housing market, with all the temptation to point fingers, it is awfully hard to find a mortgage executive who echoes the argument" https://www.nytimes.com/2011/11/10/us/politics/the-role-of-regulation-in-holding-back-business.html?ref=presidentialdebates https://www.nytimes.com/2011/11/10/us/politics/the-role-of-r...

Someguywhatever 8y ago
Was there some incentive from government then, was there some kind of deregulation or some other kind of regulatory change? Why would this subprime lending begin in the first place do we know?
- mikeash 8y ago
  Subprime is a great way to make money if you can manage the risk. Before the crisis, people figured out that if you bundled a lot of them together and sliced up the bundle in clever ways, you could shuffle the risk around and manage it better. People who wanted riskier assets could get them, and people who wanted safer assets with lower returns could get them too. Except this only works if you actually evaluate the risk correctly. If you underestimate the potential for large-scale default due to, say, a sudden drop in house prices, then everything gets screwed up, and people who bought “safe” assets suddenly find themselves losing their investment.

Marazan 8y ago

Absolutely false. The subprime crisis was not caused by 'government mandated' lending to traditionally undeserved parts of the population. Anyone pushing that narrative is trying to pushing a implicitly racist 'reason' for the financial crisis: "it was all them loans to the black people that did it" .

Someguywhatever 8y ago
Ok well I'm out to lunch then, I read that somewhere but can no longer remember where.

barbecue_sauce 8y ago

The government? It was demand for mortgage-backed securities (viewed as traditionally safe assets for investment) from investment funds that led to more and more lenient mortgage qualifications to increase supply, weakening the previous strength of those securities overall that, through layers of financial indirection (see tranches), were not valued correctly until too late (with the subsequent credit default swap responsibilities crippling interbank loaning). This was targeted predatory lending, often targeted at people who already had home equity in some form. This was not something significantly exacerbated by the FHA.

Someguywhatever 8y ago
ah ok, so demand for MBS --> led to some kind of lobbying for deregulation---> which led to the deregulation actually happening ---> which led to unscrupulous individuals subprime lending so they could package it up as MBS and sell those off to make money