16 ms·

Just a personal observation / data point as a lot of folks everywhere are saying "put bankers in prison" any time they recall 2008 crisis. This is from the US,

• ghostly_s 8y ago
  What was the vehicle by which US gov't 'required raising affordability of homes'?
  • TimJYoung 8y ago
    Yeah, I want to know that, also. My understanding is that anything explicitly backed by the government (Fannie Mae) was your standard 30-year mortgage with the normal requirements. The interest-only loans, variable-rate loans, etc. were all originated through the brokers like Countrywide and packaged/sold as securities.
    • hueving 8y ago
      "In 2006, Fannie and Freddie insured 70% of all subprime loans so they needed to keep these loans viable" https://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae_and_Freddie_Mac https://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae...
      • camelite 8y ago
        Are you having us all on? The only citation for the claim you are highlighting comes from a mcclatchley article titled "Private sector loans, not Fannie or Freddie, triggered crisis" (https://www.mcclatchydc.com/news/politics-government/article24504598.html#ixzz12xTyWY91A https://www.mcclatchydc.com/news/politics-government/article...) whose thesis is the EXACT OPPOSITE of what you've been arguing in this thread > As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail. > Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems. > Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis. Furthermore: > Federal Reserve Board data show that: > More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics. FURTHERMORE > But these loans, and those to low- and moderate-income families represent a small portion of overall lending....Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent...During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. And then we get to the only 70% in the article: > fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market. About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve. I mean what the hell is going on here? You link to a wikipedia quote which points to an article methodically dismantaling the case you are making, which flatly contradicts the wikipedian citing the article, and whose only connection to your comment is that they both have a "70%" in them, though referring to different things (secondary market dominated by investment banks VS fannie and freddie, NOT THE SAME THING) > in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market...mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans... only one-third of all CRA loans had interest rates high enough to be considered sub-prime This is honestly the first time on hackernews I've felt like I'm talking to a shill.
  • hueving 8y ago
    "rolling the dice" on taking on more subprime loans in Fannie Mae/Freddy Mac. https://www.theatlantic.com/business/archive/2011/12/hey-barney-frank-the-government-did-cause-the-housing-crisis/249903/ https://www.theatlantic.com/business/archive/2011/12/hey-bar...
• azinman2 8y ago
  You’re forgetting that the fact that many ignored the law and their own banks policies, driven internally to give out more loans (to anyone, not just the poor), and then mislabeled the risk when repackaging and selling these to others. https://www.housingwire.com/articles/46335-wells-fargo-to-pay-2-billion-for-allegedly-lying-about-subprime-mortgages https://www.housingwire.com/articles/46335-wells-fargo-to-pa... I’d recommend watching this bbc documentary that gives a wider perspective on “risk”: https://topdocumentaryfilms.com/all-watched-over-by-machines-of-loving-grace/ https://topdocumentaryfilms.com/all-watched-over-by-machines...
• petermcneeley 8y ago
  The loans of a bank are its product. The forced loans to poor are just a lost leader product. These loans will have negative profits and must be compensated by having loans that are profitable. This is just a government wealth transfer program and at worst would cut into the profits of the banks. If the banks were profitable leading up to the crash then its still the banks responsibility. The government is allowed to force these rules because the banks are allowed to create money out of thin air.
• Isamu 8y ago
  >Government shares a significant portion of the blame for this crisis. Agreed, I think the sheer size of the crisis relates back to deliberate policies to support sub-prime lending. The idea was to help people to afford homes even though they would not normally be considered a good risk. But opening this up created a vast new market, like adding a wider bottom tier to an already giant pyramid. Along with the vast size came even higher risk, since all these people would be more liable to default if the economy tanked. Even still because we are accepting more sub-prime liability, it goes beyond poor people to others with better incomes but are buying into a more expensive neighborhood. Now people of all incomes are getting sub-prime loans, and this feed into rising housing prices.
  • camelite 8y ago
    You, along with very many other people, are assuming the banks were convinced by the government to do something they didn't want to do. You mustn't forget that giving loans to people you know won't be able to pay them back, and lying about their ability to do so, is an absolutely classic form of fraud. Bankers lie their asses off, make big bucks in bonuses, and their banks in the long run are fucked, or not (perhaps the taxpayer will bear the burden). The disgustingly simple explanation is that bonus money doesn't get clawed back. If these poor little bankers were getting bullied by the government into doing something against their interests, why the hell did they lie their asses off about their borrowers' financial prospects. Why wouldn't they say, 'sorry guv, you gotta look at these numbers, the black and brown folk coming to us for house loans simply aren't viable'
    • Isamu 8y ago
      It was Fannie Mae, the large semi-government housing lender, that was strong-armed into supporting sub-prime lending in a big way. Again for good reasons. This normalized sub-prime lending for others. Not everything has an evil agenda behind it. Sometimes the reasons are fairly ordinary and boring.
      • deleted 8y ago
        [deleted]
• slg 8y ago
  You see a similar thing with student loans. You can't make any reasonable system work when you set the requirements to be that everyone should be able to afford to go to college and free market lenders are the ones responsible for making that happen. I imagine that the first condition is one that most people agree one. So instead of making college cheaper for those people who can't afford it, we decided that we need to entice more lenders to make loans that are financially unsustainable. The end result is we need to guarantee the loans that private businesses give 18 year olds. You see it time and time again where there is a easier and more logical solution that the US refuses to implement because it is a little bit socialist. Instead we go with a more complicated and less practical solution that is more pro-business.
  • paulddraper 8y ago
    What is the easier, little-bit socialist solution to home ownership?
    • slg 8y ago
      Taxes and tax incentives.
      • paulddraper 8y ago
        The U.S. does that. Loan interest and capital gains are treated much differently by the U.S. tax system if they are on a primary residence rather than on other assets. (More often than not, I see criticism of this on HN.)
        • slg 8y ago
          Those benefits are regressive which results in the them barely moving the needle for working or middle class families. It goes back to the original comment in this thread that it is implemented in such a way that it has a nearly opposite result to its supposed intended effect.
          • 8y ago
• Avshalom 8y ago
  the increase in mortgage originations was shared across the whole distribution of borrowers, and that middle- and high-income borrowers made up the majority of originations even at the peak of the boom. Compared to prior years, middle- and high-income borrowers (not the poor), as well as those with medium and high credit scores, made up a much larger share of delinquencies in the crisis relative to earlier years. http://www.nber.org/papers/w20848 http://www.nber.org/papers/w20848
  • hueving 8y ago
    Once the framework was in place to give out garbage loans, people across all income levels leveraged the opportunity to get houses they shouldn't have. This just shows how poisonous it is when the government screws up a market by essentially mandating that banks throw away their normal risk assessment process.
    • camelite 8y ago
      What government interventions caused the doubling of subprime lending from 2004 to 2006?
      • Eliezer 8y ago
        FDIC insurance. A private insurance market for bank accounts sends a price signal about reliability. Subsidizing that insurance in a way that doesn't eliminate the price signal and the customer risk, like requiring 20% private insurance for 90% of the account face value and the govt providing the remaining 80% insurance at the same price or at a discount, could make sense if insuring more accounts was a policy goal. Having the government ensure everything for free with no internal price differentiation just tells banks they might as well go wild.
        • naravara 8y ago
          FDIC only ensures bank deposits, such as checking or savings accounts, not mortgages. It's not at all clear what that has to do with the proliferation of subprime lending.
• debt 8y ago
  Nah you’re throwing the baby out with the bath water. Poor people can’t afford homes and in many cases don’t have proper identification even to buy a home. That’s where the whole NINJA subprime thing came in. But the actual problem was that those loans were being rated AAA when repackaged into a CDO. From that point forward is where the problem began. Tha is, if they were properly rated ‘08 would not have happened. The swaps and derivatives that nearly brought down AIG then took that bug in the system(the bad improperly rated mortgages repacackaged is high quality shit) and nearly collapsed the world economy. There’s nothing wrong with helping poor people buy homes but don’t call those mortgages AAA otherwise you’re basically operating under false information from there on out and should expect unpredictable results.
  • ksdale 8y ago
    I agree completely with you, but I remember during the crisis that a large part of the outrage was directed at banks "taking advantage" of the poor by lending them sums that they couldn't hope to pay back. I can remember a couple years later trying to buy a house and being surprised that the formula for loan size was so concrete. They didn't care what you actually spent your money on, just that your payments be no larger than 30% of your income. Because we're frugal, we could have afforded quite a bit more house than they were willing to lend to us for. Indeed, we paid way more in rent than we could get for a monthly mortgage payment. We ended up wishing that the banks had tried to "take advantage" of us because that would have meant giving us more latitude to manage our own affairs.
  • elhudy 8y ago
    >But the actual problem was that those loans were being rated AAA when repackaged into a CDO. I was under the impression that the CDO as a whole was being rated well - and the junk loans still maintained their rating when they were packaged. In other words, both parties were aware that the highly rated CDO contained bad loans. Is this not the case?
    • debt 8y ago
      The junk stuff was repackaged many times over and sold as separate financial products. That was where the whole rocket scientist quant bs came in as it required made-up math to make it work. So it was re-rated from crap to AAA. And then AIG started offering insurance against those products and things really started heating up. So it took taking some good bonds and some bad bonds and throwing them into the same CDO to get a good rating.
• rando444 8y ago
  What about the people that didn't have good intentions? How do you feel about Lehman's Repo 105 maneuver where they intentionally used a Tobashi scheme to hide their losses from their investors? The state of New York went after Ernst and Young on fraud charges for helping facilitate the scam and E&Y ended up paying a $10mil fine. Is this justice? It doesn't feel like it.
  • hueving 8y ago
    Lehman went bankrupt. It seems they got precisely what they deserved. If the only problem were the bad actors it wouldn't have been a systemic collapse.
    • ergothus 8y ago
      A company going bankrupt does not mean any decision makers were negatively influenced enough to not repeat the actions. I doubt THEY went bankrupt. I don't know enough to say if your conclusion is true or false, but I dont follow your logic. Why can't bad actors, if they are pervasive, cause a systemic collapse? From what I heard, incomes were fabricated, risks downplayed, and policies ignored. The insurance against the risk was priced on false premises. How can these bad acts (by bad actors) not cause a risk of systemic collapse?
    • inthewoods 8y ago
      I never understood why Dick Fuld wasn't put in jail. He deliberately misled investors on the amount of leverage they were operating under. I thought Sarbox, which required the CEO and CFO to sign off on their public financial statements, would have caught this.
• kenmicklas 8y ago
  This is an inevitable consequence of the commodification of housing.
• irrational 8y ago
  It did help out some families though. We were able to get into our home using a 5 year 0% interest loan. It was the only way we could afford it. Later we refinanced it to a normal 30 year loan, but there is no way we could have afforded that when we were first getting started. I'm not sure how people just starting out are able to afford homes now. Our home's theoretical value has doubled in price in the last few years and there is no way we could afford to rebuy it now, even with a 0% 5 year mortgage.
  • rukittenme 8y ago
    I'm curious about your situation. Can you provide additional financial information? Price of the home, area of the country, salary at date of purchase.
    • Izkata 8y ago
      I'm wondering why this was downvoted - I'm really curious, too. In particular, what they mean by "first getting started", and whether "home" means a house or something like an apartment/condo. From my perspective they skipped a step or two and some of the difficulty came from that. I started by renting an apartment with a friend and saved up enough for a down-payment on a normal loan in a condo over two years. It's been five more years since then, and only now would I consider a house (though don't really want to move yet).
  • rifung 8y ago
    I apologize if this is insensitive in some way but I genuinely am hoping to understand and learn. Why is allowing families to buy a home they otherwise can not afford a positive thing? If a family can not afford a house then they can choose not to own a house. I can understand the point of increasing access to affordable housing, but allowing more people to buy homes seems to have the opposite effect.
    • jdavis703 8y ago
      The other side is renting -- where the landlord can raise rents to almost any arbitrary level (well to the market rate, but if you're not making bank it might as well be arbitrary). My understanding is 5-year ARMs where also subject to the whims of the bond market (LIBOR or whatever), so really the difference between renting and mortgaging in this case are just semantics.
• api 8y ago
  It also drove house prices crazy, a process that continues to this day and has ironically made housing permanently unaffordable for huge numbers of people. The housing bubble created a "new normal" for house prices that's frankly absurd when considered as a fraction of median income. It's very similar to the story with student loans. Easy student loans have driven tuition costs as crazy as housing costs.
  • petra 8y ago
    Wasn't this a predicted result of offering cheap loans? And if so,why was this the route chosen?
    • api 8y ago
      Americans (even some center-left ones) hate the idea of directly supporting anything, so cheap loans were used as a substitute for directly operating and funding public colleges. Same with housing. Directly supporting people is "socialism," a handout, and is seen as supporting laziness and vice. A loan must be paid back, which allows many Americans to view it as something encouraging responsibility and virtue. It all comes down to the puritan work ethic. The problem is that government backed loans are just an indirect way of giving welfare, and a monstrously perverse and inefficient way to boot. It drives price inflation which gets captured by the vendors of the products/services in question (existing home owners, builders, universities, etc.) instead of those you're trying to help and it creates debt bubbles that represent a danger to the overall health of the economy. Overall it's probably worse than doing nothing due to the price inflation it generates. Housing was reasonable across much of the USA prior to the 'oughts. The housing bubble destroyed home affordability, an effect which as I said persists to this day.
      • OscarCunningham 8y ago
        Wouldn't directly supporting people also produce price inflation?
        • pitaj 8y ago
• frgtpsswrdlame 8y ago
  I find it interesting how your comment grants a lot of agency to the government but very little of it to banks: >so instead they had to become "creative" with loans >They HAD to use at least X% of new loans to low income families. But there's no actual connection between their requirement to loan to low income families and this: >This insane game of musical chairs, where banks generate toxic loans, securitize them and throw them at someone else They didn't have to repackage those loans into complex instruments, they didn't have to sell those instruments, they didn't have to do both of the above knowing that the rating agencies had intentionally mislabeled the risk of those products. They also incentivized their low-level workers to lie or let borrowers lie on loan applications which regulation did not require. The problem here isn't regulation, the problem is banks and their management let The Fear of Missing Out rule the day and they put a bunch of money into a bubble and then leveraged it and sold it to other people as a safe investment.
• pitaj 8y ago
  Don't forget another thing the government did: previous bailouts. When large banks were told they were "too big to fail", they heard "your risks will be subsidized by taxpayers", so of course they took on more risk. We should have let the banks fail, if they really were going to. Another thing: monetary policy causing business cycles, or making them much worse. The recent money-printing by the fed is super scary to me, because it created a new bubble in the stock market.
  • craftyguy 8y ago
    > "too big to fail" I guess we're doomed to repeat history, since this was upheld again in 2008.
    • heisenbergs 8y ago
      Not entirely true. We let one of the massive banks fail. Lehman brothers is no more...
    • BookmarkSaver 8y ago
      There was an attempt to impose regulation on banks that qualify for this designation, with some (limited) success. Republicans have mostly dismantled it by this point though.
  • mc32 8y ago
    I think this began earlier with the S&L scandal decades(?) earlier. Some fave saving but not much happened to the guilty parties... A sad state of affairs.
  • 394549 8y ago
    > Don't forget another thing the government did: previous bailouts. When large banks were told they were "too big to fail", they heard "your risks will be subsidized by taxpayers", so of course they took on more risk. We should have let the banks fail, if they really were going to. Why couldn't the stockholders get wiped out when a TBTF bank gets bailed out? To me, that seems like a fair compromise that protects the economy but still punished excessive risk taking.
• ashwinaj 8y ago
  Here's a simple hypothetical question: If you or I were to steal a pack of gum from a store and were caught we would have been charged with a misdemeanor. And it would remain in our background record for 10 years. What does a banker have to do before he/she can be charged with at least a misdemeanor? You're right about the government having a hand in the crisis, but this is ridiculous that no banker was charged.
• Eschatologist 8y ago
  I think it's important to note that given the revolving doors and deep material connections between financial institutions and the government (and the resultant regulatory capture), there isn't that much meaningful daylight between "government" and "banks".
• pnutjam 8y ago
  Your view is popular, simplistic, and wrong. https://www.thisamericanlife.org/355/transcript https://www.thisamericanlife.org/355/transcript