5 ms·

What law did the government pass that forced the banks to ignore their risk assessment processes? Particularly, supposing you can point to some law or intervent

What law did the government pass that forced the banks to ignore their risk assessment processes? Particularly, supposing you can point to some law or intervention, why do you suppose the banks are so childish and naive that when a law forces them to do one thing they don't want to do (make dumb loans to low-income groups), they'll respond by over-generalising and doing a whole other bunch of things they hadn't up to that point wanted to do (make dumb loans to middle- and high-income groups).

tooltalk 8y ago
I guess the following would be a good starting point of discussion: https://www.forbes.com/sites/norbertmichel/2015/01/26/government-policies-caused-the-financial-crisis-and-made-the-recession-worse/#6d2179b8564e https://www.forbes.com/sites/norbertmichel/2015/01/26/govern...
- naravara 8y ago
  It's really not. First of all, the affordable housing market isn't where the housing market was most inflated so the author's entire premise is wrong. Secondly, the author of that article is pretty clearly shilling to privatize Fannie Mae. Thirdly, nobody here seems to understand what the community lending standards actually were and just wants to use it as a post to rest their argument on. This is a much better, though still critical of the CRA article that goes into actual detail on what the problems were: https://www.city-journal.org/html/financial-crisis-and-cra-10483.html https://www.city-journal.org/html/financial-crisis-and-cra-1... But it's still an overly reductive and misguided argument. As Noah Smith points out here: https://noahpinionblog.blogspot.com/2012/12/did-risky-mortgage-lending-cause.html https://noahpinionblog.blogspot.com/2012/12/did-risky-mortga...
inthewoods 8y ago
Amazingly there wasn't even a requirement for basic income checks when issuing a mortgage - that came after the crisis. If we look at the mortgage pipeline, the problems become obvious, but none of them have to do with the government, except in that the government should have regulated. Start with the mortgage origination companies like Countrywide who could easily offload mortgages to the other banks to collateralize. Since these companies could completely offload their risk, they were highly incentivized to give a mortgage to everyone. Move on to the rating companies and the big banks creating financial products of doom and you've got the whole mess. All without the government "creating the problem." I do agree, however, that the government giving these companies an implied put option via a bailout gave them every reason they needed to take huge risks. Still amazes me that no one from the banks ended up in jail.
s73v3r_ 8y ago
Exactly. The bankers that did this are still adults, and are still fully capable of taking responsibility for their actions. No one told them they had to make garbage loans.

tooltalk 8y ago

I guess the following would be a good starting point of discussion: https://www.forbes.com/sites/norbertmichel/2015/01/26/government-policies-caused-the-financial-crisis-and-made-the-recession-worse/#6d2179b8564e https://www.forbes.com/sites/norbertmichel/2015/01/26/govern...

naravara 8y ago
It's really not. First of all, the affordable housing market isn't where the housing market was most inflated so the author's entire premise is wrong. Secondly, the author of that article is pretty clearly shilling to privatize Fannie Mae. Thirdly, nobody here seems to understand what the community lending standards actually were and just wants to use it as a post to rest their argument on. This is a much better, though still critical of the CRA article that goes into actual detail on what the problems were: https://www.city-journal.org/html/financial-crisis-and-cra-10483.html https://www.city-journal.org/html/financial-crisis-and-cra-1... But it's still an overly reductive and misguided argument. As Noah Smith points out here: https://noahpinionblog.blogspot.com/2012/12/did-risky-mortgage-lending-cause.html https://noahpinionblog.blogspot.com/2012/12/did-risky-mortga...

inthewoods 8y ago

Amazingly there wasn't even a requirement for basic income checks when issuing a mortgage - that came after the crisis. If we look at the mortgage pipeline, the problems become obvious, but none of them have to do with the government, except in that the government should have regulated. Start with the mortgage origination companies like Countrywide who could easily offload mortgages to the other banks to collateralize. Since these companies could completely offload their risk, they were highly incentivized to give a mortgage to everyone. Move on to the rating companies and the big banks creating financial products of doom and you've got the whole mess. All without the government "creating the problem." I do agree, however, that the government giving these companies an implied put option via a bailout gave them every reason they needed to take huge risks. Still amazes me that no one from the banks ended up in jail.

s73v3r_ 8y ago

Exactly. The bankers that did this are still adults, and are still fully capable of taking responsibility for their actions. No one told them they had to make garbage loans.