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I guess it's fine to put a lot of blame on people who bought houses they ended up not being able to afford. However, there were fraudulant practices by mortgag

I guess it's fine to put a lot of blame on people who bought houses they ended up not being able to afford. However, there were fraudulant practices by mortgage companies. Banks have more responsibility for the mess because they are the experts (allegedly) at assessing risk. They are the ones that got ratings agencies to give high scores to the mortgage backed securities. They are the ones in a position to wreck the economy by collective failure. They are the ones who got a bailout and clamored for one. An individual homeowner who makes a bad bet doesn't ruin the economy. Too big to fail banks who make millions of bad bets do ruin the economy. They socialized their losses and continue their extremely high pay and bonuses. The anger should mostly be aimed at the banks. Especially in light of their dubious foreclosure practices. People are mostly financially illiterate. People don't understand percentages and compound interest. People are not rational (most of the time). A regulatory apparatus that isn't beholden to the banks is what is needed.

yummyfajitas 16y ago
They are the ones that got ratings agencies to give high scores to the mortgage backed securities. And that's an issue between them and the people/institutions they sold those securities to. It does not in any way absolve individuals for making dumb bets, particularly when those individuals often lied on their loan applications. The housing bubble simply could not have occurred without financially illiterate people making bets they didn't understand in the hopes of getting rich quick. I agree with you that any individual bank had a more harmful effect than any individual real estate speculator, but that's just a matter of size. Collectively, real estate speculators are just as guilty as banks. I don't disagree with you at all concerning bailouts. We should end "too big to fail". But on the other hand, try to remember that real estate speculators also received massive subsidies (frannie, mortgage deduction) even before the crisis. The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). Real estate speculators have not paid back their subsidies. The anger should mostly be aimed at the banks. Especially in light of their dubious foreclosure practices. Many loan originators did shoddy paperwork to save a buck, and didn't transfer the lien's to the right party. Real estate speculators are now exploiting the legal problems caused by this shoddy paperwork to break their contracts and squat in homes they don't own. The loan originators absolutely deserve to be sued by the bond purchasers over their negligence. But the real state speculators are also culpable for exploiting legal quirks to steal homes from their rightful owners [1]. We may not be 100% sure whether BankAm Loan Issuing Corp, BankAm Loan Servicing Corporation or the MBS corporation is the rightful owner of a home - but we are quite sure that the squatters currently occupying it stopped paying their mortgage and therefore do not have any right to it. The squatters deserve to be foreclosed upon, and then the loan issuer, servicer and bondholders can fight over who really owns the home. Banks are a convenient political target. But real estate speculators are just as guilty as the banks. [1] Obviously, not all real estate speculators are doing this, but I have read quite a few media accounts of this.
- gizmomagico 16y ago
  > The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). I'd be interested in hearing how that happened. It's difficult to believe.
- abrenzel 16y ago
  Spot on. The whole "Fraudclosure" thing is a bit of a red herring. Yes, banks should be made to pay for their negligence in complying with basic mortgage laws, but does their negligence change the fact that the occupants of those homes have not and cannot pay their mortgages? The mortgages are delinquent, no matter who the actual owner of the note is. All the controversy has done is slow down a process that will eventually happen either way. TBTF needs to go. Many banks, including big boys like JP Morgan and Bank of America, probably need to be recognized as insolvent despite the bailout money they took. The foreclosure mess in its own way probably only slows this down by continuing the cloud the status of the properties in question.
  - krakensden 16y ago
    I thought JP Morgan came out relatively unscathed from the crisis, weren't they the one bank to not need TARP funds?
- yequalsx 16y ago
  "The housing bubble simply could not have occurred without financially illiterate people making bets they didn't understand in the hopes of getting rich quick." A financially illiterate person who makes a bad bet does so with someone lending them money. In the case of the mortgage market it is a financially literate person giving them money. It's not mere convenience to place greater blame with (investment) banks.

yummyfajitas 16y ago

They are the ones that got ratings agencies to give high scores to the mortgage backed securities. And that's an issue between them and the people/institutions they sold those securities to. It does not in any way absolve individuals for making dumb bets, particularly when those individuals often lied on their loan applications. The housing bubble simply could not have occurred without financially illiterate people making bets they didn't understand in the hopes of getting rich quick. I agree with you that any individual bank had a more harmful effect than any individual real estate speculator, but that's just a matter of size. Collectively, real estate speculators are just as guilty as banks. I don't disagree with you at all concerning bailouts. We should end "too big to fail". But on the other hand, try to remember that real estate speculators also received massive subsidies (frannie, mortgage deduction) even before the crisis. The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). Real estate speculators have not paid back their subsidies. The anger should mostly be aimed at the banks. Especially in light of their dubious foreclosure practices. Many loan originators did shoddy paperwork to save a buck, and didn't transfer the lien's to the right party. Real estate speculators are now exploiting the legal problems caused by this shoddy paperwork to break their contracts and squat in homes they don't own. The loan originators absolutely deserve to be sued by the bond purchasers over their negligence. But the real state speculators are also culpable for exploiting legal quirks to steal homes from their rightful owners [1]. We may not be 100% sure whether BankAm Loan Issuing Corp, BankAm Loan Servicing Corporation or the MBS corporation is the rightful owner of a home - but we are quite sure that the squatters currently occupying it stopped paying their mortgage and therefore do not have any right to it. The squatters deserve to be foreclosed upon, and then the loan issuer, servicer and bondholders can fight over who really owns the home. Banks are a convenient political target. But real estate speculators are just as guilty as the banks. [1] Obviously, not all real estate speculators are doing this, but I have read quite a few media accounts of this.

gizmomagico 16y ago
> The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). I'd be interested in hearing how that happened. It's difficult to believe.
abrenzel 16y ago
Spot on. The whole "Fraudclosure" thing is a bit of a red herring. Yes, banks should be made to pay for their negligence in complying with basic mortgage laws, but does their negligence change the fact that the occupants of those homes have not and cannot pay their mortgages? The mortgages are delinquent, no matter who the actual owner of the note is. All the controversy has done is slow down a process that will eventually happen either way. TBTF needs to go. Many banks, including big boys like JP Morgan and Bank of America, probably need to be recognized as insolvent despite the bailout money they took. The foreclosure mess in its own way probably only slows this down by continuing the cloud the status of the properties in question.
- krakensden 16y ago
  I thought JP Morgan came out relatively unscathed from the crisis, weren't they the one bank to not need TARP funds?
yequalsx 16y ago
"The housing bubble simply could not have occurred without financially illiterate people making bets they didn't understand in the hopes of getting rich quick." A financially illiterate person who makes a bad bet does so with someone lending them money. In the case of the mortgage market it is a financially literate person giving them money. It's not mere convenience to place greater blame with (investment) banks.