BTW, least ye think this housing price inflation started with the Bush administration, here’s a stellar Oct 2002 article about the danger of the over inflated housing. At this time, the subprime problem had not yet leered it’s ugly head… it was merely another loan package. A blip on the radar screen to be ignored.

The U.S. financial system is now dependent to an unprecedented degree upon one prop: the greatest housing-real estate bubble in human history. A hyperinflationary spiral has sent home prices shooting up by 10-40% annually in recent years—depending on the region of the country—and artificially pushed the price of millions of homes into the $400,000 to $1 million range or above. Already in 2001, one out of every ten homes for sale in the United States was priced at $1,000,000 or more. Since then, prices, assessments, real estate taxes, and mortgage credit volume have continued to spiral upwards, even as the productive economy staggered downhill. Many homes today are simultaneously glorified shacks—with plastic exteriors and gold-plated faucets in the bathroom—and yet unaffordable to most American families.

~~~

The housing bubble has been developing for two decades, and it has been undergoing accelerated growth since 1995. It is under the control of Fed Chairman Greenspan, acting on behalf of the Wall Street-City of London oligarchical financiers. Greenspan depends upon the huge sums of liquidity pumped in by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Loan Corporation (Freddie Mac), through the secondary home real estate market, which they control.

~~~

Since 1995, the housing bubble has required between $400 to $600 billion per year in new mortgages to finance homeowners’ purchase of new and existing homes at inflated prices. Between 1995 and 2001, banking institutions (including savings and loan institutions) lent $2.25 trillion in new housing loans to prospective home-buyers.

But during the same interval, banking institutions lent only $1.29 trillion in loans of all types, including to commerce and industry, to consumers (for car purchases, etc.), and for housing. This seems impossible. How could banks lend more for housing, at $2.25 trillion, than they lend to the entire economy, at $1.29 trillion, when the latter includes housing as a sub-sector?

The answer: the great Fannie Mae and Freddie Mac lending machine. Between 1995 and 2001, Fannie and Freddie (and a few similar, smaller agencies) acquired almost three-quarters of the $2.25 trillion in new mortgage loans that all banks had made. Upon getting cash from Fannie and Freddie, the banks made new housing loans. Since 1995, Fannie and Freddie, et al., accounted for almost three-quarters of all housing mortgages.

read in entirety at the link above…. good stuff

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First of all, Larry… I’m with Scott. I like your presence here. And while we may disagree on some things (and not on others…), I always find civil and healthy debate helpful. And yes, I’m guilty of losing my patience with some as well. So I think you’ll find that all of us have not only dished out, but been on the receiving end of insults. Hang in there, and don’t take it personal. Few would actually have the cahones to say the same to your face. The internet is like that… the perfect example of the end of good manners and a civil society.

To a couple of your points (since I’m still trying to catch up after the return from Florida…) First, I need to straighten you out on a misconception in one of your later posts.

You attempt to make the following point: Banks were “forced” to offer low interest rates to unqualified buyers and then lending institutions had to make those same rates available to everyone.

This isn’t the point I was trying to make, and perhaps I wasn’t clear enough. You are confusing the creation of the exotic loans to meet compliance regulations with loan rates that control inflation. Two different animals in the puzzle. So let me try again.

CRA BANKS AND NON-CONFORMING (not jumbo, but B/C loans) MORTGAGES

CRA banks were forced to make loans to unqualified buyers to prove they were not redlining. This has nothing to do with the rates they used, which were usually based on prime, or points above, depending upon the credit scores of the borrower.

Prior to 1996, banks merely had to prove they were not redlining by showing attempts to make loans to minorities via advertising, etc. Bob Rubin, Clinton’s Treasury Secy, changed all that when he rewrote the compliance regulations just before the GOP took control of Congress in 1996.

Those compliance regulations changed from proving “intent” to having a certain amount of these loans on the books for minorities.

I don’t know if you are aware of how lending works, but loan officers (mortgage bankers *and* mortgage brokers) end up running a potential borrower thru an automated underwriting systems (LPI or DU) that utilize Fannie/Freddie guidelines since most mortgages end up being purchased by them on the secondary market. They (the GSEs) in turn package and sell to investors with a guarantee of payment. By the end of 2007, they had purchased $4.9 trillion of loans, 70% of which they repackaged and sold to the investment market.

Fannie and Freddie only held about 6% of guaranteed mortgage debt in 1971. By 2003, it had risen to 51%.

Back to your misconception of forced loans, and non-CRA banks becoming involved without Congressional mandates to do so.

Problem was, these borrowers were not qualified for conforming loans (loans that meet Fannie/Freddie guidelines), so they had to create exotic loans with different guidelines in order to get them thru. Fannie/Freddie didn’t start tightening up on the criteria for these exotic loans (ARMs, interest only, stated income, no or low doc) until July 2007.

When you create these loan packages, they are a great financial tool also for the solvent buyer. You cannot create an EZ, non-stringent loan package and only offer it to minorities who are unqualified. So these loans became in demand, and lending institutions…. stepping up to the supply/demand market… also started offering the loans. This is why it’s not just CRA banks. Nor can you implement this EZ credit only to a certain segment of Americans without truly being discriminatory.

RATES AND HOUSING PRICE INFLATION

Rates are the control over the housing price inflation. When you lower the rates, you can get more money… and pay more for a house. So the house prices go up. A second important piece to the puzzle is the home’s inflation. Otherwise the bad notes could just be resold for their face value. Banks are failing because of an exorbitant amount of bad notes with a face value far above the asset’s value.

Also, with a new, and vast, segment of the American population now qualifying for this EZ home loan – (between 1995-2001, the volume of loans increased by $2.249 trillion) – there was an increase in the demand for housing. With more demand, and the existing supply, both new construction and existing home sales also increased their prices…. supported by multiple bids in just days of being listed. This also drove up prices, in addition to the low rates.

Get the idea it isn’t just one event yet? But it all started with the CRA compliance regs being rewritten.

Now that I’ve cleared that up (hopefully for the final time…), the below is more easily addressed. You said:

Not a single executive in a single bank has blamed either the CRA or government in general for their failures. The idea that banks became insolvent because they were forced to make unwise loans is not correct.

As you see above, banks are insolvent *precisely* because they hold bad notes on overvalued property… either thru mortgages that that they directly issued, or investment banks purchased in MBS, ABS or REMIC packages from Fannie/Freddie or other entities. If the assets were worth the note’s value, they would not be insolvent.

As previously noted, Fannie/Freddie were involved in only 1/4 to 1/3 of all subprime loans. Fannie/Freddie are guilty of doing the same thing that all the other financial institutions were doing: they were guilty of trying to make a profit.

Again, Fannie and Freddie are only a piece of the economic puzzle, Larry. But you can see that they also contributed by having loose exotic loan guidelines. By the end of the 90s, they were purchasing more subprime loans. This from an Oct 2002 article about their increased participating in the subprime market.

Interestingly, subprime market growth in the 1990s occurred largely without the participation of Fannie Mae and Freddie Mac. The GSEs started showing interest in this market toward the end of the decade and now purchase A-minus mortgages as a regular part of their business. National Mortgage News, a trade publication, estimates their combined market share in 2001 grew by 74 percent, representing about 11.5 percent of all subprime loan originations in that year. Some market analysts estimate that GSEs will soon be purchasing as much as one-half of all subprime originations.

Remember, that was an article from 2002… and the GSE’s did indeed increase their purchases of the non-conforming loans to a higher percentage. Remember, the GSEs do not originate loans. They buy them from the originating banks. And Fannie/Freddie were leading the pack on relaxed guidelines. Banks rarely took risks they couldn’t resell on the secondary mortage market to the GSEs. They are the quintessential entities that set the pace and guidelines for all mortgage origination.

Now… in some of your other comments, you might be mistakenly lumping me with those who blame the Dems solely for this financial debacle. I am an equal disdain blame kind of girl, and frankly both sides of the aisle have this onus.

Yes, the Dems played a huge part… perhaps more than the GOP… in creating the environment for this to happen. But I hold a bi-partisan corrupt (or stupid) Congress primarily responsible for thrusting mandates on the industry to loan cash to unqualified buyers. But of course this practice of easy money and loose standards would be popular, and take off like wild fire in the free market. Why shouldn’t it?

I saw this mess back in 2004, tho not to the national extent. But I knew housing prices were too high, money too easy, and that the landing wasn’t going to be “soft” when the inevitable correction occurred. If I could see it, why didn’t our Congress? So yes, McCain and Bush were talking about this problem back in Bush’s first term. They didn’t stress the magnitude, and they were met with opposition from not only the Dems, but their own GOP members.

So as far as I’m concerned, all of them can accept the blame. Those that started the snowball down the hill, those that didn’t fight hard enough to stop the snowball at a higher elevation… before it became a financial avalanche.

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I like Larry’s posts & hope he stays & continues posting.

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My previous post is awaiting moderation so I cannot had this Post-Scriptum on it. I don’t know if this one will go thru, if it does before the other one comes out, please go and read it to be able to understand this comment.

Post-Scriptum: BTW Larry, what doesn’t help you is your repetitive Sarah’s bashing. We are all very proud of Sarah here, we think she is the best. So your endless disaproval and bashing of Sarah is like if you were telling all of us how stupid we are. So relax a bit and look in the mirror. If you want to bash Sarah and brag about Obama , maybe it would be a good idea to do it on a leftist blog, because you will never get us to agree with you on these two issues.

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Larry, it is not because we do not want to discuss with you, it is because it is hopeless. You think you know better, but you don’t. We could point every fact in your face and you would still deny them. I realized it on the Health Care thread with you. Mata might have the patience with you, I don’t anymore, you do not listen and you don’t want to understand, you just want to be right even if you are wrong. When somebody really wants to know about something, I have all the patience in the world to teach him. But when somebody like you comes along and does not want to KNOW the facts and all he wants is to be right, I do not waste my time with him. On the blame of the financial crisis it is clear that you are wrong but will never admit it… so what is the point of discussing it with you? You will never admit you are wrong. We all know you have a PhD in your field of work (medicine, biology or something) and I am sure you are very good in what you do, but that doesn’t make you a politic and economic genius.

Your statement: “Once again, the clearest proof of the fact that the financial meltdown wasn’t related to the Democratic Party politics was the deafening silence among Republicans on a national basis”… is stunning! McCain wanted to look like the good guy (a loser attitude in my mind); he wanted to be seen as the bipartisan one. That is why he shut up, Mata explained it to you. This is the problem with you; we explain you and you come back the next day with the same arguments that some people here had the patience to debunk so well. So as far as I am concern, I do not argue with you anymore, it is a waste of time and energy because you do not want to KNOW you just want to continue to BELEIVE what you already believe falsely. And by the way, Democrats were the guilty ones on the financial crisis here but that doesn’t mean that Republicans did all they could have done, but they at least tried. Maybe not hard enough but with a bunch of stubborn Democrats who wants to be right all the time even if they are wrong, it was almost hopeless.

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Mata P.S. (sorry to make this a second posting; I’d just edit my first, but it is “awaiting moderation.”)

You attempt to make the following point: Banks were “forced” to offer low interest rates to unqualified buyers and then lending institutions had to make those same rates available to everyone. Firstly, I don’t believe that this is true. The CRA, as I understand it, made loans available to otherwise red lined communities at market rates. The problem was that the loans previously weren’t being made. So the CRA did not lead to the lowering of interest rates generally. Secondly, the purpose of the CRA was to turn tenants of slum lords into first time home owners. There would have been no “discrimination” at all in having higher interest rates for re-financings and vacation homes and investment real estate, which were a huge part of the subprime market. Thirdly, the CRA performed brilliantly during the 90s and there was no problem at all with the housing market until the mid-00s, when the capital glut led to the creation of mortgage backed securities, which is what drove the dramatic expansion of the sub prime lending market, of which 91% of the loans went for things other than principle first residences and certainly less than 1% (by dollar amount) would have had anything at all to do with the CRA. The largest share of this money was entirely private sector, non-Fannie/Freddie related and the largest share of this largest share was for re-financings and investment homes and vacation homes.

Once again, the clearest proof of the fact that the financial meltdown wasn’t related to the Democratic Party politics was the deafening silence among Republicans on a national basis, while they watched all three branches of government being flushed down the drain.

- Larry Weisenthal/Huntington Beach, CA

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Firstly, the personal attacks are really getting tiresome. If you guys don’t want me writing on this blog, just tell me so and I’ll stop. I write here because I like to debate issues. If Flopping Aces is just supposed to be a mutual support group for the GOP conservative base and no one else is welcome to offer opinions, then this should be made clear on the mast head.

So tell me, Craig and Mike: Am I welcome here or am I not? If I’m not welcome, I’ll simply go to another serious blog where discussants are capable of understanding the principle of the honest difference of opinion.

For now:

Mata, Sorry, but, but the numbers don’t add up. The concept that the CRA is in anyway responsible for what happened isn’t supported by any serious economist — at least not by any whom I’ve run across.

So many things…

First, here’s a list of failed banks:

http://www.fdic.gov/bank/individual/failed/banklist.html

Not a single executive in a single bank has blamed either the CRA or government in general for their failures. The idea that banks became insolvent because they were forced to make unwise loans is not correct.

As previously noted, Fannie/Freddie were involved in only 1/4 to 1/3 of all subprime loans. Fannie/Freddie are guilty of doing the same thing that all the other financial institutions were doing: they were guilty of trying to make a profit. Whatever mistakes any of the financial institutions made — either the quasi-public Fanny/Freddie or the entirely private sector which made 2/3 to 3/4 of the loans — were made in the pursuit of profit and not because of the heavy hand of Democrats forcing them to make those loans. And, remember, of all the sub prime loans, only 9% were for owner occupied first residences (the “target” for housing expansion) and certainly less than 1% of the total (dollar wise) were directly CRA related. Bank of America probably made more CRA-related loans than any financial institution (I’m guessing here, but it’s an educated guess) and B of A not only didn’t go under but it was financially solvent enough to assume all the bad debt of Merrill-Lynch in acquiring Merrill-Lynch.

And this doesn’t even take into account what appears to be the biggest factor in the meltdown– the credit default swaps. These entirely led to the AIG failure (with the — what is it now? — close to $150 billion bail out) and the Lehman Brothers failure and played a very large role in most of the other large financial institution failure, as well.

Mata, are you aware of anything McCain did, other than co-sign a single letter? That’s the only thing he took credit for in the debate and the letter was the only thing he raised during the entire campaign concerning the financial crisis.

The GOP lost the Presidency and took on big losses in Senate and House and everyone agrees that this was primarily due to the financial meltdown. They needn’t have blamed minorities (who — once again — had NOTHING to do with the meltdown); they could have just blamed Democrats. But they didn’t. They pissed away the Presidency. They pissed away the Supreme Court. The pissed away the Senate. They pissed away the House. They pissed it all away while totally holding their tongues when it came to blaming Democrats for the meltdown. Why? Because they were at least equally complicit. The cause of the meltdown was the 1% interest rates which led to a capital glut and the reason for the 1% interest rates was the need to grow the economy enough to avoid huge deficits as a result of the enormous Bush tax cuts to the wealthiest Americans.

With regard to Fannie/Freddie regulation, the Senate had the opportunity to bring regulatory legislation to the floor for debate; draft legislation was prepared, but this was all killed — not by Democrats but by Republican lobbyists. This is the ugly fact which ruins an otherwise beautiful Flopping Aces theory.

In response to Hard Right:

I don’t reply to posts which do not offer serious debate but which only list a blizzard of links. As if I’m supposed to read all of them and figure out what precise point you are trying to make and then have to take an hour to write a point by point rebuttal. If you have a particular point that you want to make, then take the time to explain it, and we can debate it. This is what Mata does so well. Anyone who knows how to use Google can quickly come up with lots of links. Just posting links without explaining what point you are trying to make isn’t debate.

I’ll address one thing. The concept that the RNC did try to blame Democrats for the meltdown.

Here’s the single quote from Hard Right’s link about the RNC (from Comment #7, above):

“It is sad commentary on the Democratic Party that the individuals asleep at the wheel as the housing industry went into crisis are now attacking the leader who worked to reform the system,” Diaz said, pointing out that McCain pushed for Fannie Mae and Freddie Mac reform in 2005. “Rep. [Barney] Frank, Sen. [Charles] Schumer and Sen. [Christopher] Dodd are more focused on carrying Barack Obama’s water than solving a historic economic crisis that confronts this nation and its citizens.”

This was dated September 25. Again, McCain’s “push” for reform came from co-signing a single letter. McCain didn’t “work” to reform the system, which is why he never claimed to “work” to reform the system. He only claimed to co-sign a single letter, which is all he did. And the fact that this line of attack was dropped as quickly as it was raised is owing to the fact that not only was the GOP “asleep at the wheel,” its leadership capitulated to Republican lobbyists in killing regulatory legislation.

Once again, the GOP pissed away all three branches of government because of the economic meltdown and no prominent GOP politician alleged that the cause of the meltdown was Democrats.

Along with the math and all the other facts related to what happened, this conspicuous silence refutes the assertion that somehow the Democrats were responsible for the meltdown.

- Larry Weisenthal/Huntington Beach, CA

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Oh and Craig, that’s only half of their mental illness. I won’t kill the huge amounts of bandwidth going into more detail.

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I’m with you Craig, just not as nice about it. They are incapable of accepting that which is contrary to their beliefs. They have a lot emotionally invested in their views. They feel being a liberal makes them superior to others and feel good about themselves. By superior I mean they think it makes them smarter and morally superior. If they accept that they are wrong, then it could lead to a domino like collapse. It would mean they aren’t smarter, morally superior, or the “good” people they think they are. Liberals REALLY need to feel good about themselves and better than others. This is why no matter how wrong they are proven, they will come back a bit later with the same talking point like nothing ever happened.

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Mata,

Boy you are patient. I admire your patience. I have none with ignorant people who doesn’t make the effort to find the real facts. Those facts are right here on this site and on many other excellent sites, but they sure are not in the MSM. I have more patience with low IQ people who really do not understand. But with educated people that try to spin things their way so to match their obsession with Obama, I have NONE. They can twist the facts all they want, they are still wrong and they know it and so do we. Such people really irritate me. They have the same Obama’s Modus Operandi with facts and reality: Deny, Delay and Destroy.

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