Exactly. Root cause is people living way beyond their means. Banks should have protected themselves but the root cause are people not managing their affairs and living on the edge.
I HEARD THAT TOO, CLINTON ADMINISTRATION FORCED THEM TO GIVE UNSECURED LOANS TO THE POOR OR SOMETHING.Why are Dem's still in denial that this financial crisis is a direct result of affirmative action type lending?
Yeah, but that is all the Democrats do persistently is take from the slightly well off and give to the "I don't wanna work" type.
They won't take the credit for it because that might be admitting that they are wrong. That will never happen. What's worse is those same people who got the loans are now the ones that have students in my class that are on free or reduced lunch because they can't afford the house...let alone food for their kids! And YES the public is paying for it. Why are Dem's still in denial that this financial crisis is a direct result of affirmative action type lending?
It was a combination of several factors. Yes there were CRA type loans made out based on equity plays. What does that mean they ask?
Sub-prime lending is high risk lending to people who can pay based on income, but do not qualify for standard bank loans. People in this category were basically self-employed or had less than good credit, but had a history of making car payments and rent payments. Credit card debt was rarely ever factored in, instead they considered secured debt-paying history instead.
What happened was, though, they started offering "predatory" loans to people. That kind of lending is entirely different. Predatory lending involves lending to people who can afford a teaser type rate, say 1 percent interest only payments for 5 years with the mortgage adjusting at 9 percent APR at year 5 and one day, or 4 points or whatever above the LIBOR. Thus an adjustable rate mortgage.
People could afford to buy if their teaser rate was in place because their payments were initially low. The mortgage brokers, bankers etc made origination fees and commissions, and the appraisers made money, and the banks got servicing fees, etc as the whole food chain profited from this -- except the borrower. In five years, however, the borrower isn't making more money, inflation is up, disposable earnings are way down, and now the whammy -- higher monthly payments! Well, many people couldn't afford to make the higher payment.
This started the snowball effect because now there was a glut of available (foreclosed) homes that suddenly flashed up on the market, and prices, already slumping, plummeted. Except now, we have plenty of homes, and no way to borrow to buy them!
On the other hand, many of us who made substantial downpayments and took out 30 year fixed rate mortgages, are finding it harder to (a) get credit to buy cars or simply bridge our financing for business purposes and (b) sell our homes or refinance them to get a little equity out to pay for whatever odd things we need to address now like hurricane repairs or let's say, bridge money to keep our businesses going during the short-term summer doldrums.
This has led people to spend less, which means our businesses have suffered dramatically, which in turn makes us withdraw our teensy and dwindling savings to pay for things in cash. Well the more with take money out of the banks, and stock market especially, the bigger the run on the banks and stock market (this is very simplistic by the way).
End result, no one has money! No money on the streets means its not circulating between the car dealer, the gas station owner, the grocery, the hair salon, the auto mechanic, the butcher, the baker, the accountant, lawyer, etc etc etc.
And of course, this will impact the Chinese because we won't be buying as many exploding chairs, tainted baby formula products, self-imolating shirts, poison pet foods, or whatever else they make that we consume. This of course means less profit for the Chinese makers, the exporters, the importers, distributors, and stores.
Bottom line: we are so substantially screwed. But there is a silver lining. Expect higher taxes, higher prices, higher interest rates and $9 a gallon gas.
All of you are fools.
There's no such thing as affirmative action lending. It's all BS by neo-right wing racists that want to direct the blame on scape goats to further their segregationist agenda.
The reason for the current turmoil is that in the beginning of this decade there was a flood of cheap money by the Federal reserve. The overnight lending rate was at 1%. Couple that with the dot com bust. Then you have scared investors looking for something to invest in, and they thought that real estate is a safe investment.
In the decade prior, the interest for mortgage rates was as high as 15%. Now with cheaper money, they could afford more for housing, and then you had an increase in values as more people could afford housing. This was great for banks as money was cheap and the value of housing increased at an incredible pace. At this point you had very low interest rates and little perceived risk in these loans. Therefore, you could give loans to subprime and alt-a borrowers.
And you had Fannie May and Freddie Mac buying these loans to sell to investors as Collateralized Debt Obligations to institutional investors. Those in the large investment firms and the debt rating agencies (like Standard and Poors and Moodys, eg) did a terrible job of assessing the risk in these investments and gave them investment grade ratings. The only perceived risk was higher interest rates and/or drop in home prices (which they ignored). Because of the dot com bust, there was a large appetite for these types of investments. Like a trillion dollars' worth (not an exageration).
Not only that, they were giving loans to speculators. No one cared. Everyone was making money in this big ponzi scheme (including home builders and everyone involved in home building), until there was no one else to buy the homes at these incredibly inflated prices.
So then prices started to decline and interest rates went up. REAL BAD. Now those people who got these loans can't pay them back. Try to sell, but no one to buy. Value of CDO's plunge and now no one has money to pay each other. On top of that, there were insurers of the CDO's, like Ambac who can't cover their liabilities and they go bust (or did the Fed take that over too... I forget.) Pretty much anyone who had exposure to these CDOs lost money. Sometimes a lot of money, like Lehman and Washington Mutual.
Now everyone thinks everyone else has no money so they're afraid to lend it and if they do they think there'e tremendous risk and therefore charge a lot of interest. Even revolving credit type loans that are used by business for day to day operating expenses is expensive to use.
I blame the ratings agencies like S%26amp;P and Moodies. They dropped the ball in properly assessing the risk in these types of investments. They were blinded by the fees they received for giving investment grade to these securities. And yet their reputation has not suffered. And they are not (as far as I know) being investigated or sued for malpractice.
Actually, the dems had no control over a banks decision to lend. Banks are still geared by their own discretion. Racists like you believe it should be geared by race and that is pretty pathetic. In hindsight, it's greedy folks: landlords, home owners: who want to sell their jalopies for hundreds of thousands of dollars, because someone else did.
If you need to blame SOMEONE, blame greed. Greed is a pig.
No legitimate source means no credibility for your position.
Please, Making the vast failure of our economic system attributable to one party is "blowing smoke".
How many wall street CEOs Bank and Corporate Board of Directors do you think are Democrats?
Here is where we stand now:
At this time in history anyone here who doesn't think that this financial melt-down will severely affect their lives is in dangerous denial.
Do you have any investments?
Do you have a retirement plan?
Do you have bank accounts? (FDIC can't insure all of the below $100K accounts)
Do you have life insurance?
Do you have health insurance?
Do you have auto insurance?
Do you have homeowner or renter insurance?
Do you have a job? (no loans + no production capital=no jobs)
Do you shop at a market? (no loans for planting, no crops to feed you)
The world-wide consequences would make "The Grapes of Wrath" look like a minor inconvenience.
All of this is what we are left to deal with.
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