MinnPost Can Klobuchar's MN Nice Melt Senate
"Four letters, VETO. Learn to love them conservatives, because you'll be seeing them, a lot. Then in 2016, when your heroes have regained minority status, perhaps somethng might get accomplished in the short time until the midterm. Welcome to governance in the 21st century." MattWe may get our first test of this concept, since there is a private pension reform rider on the spending bill. If Obama vetoes, will he now be the one threatening to "default" on our commitments? Thoughts?
"Matt, If Obama starts using his VETO often, will you then write scathing comments that claim him to be the one obstructing the effective function of government like you did regarding the GOP controlled House?" G2A
FOX News House Spending Plan
NY Times Spending Bill Hits Snag
CNBC Assault on Private Pensions
45 comments:
Actually, we should be far more worried about the provision that allows banks to go back to engaging in the sorts of risky credit swaps that played a huge role in the financial meltdown of 2008.
Did we ever pass laws that required citizens to:
- put > 20% down? (ie no PMI insurance allowed)
- only buy homes where the payment, taxes and utility costs were < 30% of their take home income?
- have a net worth equal to their mortgage before they could have a variable interest rate loan?
- never take home equity loans or lines of credits that would make their liability total > 80% of the value of the home?
- continue paying on their mortgage even if the mortgage balance exceeds the home value. (ie no walking away from your obligation without filing bankruptcy?
These behaviors played a huge role in the financial meltdown of 2008. Should we implement these laws / controls also?
No risky credit swaps if all the loans are solid...
I see no reason for obstructionism. There are lots of things I would like to see done, and I know there are lots of things Republicans would like to do. Let's deal.
--Hiram
The everyday people who engaged in reckless financial behavior didn't get the same bailout that bankers who engaged in reckless financial behavior did.
And you want to ignore that bad behavior on the part of the banks and look the other way while they blow the bubble up again.
Sean,
I think you are missing the fact that every person who walked away from their house after putting almost no money down, living there for 6+ months without making payments, took many of the fixtures on the way out, etc and left the banks with the loss were "bailed out".
They had signed an obligation to pay so much money to the bank for some many years and they were allowed out of their debt. And in some cases the government even covered some more of their costs.
Remember: I blame the consumers 40%, the government 20% and the financial institutions 40%. So are you willing to fix all the root causes?
Crisis of Credit Video
"I think you are missing the fact that every person who walked away from their house after putting almost no money down, living there for 6+ months without making payments, took many of the fixtures on the way out, etc and left the banks with the loss were "bailed out"."
I think you have a bizarre definition of "bailed out", then. Certainly the scale of the bail out to banks was far more significant than to homeowners.
I'm not willing to put regulatory curbs in to tell banks how to underwrite their loans, but I'm similarly unwilling to bail them out should they fail at that job.
I don't think many of them asked to be bailed out. If I remember correctly the government demanded that they take the cash. Wiki TARP
Pro Publica Bailout Tracker
Natl Review Re-Defaults
WP HAMP
Wiki HARP
It looks like we are doing a lot for the unwise home Owners who bought off more than they could chew.
The reality is that most Liberals want the banks to make those high risk loans. Those are the loans that enable low income / low net worth citizens to buy a home and live the American Dream. And likely why Democrats support not mandating under writing rules and encourage HUD, FHA, etc.
Wiki Failure Causes
And if the banks were to charge much higher interest rates in those cases, someone would sue them for discrimination / gouging.
So yes I agree that the financial institutions own some of the causation, but not as much as the Liberals claim.
CNN Congress Passes Bill
Excellent !!! The moderates from both parties got something done. And the far Left and far Right are unhappy.
Maybe we will move some bills over the next 2 years...
Now you're talking out of both sides of your mouth.
If it was in fact the "liberal" policies that forced banks to issue risky loans, then a much higher percentage of banks would have required bailouts.
The fact of the matter is that many banks stayed out of the risky markets and didn't get sued or hauled into court by "liberal" regulators.
And the truth of the matter is that people in both parties have supported programs that have made home ownership available to a wider population.
I agree that there were many contributing factors at play that caused the "melt down". Just as the video shows.
I am happy to discuss ALL of them. However most of the Liberal commenters keep wanting to blame the financial industry and too little government regulation.
As I said, I believe the contributing factors are: financial institutions and investors: 40%
governmental policy: 20%
mortagees and American culture: 40%
What factors do you see and how would you weight them?
By the way, as an owner of Bank of America stock, I am very aware of the HUGE fines the financial firms have had to pay for the choices made by some their employees and managers made.
Now how would you like to hold all those people accountable who bought more than they could afford?
Or us investors who demand higher than average profits from our mutual funds, stocks, pensions, etc?
My wife and I have often dreamed of having one of those nice acreages in Independence, and we may be able to qualify... That does not mean that it would be a fiscally responsible decision to do so. So after 19 years we still live in our nice older but relatively modest home near the Target on Rockford Rd...
I would weight it as follows:
financial institutions and investors: 70%
governmental policy: 20%
mortagees and American culture: 10%
Because ultimately it is the banks' responsibility to make sure they aren't engaging in activity that is too risky.
Those fines really aren't very large compared to the revenue streams that they are being compared to (and they get to write-off some of those fines against their tax liability!). It's estimated by some that even though J.P. Morgan has paid $25B in fines, they're still some $10B ahead net on the business that resulted in those fines.
Compare that to a homeowner who suffered a foreclosure -- they're going to have lousy credit for the next 7 years making it very difficult to buy a house (or in some cases, hard to rent an apartment). Not to mention the financial damage (in some cases, foreclosures result in serious tax liability).
The bankers have come out of this a heckuva lot better off than the homeowners have, but you'd rather moralize against the poor family trying to get ahead than the highly-paid Wall Street guy who knew he was peddling garbage to these folks and burying them with indecipherable contract language.
Didn't you watch the video?
The only people dealing with the Home Owner were the Mortgage Brokers. All the rest of the game was between many people who should have known all about "garbage" and "indecipherable contract language".
I assume you have had or do have a mortgage. They are pretty simple in that they clearly define what you need to pay each month. And that bad things will happen if you fail to do so. So what is "indecipherable"?
Back to the video... You are saying that home Owners are not very responsible for making legal / financial commitments that are too risky? You are kidding... Right?
"the banks' responsibility to make sure they aren't engaging in activity that is too risky"
Somehow the bank is supposed to know if you will lose your job, if you will decide to take on more debt later, you get divorced, etc, etc, etc.
The reality is that the risk was not too bad for anyone until people started to default on their mortgages. I remember how much I loved watching my home value appreciate by double digits each year. And my investments were going up too.
I don't remember anyone complaining about the banks when they were allowed to buy that shiny new house. All the while believing for some reason that homes could appreciate faster than inflation forever... Which of course made no sense...
"Didn't you watch the video?"
It's rather amazing that message you got out of the video was that the homeowners were the ones to blame, when it made it quite clear that it was the greed of the financial institutions that caused them to pour gasoline on the subprime mortgage market.
"They are pretty simple in that they clearly define what you need to pay each month. And that bad things will happen if you fail to do so. So what is "indecipherable"?"
You're right that they should be pretty simple. Yet, you walk out of a closing with a huge packet written in legalese. (And which party has stood stridently against efforts to simplify those documents?)
"You are saying that home Owners are not very responsible for making legal / financial commitments that are too risky?"
I assign them less responsibility than I do to the bankers, who knew that they were extending loans to customers that were going to be house-poor and with no margin for error.
It is the bankers' job to understand the market. They are the experts, and that is why I assign them most of the blame.
People who made poor decisions have paid the price. They lost their houses and had their credit destroyed.
J.P. Morgan and Goldman Sachs and all the other big banks got their bailout, got to buy up other banks that were in even worse shape, and now we're giving them the green light to go back to doing the same risky practices that got all of us into this mess in the first place.
And while they were "too big to fail" back in 2008, the big banks are now even bigger than they were back then, which means when they mess it up again (and they will at some point, because they always do), we're going to have go right back to bailing them out again.
I guess we will need to disagree. I think private citizens should be held responsible when they choose of their own free will to borrow money.
This is probably the single biggest philosophical difference between Conservatives and Liberals.
"I think private citizens should be held responsible when they choose of their own free will to borrow money.
This is probably the single biggest philosophical difference between Conservatives and Liberals."
Where have I said otherwise?
The difference is that you're wanting to take the banks off the hook, as if they're being snookered by a bunch of poor people.
"I think private citizens should be held responsible when they choose of their own free will to borrow money.
This is probably the single biggest philosophical difference between Conservatives and Liberals."
I think the difference here is that liberals also feel that lenders should also be held responsible when they lend money.
==Hiram
The banks have paid back the federal government plus paying 10's of Billions of dollars in fines.
How much have the irresponsible mortagees paid back to anyone?
They lost or gave back a home that they had almost NO equity in.
You keep saying that it was terrible that they lost their home. The reality is that most of them lost almost no money, because they had put almost nothing down. That was why we experienced this problem in the first place.
Their time in the home probably cost them less than they would have paid in rent for an equivalent home.
I agree that there is an emotional aspect to being evicted out of a home that you unable to afford, but cash wise I think most these folks lost little cash.
"The banks have paid back the federal government plus paying 10's of Billions of dollars in fines."
What about the 6 trillion or so in lost economic activity that resulted from the Great Recession? The 8.5 million nonfarm jobs that were lost? All the other collateral damage -- 401(k)s wiped out, home value lost, etc.
Business was good as the old days for the banks in 2010. The rest of economy is still digging out from the rubble they created.
Yet, some people bristle at the notion of putting any limits on what these bankers can do to limit the amount of damage they can do to the economy going forward.
If only you demanded the same level of personal responsibility from people who have wealth and power as you do from the poor and powerless.
"You keep saying that it was terrible that they lost their home."
I never said that.
"The reality is that most of them lost almost no money, because they had put almost nothing down. That was why we experienced this problem in the first place."
No, we experienced this problem in the first place because a bunch of greedy bankers thought it was a good idea to give people mortgages when they didn't have resources for a down payment.
"the rubble they created"
You see the "they" as a small group of "villains".
I see the "they" as the many who want more for themselves and their families and were willing to do foolish things in pursuit of them... This includes bankers, investors, home buyers, politicians, bureaucrats, etc.
We American's seem to like bubbles that make us happy and provide incredible returns... That is until they pop. Then we look for someone to blame for our own personal greed.
In ~1998 I set aside $4,000 to try my hand at "aggressive stock investing". I was so excited when it increased to $8,000 in 1 month... And then it dropped back to $4,000 soon after when the tech bubble burst... At which time I learned my lesson, sold the stock and put it back in my mutual fund.
Now was it the fault of the Tech firms, E Trade, the stock market, etc that I "lost" $4,000. By your logic that would be the case...
By my logic, I am a free citizen of the USA who is responsible for what I buy, sell and the loans I sign for.
No one forced me to buy the stock, No one forced me to not sell it at $8,000, and no one forced me to exit the roller coaster at $4,000. These were all my choices and I take all responsibility for them.
I am sorry for paraphrasing the following as "terrible that they lost their home":
"Compare that to a homeowner who suffered a foreclosure -- they're going to have lousy credit for the next 7 years making it very difficult to buy a house (or in some cases, hard to rent an apartment). Not to mention the financial damage (in some cases, foreclosures result in serious tax liability)."
Here's the thing: If I'm an irresponsible person who wants to buy a big house with no money down and a questionable income stream to back it up, I just can't go out and do it on my own. I need to go to a bank -- staffed by industry professionals who use sophisticated computer programs to do their underwriting -- to authorize me for a mortgage and cut the check to the buy the house. When people come to you and say "I want to bury myself in a mountain of debt", the professional response is not "stand over there, I'll get the bulldozer".
It's completely different than your stock trading example.
That is why I give the Government and Banks 60% of the responsibility. They gave the foolish people the shovel.
Just think of the out cry that would occur if banks would not give a mortgage without at least 20% down... It would be like our current out cry about the racist police.
"Those cold hearted white bankers loan money to more white people than minorities..."
Do you really want the bankers assuming that people will lose their jobs, get divorced, buy an expensive car, that the applicant is a spender, etc, etc, etc?
I just don't think anyone in the USA wants them being that tight with credit, but I could be wrong.
We don't need to radically change things. All we need are two simple rules.
1.) Any bank that is "too big to fail" is too big to exist and should be broken up. No one corporation can be allowed to be a time bomb for the entire economy. Doing so would prevent (or seriously reduce) taxpayer exposure to future bailouts.
2.) Financial institutions are free to engage in risky lending -- so long as they do not use federally-ensured deposits to do so. You want to go deep in subprime mortgages? Great, but raise your own money to do so, and you're on your own if you fail.
Put those two rules into place, and companies will go back to more traditional underwriting rules (pre-repeal of Glass-Steagall) which still provided broad access to home ownership.
"Too Big To Fail"
Who gets to determine this? Remember that the banks did not want the bail out, the government pushed it on them because they feared a tightening of credit which would slow the economy.
Subprime
So do we get rid of the:
HUD and the FHA
HUD MN Programs
This is why the government owns 20% of the blame. As far as I know, every loan with less than 20% down requires the mortgagee to pay for mortgage insurance. And the biggest insurer is the government because Liberal politicians think everyone deserves a home. And the Conservatives want more homes built because it is good for the economy and business.
Personally I am indifferent to what happens. I have my mortgage locked and am not moving.
However if Liberals make it too hard to give loans to low income folks, those folk will likely be stuck in an apartment or another rental property. Which probably makes good business sense... Owning property comes with some big unplanned bills at times.
By the way, the finance and business folks won't mind since they have lots of money invested in REITs, Rental companies, etc.
"Remember that the banks did not want the bail out, the government pushed it on them because they feared a tightening of credit which would slow the economy."
That's a blanket statement that's not true across the board. There were some banks that absolutely required that boost.
Do we need to get rid of FHA and HUD? No. Both existed for decades before the last crisis.
Banks and mortgage companies have been around for even longer...
What's your point?
My point is that we don't need to get rid of HUD or the FHA.
I disagree, if one wants banks to stop giving out risky loans, one needs to stop providing Tax Payer funded insurance programs that encourage banks to give risky loans and home owners to seek risky loans.
Or at least raise the premiums appropriately.
The FHA has been in existence for 80 years. If it were the problem, we would have run into problems long before 2007-2008.
It looks like mortgages pre-date the FHA...
History of American Mortgages
Mortgage Crisis 1930's
"If it were the problem, we would have run into problems long before 2007-2008."
My smart alec point is that there are so many factors at play, I am not sure how one would compare now to then. Our bigger is better culture has been growing like it is on steroids over the past 80 years...
Sure, there are lots of factors. But I would argue there was a far more demonstrable change in banking activity/standards than in governmental policy in the 2000s leading up to this crisis.
I liked this comment from the first source.
"The rise of the United States mortgage market occurred between 1949 and the turn of the 21 st century. In fact, the mortgage debt to income ratio rose from 20 to 73 percent during this time. In addition, mortgage debt to household assets ratio rose from 15 to 41 percent. The American federal government's intervention in mortgage-based lending caused this rapid growth, thus setting it apart from the rest of the world. "
It pretty much summarizes the problem. People want GDP growth and much nicer houses, Government encourages bigger and bigger low risk low cost mortgages to make people happy.
Problems occur and they blame the banks... "The bank made me buy that 5 bedroom 3 bath home !!!" How dare they...
The FHA was created as a result of the 1930s mortgage crisis -- it did not contribute to it.
"Government encourages bigger and bigger low risk low cost mortgages to make people happy."
Can you give me an instance where the government forced a bank to issue a loan over the bank's objection that it was too risky?
No one had to force them, the government accepted the risk for the "greater good". Therefore the banks money and tax payers carried the risk...
Origin of Subprime
The reality is that at the peak of the subprime markets, government lending (Fannie and Freddie) was at its lowest recent share of the mortgage market.
Subprime originations quadrupled in market share from 1994 to 2006, primarily because of the boom in mortgage-based securities and credit default swaps that banks tough could offload that risk on other institutions.
Companies were sloppy at underwriting. 68% of option ARM loans (which offered discounted payments in the first few years) originated at Countrywide and Washington Mutual had low- or no-documentation requirements.
But, hey, it's all the government's fault! And, those devilish poor people!
No one here is saying "ALL".
Sean
financial institutions and investors: 70%
governmental policy: 20%
mortagees and American culture: 10%
John
financial institutions and investors: 40%
governmental policy: 20%
mortagees and American culture: 40%
Fine, but you haven't been able to demonstrate how government activity changed in the years leading up to the subprime crisis to make their culpability equal to that of the banks.
We know how the banks changed their behavior in the decade or so prior to 2008: they developed exotic instruments like mortgage-based securities and credit default swaps and they loosened their underwriting standards.
What did the government do that was comparable over that time period?
It's interesting that you assign the government 20% when you seem to be arguing that they played an integral role.
Why would you think that they had to play an integral or new role.
Remember the straw that broke the camel's back?
I think government policy has encouraged people to carry too much debt for decades. Wiki causes
Now I agree that the new financial tools were like that straw... And they may have made a bad situation worse. However that does not mean that all the rest of the load on the camel did not contribute to that broken back.
It's clear we're in "agree to disagree" territory here, so I'm going to focus my energies elsewhere.
Agreed. Thanks for the different view.
Post a Comment