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Originally Posted by TomBlaze
How the Wealthy Waged War on Each Other | Newsweek Voices - Daniel Gross | Newsweek.com
This article opened my eyes a bit. While many, even myself at one point, wanted to blame one political ideology or another, it seems more likely that the blame lies with the ultra-wealthy and the freedom and control that they had over the outcome of things. This also brings up a nice philosophical debate about regulation of the markets and even salaries.
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I definitely think executives deserve blame but I don't think the majority of blame goes to them. From what I'm reading, I think the majority of blame goes to the government. For example, in 1992, the Federal Reserve had a paper called "Closing the Gap: A Guide to Equal Opportunity Lending" that listed some underwriting changes to help low-income people buy homes:
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• It told banks they should consider junking the traditional debt-to-income ratio used by the industry to determine whether an applicant's income was sufficient to cover housing costs plus loan payments.
• It instructed banks that an applicant's "lack of credit history should not be seen as a negative factor" in obtaining a mortgage, though a mortgage is the biggest financial obligation most individuals will undertake.
• In cases where applicants had bad credit (as opposed to no credit), the Boston Fed told banks to "consider extenuating circumstances" that might still make the borrower creditworthy.
• When applicants didn't have enough savings to make a down payment, the Boston Fed urged banks to allow loans from nonprofits or government assistance agencies to count toward a down payment, even though banks had traditionally disallowed such sources because applicants who have little of their own savings invested in a home are more likely to walk away from a loan when they have trouble paying.
Of course, the new federal standards couldn't just apply to minorities. If they could pay back loans under these terms, then so could the majority of loan applicants. Quickly, in other words, these became the new standards in the industry.
IBDeditorials.com: Editorials, Political Cartoons, and Polls from Investor's Business Daily -- How The Fed, Media And Academia Aided And Abetted Lending Debacle
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Fannie Mae and Freddie Mac also played a large role. From the hearing on the role of Fannie and Freddie in Congress late last year:
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While Fannie Mae and Freddie Mac may deny it, there can be no doubt that they now own or guarantee $1.6 trillion in subprime, Alt-4, and other default-prone loans and
securities. These comprise over one-third of their risk portfolio, not the 15 percent that they kept referring to during earlier testimony. They were responsible for 34
percent of all the subprime loans made in the United States and 59 percent of all the Alt-A loans made in the United States.
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And we all know what got the ball rolling. The CRA:
This is what Greenspan said about the CRA during his testimony in Congress:
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"Well-, you know, it is instructive to go back to the early stages of the subprime market, which has essentially emerged out of the CRA."
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Kramer
03-10-2009
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