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1. 

   pschearer said, 9 months ago

   The chain of events leading up to the current crisis is complicated, but I think I understand it all except for one thing: How did the ratings agencies justify the high ratings for low-quality assets?

   This is the closest I’ve come to a theory: They repackaged varying grades of mortgages into “tranches” that could then be resold to investors, the high quality ones going to risk-averse buyers and the low-quality ones going to risk-takers. So the idea was that for these supposedly knowledgeable speculators (like hedge funds), these were great investments, hence AAA. Just my theory; I’m waiting for proof or disproof. But either way, it all smells too much of outright fraud.

2. 

   Ron said, 9 months ago

   Yes - it does smell of outright fraud.
   And it started with the government (Thanks, Barney Frank!) requiring mortgages to be made to poor people like Mr. Duck, who would not be able to afford one under normal circumstances.
   And when the banks and mortgage houses said that there was no way they could make such loans, the government (Thanks, Barney Frank!) said that they should not worry as they would be able to sell these ‘bad assets’
   to Fannie Mae and Freddie Mac.

3. 

   timecarrot said, 9 months ago

   I don’t believe it did start that way. I think those kind of mortgages did better, not worse, and more of the defaults came from elsewhere.

4. 

   OtisIzaltumuch said, 9 months ago

   DeeBerg, I can’t decide which of your FoxNews talking points is more ridiculous - that the 1977 Community Reinvestment Act was somehow responsible for the bad lending binge of 2004-2007, or that Barney Frank = “the government”.
   But I think it’s the first, since most of the subprime loans were made not by banks but by mortgage service companies not subject to federal supervision, so that whole “government forced us to cheat & lie” defense is just irrelevant.
   Then again, who cares about the facts when you’re just looking to spin the blame onto any Democrat you can think of?

5. 

   timecarrot said, 9 months ago

   via Business Week, Sept 29 2008:

   “Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).”

6. 

   timecarrot said, 9 months ago

   Sorry, that should have gone to traigerlaw dot com, specifically

   http://www.traigerlaw.com/publications/traigerhinckleyllpcraforeclosurestudy1-7-08.pdf

7. 

   Geekologist said, 9 months ago

   pschearer, I’m shocked that for once, I agree with you. Deeberg, your right.

   Timecarrot, if you can’t give a company the money they want because you don’t have it, how are you going to pay it?

   Otiz, mortgage companies have regs too. Just not as many. I don’t see why you think that deregulating did NOT cause this.

8. 

   OtisIzaltumuch said, 9 months ago

   Geekologist, I absolutely agree with you that deregulation and lack of supervision from the SEC were big factors in letting the greed and fraud get out of hand.

   My point to DeeBerg was specifically regarding the CRA: (1) that it did NOT apply to the mortgage service companies (2) that it seems to have taken 27 years for the alleged cause-and-effect to suddenly kick in - which seems unlikely, don’t you think?

9. 

   beenthere240 said, 9 months ago

   There is a sense in which our entire economic system is a bit of a Ponzi scheme in that we always have growth. Bolling did a cartoon about this recently with Ben Franklin et al. If this is accurate, we are truly screwed.