The housing bubble that burst was immediately blamed on greed on Wall Street and Capitalism run amok. It took almost four years before people close to the crime, would openly admit the collusion between the government and the banks, to reduce the lending standards so more people could afford a home. Even while it was crashing to the ground, girls like Barney Frank were trying to tell everyone it was all good at Fan and Fred. When people are afraid to speak up, then the truth will die.
agree with you here to a certain extent. this crisis has had the same form all over the industrialised world and over this side of the pond.
the average citizen was sold a lie. they were told that having their own house was an infallible investment (although simply looking back on past recessions showed otherwise), and combined with a handful of shares they were suddenly `middle class´. it was bollocks. they were simply working class people with a bogoff great mortgage and a handful of shares, nothing more.
over here we saw the same thing. people going for large mortgages having seen how many people had made a lot of money on a housing boom. at least here they had the excuse that `negative equity´ wasn´t know about. what they didn´t realise was the smart people had made their cash and got out before it went pear shaped, but they wanted their slice of the pie as well.
the other factor was rampant consumerism that western society suffers from. they want all the toys, top range car, plasma t.v., and they want it NOW. everyone else has it so why can´t i? put it on the mortgage! a lot were sufficiently ignorant not to realise that their house is NOT an ATM, and that all the toys have to be paid for eventually.
i´m not slamming the capital system here. just illustrating that the majority who ended up in the crap during the housing crash didn´t fully understand how it worked and that it does ebb and flow, and that boom and bust economics are a reality.
neither side of the political devide can say it has clean hands here. here in spain things were relaxed by the conservative PP, and because they wanted their slice of the good times, the socialist PSOE changed nothing allowing the housing bubble to burst in a spectacular fashion. hell, i saw this coming back in 2001, and made sure i was set for it. i now have no mortgage.
likewise you had the same thing, and the admission that it was collusion between govt and banks (was it really as long ago as 4 years...interesting)is really quite disturbing. unfortunately, the spanish have a bit of a short memory and will blame the person of the moment, so the possibility of accountability is minimal to say the least.
but isn´t that normally the case? - crap doesn´t roll uphill.
This is long buddy. You'd better get a cold one.
Short memories aren't just limited to your side of the pond. Politicians here bank on it, on a regular basis.
Before you spend to much effort attacking "consumerism", keep in mind, that consumption, is what drives economies. Without people spending money to buy things, there is no market. Without somebody wanting the latest greatest mod on their scoot, the money disappears from the cycle shop game. You become nothing more then a cheap mechanic. It is the desire to own something new, prettier, and better, that makes the world go round
Anyway, "forward" as Obama likes to say now.........
To truly understand what happened with the mortgage mess, you have to understand what the motivation behind the CRA(Community Reinvestment Act 1977) was, and how it was crafted along the same lines as Jimmy Carters "Habitats For Humanity".
At its very heart, Carters HFH, was nothing more then a method to get more people into the system to contribute to the tax revenues.
The CRA was the same, but not on a voluntary basis. It was government mandated through and through.
Everybody who got a free home with HFH, also got a tax burden, free of charge, and it was those who had the time and means to build the homes, that help the project move forward. Those with, contributed to those without...."from everyone according to their abilities, to everyone according to their needs". Marx would be so proud.
The CRA, was originally crafted as a way to encourage banks to lend money into impoverished areas. The claim was, banks were racist if they didn't lend more money to people within areas that could be outlined in certain communities as recieving little or no financial support from banks. It was called "redlining". The CRA, was going to fix that. The government looked at all those without, and all those with, and said, "let's play redistribution".
The government strong-armed the banks into making loans, by threatening the banks abilities to grow, and their FDIC qualifications. That was the stick. The carrot, was that the government went about buying these loans and providing profit to those banks that made them, by passing them through Fannie Mae, and Freddie Mac(both were/are called GSE's Government Sponsored Enterprises). This was how the banks maintained their liquidity. They didn't have to hold the paper for 30 years. They just made qualifying loans, and then sold them to the GSE's, for a profit...they were paid to play.
In the early days of the CRA, only Fan and Fred were allowed to bundle and resale home loans. Other bigger financial institutions could do it as well, but were less likely to want to mess in the higher risk, and, the average Joe didn't have access to these type of places. There was a wall between the two types of banks put there by Glass/Steagal.
The average bank on the corner was prohibited from bundling and reselling home loans on Wall Street, ie playing in the market(this changed, when Glass/Steagal was struck down in 1998).
Fan and Fred had a virtual monopoly on this market, and were making a killing. The democrats had control at F&F, and kept it. Jim Johnson, and Franklin Raines(Raines made over 90 million dollars in bonuses at Fan for playing the redistribution game) both served with Carter, and went on to run Fannie Mae, and line their pockets with bonuses.
The rest of the banking community was upset at F&F's monopoly, and wanted a piece of the pie. They said, and rightfully so, that "if it's good for the goose, it's good enough for us too". In 1998, when the dems and those shepherding F&F saw how much risk was piling up at F&F, and they wanted to accelerate the "affordable housing agenda", they unleashed the monster so to speak, and repealed Glass/Steagal. This was an almost unanimous vote, after the dems held out for more stringent CRA language.
Up until now(1998), this was almost a purely socialist play, where the government was controlling the game and completely guilty of spreading the risk into 401K's, and onto the backs of those investors who were holding the high risk mortgaged backed securities in their portfolio's. "Heck, where's the risk? The government is in the game, it must be okay".
As well as allowing other banks to play in the rigged game in 1998, the Dems turned their teenage daughter "little CRA" out onto the street for profit. ACORN was handling the ground work for democrats politically, and was also skimming money by collecting "finders fees" from lending institutions(alot of people don't realize this), for herding people to the banks to get home loans. Taxpayers were in effect, paying ACORN via the banks. ACORN would pocket the money, and then funnel money and help to politicians of their choice....democrats almost exclusivly. Those politicians would in turn seek favorable legislation for their cronies. What a game.
Everybody was getting a piece of the action, and those who actually pay taxes, were carrying more and more of the potential load, as the risk grew. This is what was so bold about the claims that the bankers somehow forced and or cajouled people into bad loans they couldn't afford. It wasn't the banks going out and dragging people in, it was "Community Organizations" like ACORN, who were doing it and getting paid head money.
ACORN got a slice, and then turned around and contributed money to those democrats who were valuable to their interest of "everybody deserves a home".
Now, step back to 1993, when congress changed the rules regarding the CRA(get an image of the "camels nose under the tent" with the original in 1977). Congress overhauled the rules, and actually gave groups like ACORN, a seat at the table to determine if the banks were lending enough money to poor people.....Obama was up to his skinny neck in this in Chicago as a Community Organizer, and legal consultant to ACORN. In 1993, Congress added teeth to the CRA, the lending standards started to plummet at a faster pace, and the leveraging of the dollar in the mortgage industry grew exponentially. Can you say "budget surplus". This is where the economy was booming, and everybody turned a blind eye to it because it was before the Earth was created in 2001.
While all this was ramped up, the folks holding the reins at F&F and those protecting the easy money ideal in Washington, realized that the only way to build momentum in the "Home Ownership Agenda", was to reduce the standards required to get a home loan. This was done, by manipulating the requirements for the loans that would/could be purchased and resold by F&F. Barney Frank had a boyfriend(Herb Moses) working at Fannie Mae, who had just such a job. Other banks simply adopted a "monkey see monkey do" philosophy in 1998. After all, if the government was willing to buy the bum loans, and pay you a premium to write the paper, where was the harm?
All the banks had to do, was to make the loans, bundle some really crappy high risk loans with some better stuff to give the bundle some quality, and then dump it on Wall Street, to be bought and sold again and again, ...always with the 'silent but implied guarantee', that if anything happened, the government would be there. The idea, that you could buy a house and then flip it for a profit in a few years, was all fueled by the faulty premise that bad loans didn't default, and the idea that the government was involved so it was safe.
Then, in 05 or so, the defaults started. Imagine, somebody who was a bad lending risk not paying their loan...the nerve. The house of cards started to crumble, and eventually collapsed in poor Georges lap. The press and the dems developed myopia, and couldn't see any further back then 2001.
George and his administration and others(like John Mccain, who was probably mad that ACORN wouldn't play nice with him)tried almost 20 different times between 2001, and 2004, to get access to the books at Fan and Fred. The cries of racism, and claims that there wasn't anything wrong at F&F, met them at every turn. Barney Frank refused to let it go any further. If we could have seen what was going on in 2001, would the bailout in 08 have ever happened?
The "Bailout", was nothing more then the government making good on it's promise to the banks with tax payers money. The money that went to the banks anyway. George used half and left half for Barry. I'm not sure how GM and Chrysler fit in here....other then GMAC, is now Ally Bank, and the notion that as long as the administration was playing favorites, the UAW could use a bailout as well).
What started as a socialist scheme in the 70's, to provide affordable housing by dumping the risk of sub prime loans onto unwitting investors and people with money(The redistribution part. Spreading the wealth around), with the implied government guarantee that the paper was good, grew into something that was protected and nurtured predominantly by just one party for almost 30 years. A party that was beneficiary to almost all campaign contributions made from groups like ACORN, and the GSE's called Fan and Fred, and also from many of the same banks that received the Bailout monies.
What happened, was anything but capitalism. Banks didn't race out to beat down the quality of the loans they made. It was, what happens when government practices social engineering through carefully crafted and directed banking regulation, not the "free market" determining and setting prices. It was a government program and socialist scheme, that rewarded those who wanted to play the game, and punished those who didn't with accusations of racism. Extortion and intimidation against banks by ACORN and their friends, and, costly legal battles waged by groups like ACORN, against reluctant banks. Legal battles who had Barack Obama in the chair as a consultant. The same guy who is still trying to breathe life into the mortgage industry, hoping a Phoenix will rise from the ashes. Obama hasn't learned his lesson. Hopefully, the rest of us have.
"You never get something for nothing", and, "if it's to good to be true, then it isn't". The government forcing lending policy on banks, and not expecting a backlash when the defaults started pouring in, was either intentional, myopic, corrupt, or all three. It wasn't capitalism....if it was capitalism, there never would have been a "Bailout".