You're mine now !!!

[mookiemookie]

Originally Posted by SteamWake

It was 'recommended'

http://iperceive.net/hidden-clinton-...or-minorities/

I still fail to see how any of those political goals translated into mortgage brokers and banks lowering their lending standards. That was a purely profit motivated decision, not a government mandate.

Furthermore, a study by the Cleveland Fed found that 60% of "higher priced loan originations" went to middle or higher income borrowers or neighborhoods. This story of the financial crisis being caused by big bad Clinton pushing banks to make loans to minorities falls apart when you examine the facts.

Fannie and Freddie didn't do most of their subprime buying until 2005 - 2007. By that time the wheels of the crisis were already in motion. Peak home sales were in August 05 and peak prices in 2006. While they're not innocent by any stretch, to suggest that the entire crisis can be traced back to Fannie and Freddie is disingenuous.

[SteamWake]

Originally Posted by mookiemookie

I still fail to see how any of those political goals translated into mortgage brokers and banks lowering their lending standards. That was a purely profit motivated decision, not a government mandate.

When your mother tells you to clean your plate you had better do it.

Carter, Clinton, & Bush No 1 all strongarmed the banks to make the loans that they were full and well aware would not be repaid.

[mookiemookie]

Originally Posted by SteamWake

When your mother tells you to clean your plate you had better do it.

Carter, Clinton, & Bush No 1 all strongarmed the banks to make the loans that they were full and well aware would not be repaid.

Profit motive, the reach for yield in the face of ultra low rates, the need to gain market share and the "lend to securitize" model of lending where banks could "pass the buck" and not have to hold garbage loans on their balance sheet is what did it. Not the whims of a president or presidents.

And Carter? Carter?! That was 30+ years ago. And you're telling me something he did (I have no idea what unless you're gonna go with the old debunked CRA argument) caused the 2007 financial crisis. That argument fails not just logically, but in terms of time and space.

[SteamWake]

Carter is the one whom started the whole 'affordible housing' thing. While well intentioned no one at the time realized what a debacle it would become.

Here is an excellent op ed on the topic.

http://apnews.myway.com/article/20090407/D97DIVI01.html

[mookiemookie]

I think you may want to check that link.

[SteamWake]

Besides banks, there was reduced regulatory oversight, loans to unqualified borrowers were encouraged and people took out mortgages or home-equity loans they couldn't afford.

/shrug

[UnderseaLcpl]

Originally Posted by mookiemookie

No. Freddie and Fannie are mortgage guarantors, not lenders. They were not the largest subprime lenders, or even holders of subprime debt.

How astute of you. Yes, you are correct that they are not technically subprime lenders. I was being lazy, but they do buy or guarantee subprime loans, which is even worse than being subrpime lenders because they provide an incentive for banks to indulge in subprime lending. More on that later.

From 2004-2006, Fannie and Freddie went from holding 48% of the subprime debt sold into the market to holding 24%. That was because of the rise of the private label securitizers issuing subprime debt and MBS.

But in 2008 they held about half of it again; http://www.fanniemae.com/ir/pdf/monthly/2008/053108.pdf

http://www.marketwatch.com/tools/quo...eport=2&freq=2

With total mortgage assets for the whole country totalling about 12 trillion, it is pretty evident from their own reports that they owned/guaranteed about half the secondary mortgage market when the crisis began to take shape.
My guess is that the accounting scandals they faced in 03-04 were partially responsible for their subsequent decline in holdings, but that's another matter altogether.

Furthermore, I don't know of any banking regulation that imposes any quotas on how many subprime loans a bank has to make.

I don't know of any quota standards, either, but it wouldn't surprise me if there were some, somewhere.
Nonetheless, the state did and does force/encourage subprime lending from banks. The CRA is the most direct example. While it does not stipulate quotas, it does subject banks to penalties if they do not loan to certain areas, subject to the nebulously-defined "evaluation" of inspectors.
Less apparent is Equal Opportunity Housing. While the law itself only provides for penalization of discriminatory lending practices, it does provide a strong incentive for banks to make their lending practices appear representative of the populace. Even where a bank would not face direct Federal intervention, the Act empowers a considerable number of lawsuits. It goes without saying that the U.S. is home to a lot of poor minorities, and pissing them off is a legal minefield you don't want to step in.
Of course, even those examples are only part of the problem. The real problem stemmed from the Federal creation of a secondary mortgage market (1938?) when it drafted the legislation for Fannie Mae. The idea was to make home ownership easier, and it more or less worked for quite a while, I admit. And why wouldn't it? Fannie Mae has a credit line at the U.S. Treasury, and any failings could easily be absorbed into the U.S. debt (though the closest it came to failing was in the 80's, I believe)
That gave banks the option to sell or insure high-risk loans, thereby making money and/or limiting losses on high-interest loans.
Based on that alone, one might assume that Fannie Mae (and later, Freddie Mac) were a good thing, but it is a lot more complicated than that.

Firstly, there is the population explosion in the U.S. As the baby-boomers matured, some of them needed or wanted sub-prime loans.
Next, we must consider immigration, which began to increase tremendously in the late 70's, almost at the time Fannie first ran into trouble. Considering the influx of immigrating unskilled laborers, it seems likely that the demand for(and subsequent default on) sub-prime mortgages would have increased dramatically.
Coincidentally, the CRA was introduced in 68' or thereabouts. Equal Opportunity Housing, and a few others of the same mold were introduced in the same period.
Now imagine you're a bank. You're getting a vast influx of potential high-risk (high yield$$$!!!) borrowers, and the Federal Government wants you to loan to them, and gives you someone who has federal money backing, who wants to buy or insure those loans. It's like a panacea! What a sweet deal!
Just like the "free" money the state hands out on a regular basis in all sorts of insane forms, you'd be a fool not to take it. Fannie Mae did what it was supposed to do, and then suffered a reversal.

But that was just the beginning.

I do agree with your last statement though. Ultra low rates and Wall Street greed were what got us into this.

Low standardized rates, yes. But Wall Street greed? Not any moreso than private industry relies upon and demonstrates on a regular basis. And it does a damn good job of making everyones' lives better in the process.

In the modern market, it is not enough just to have your stock do well. You don't just have to be good, you have to be really good. Maximization of profit means beating Wall Street's predictions, which are based upon average growth. Failure to do so is harmful to your stock value, and therefore your investor base and capital supply.
In some cases that results in bad management practices. Sometimes boards sell off company assets to artificially inflate revenue, or they simply cook the books. As infuriating as it is that some unscrupulous individuals make off with golden parachutes, they are drops in the bucket, and those companies usually die (unless they are kept alive by taxpayer funds) thus removing them from the system.
I have a simple way to fix that problem, but it is beside the point. I'll share if you are interested.
Naturally, in such a competitive market, it is not surprising that financial institutions would take advantage. Since the turn of the century, we have faced even more demand for housing due to immigration and comparitively high minority population growth. The Federal government made a high-risk market that either never would have exsisted or become so prevalent otherwise.
Banks do not like lending to high-risk borrowers, that's why Fannie Mae was created. Giving them a reason to lend to such borrowers was a paramount of failed policy, however well-intentioned it was.
The real harm comes from offering business a state-sponsored panacea. Collusion of private interests and the state is to be avoided at all costs, it always results in major problems.
Fannie Mae, Freddie Mac, and the host of well-intentioned banking regulations they support can be summed up in one phrase; Privatization of profit, Socialization of risk.

I have left some of your implied/possible arguments unaddressed, such as why private industry would buy/insure subprime loans and I'll adress those if you like, but for the time being I yield the floor to you.