breaking down the banks and the bailout

[Willie99]

Why are we here? In small part because of the increase in foreclosures, but there impact is minimal. The real problem is that banks were forced to write down mortgages because of declining market values. In addition, banks are forced to write off mortgages that fall 30 days late. Historically, people tend to pay their mortgages even when they fall behind by 30 days, and people rarely have a house foreclosed on if they've been living there for more than three years. Yet banks are forced to write off these assets.

After taking such paper losses, the banks financial ratios take a serious pounding and causes such bank to suffer liquidity issues. Such cash flow problems force otherwise solid companies out of business.

So is the real problem the fact that we have too few regulations? or too many?

You see, much of the foreclosure problem is the result of government regulation encouraging (mandating) risky mortgage loans. Compound that by government regulations forcing banks to write-off mortgages, even mortgages that are still current but values have decreased, and you can see government regulations are clearly a contributory factor.

 

[Willie99]

Are the taxpayers paying for a 700 billion dollar bailout? No, that's simply a bold face distortion / lie being perpetrated by those who are simply uninformed and not qualified to talk about such matters.

The taxpayers have 700 billion dollars at risk, secured by real estate and mortgages, many off which are not even in default. As the mortgages get paid down, the amount at risk decreases. As real estate appreciates, and it will over time, the collateral held by the taxpayers increases in value.

The amount of loss realized by the taxpayers, IF ANY, will be a small fraction of 700 billion, and it may not cost one dime.

 

[cincy_]

The totally unregulated and anything-goes mortgage practice contributed ... as did the willingness to buy these mortgages.

• Brokers knowingly sold mortgages that they knew people couldn't afford
• Home-owners took home equity loans thinking their home value would go up
• Banks used appraisers that they knew would over-value a house
• We got away from traditional 30-year mortages, and even Greenspan promoted them
• Credit rating agencies inflated ratings of these mortgage backed securities
• Fannie and Freddie bought loans that they had no business buying

Everyone shares the blame ... oversight would have not done much because these overseers wouldn't have had a problem with these securities when they were rated so highly.

The crisis is more of a LEGAL matter than a REGULATORY matter. In my view, many brokers, many appraisers and most of the credit raters KNOWINGLY lied ... while it's tough to prove that it wasn't bad judgement, but we all know that it wasn't.

 

[Willie99]

Steve Forbes pointed this out this morning saying that many of these banks were forced to write down assets under current accounting rules to market values that there are no current markets for thus sending them in search of large amounts of cash. For example you can hardly sell a bundle of sub prime loans today because people are not sure how many will default however no one expects all of them to default. Under current regulations instead of marking these loans down as they default the banks are writing them down to today’s market level. If Lehman could have kept them on their books till default and avoided these huge write downs they never would have failed this week. Forbes said half the banks in the US would have failed in the early nineties if these write down rules were in effect then.

http://www.newshorn.com/forums/viewthread/23942/
-----------------------------------------------------------------------------------------

I saw the Forbes interview, but I can't find anything about it from any news source just yet.

 

[cincy_]

The problem with the bailout is the PRICE ... does the government spend $50 to buy something that is probably worth $20? How does anyone know the value of these mortgages?

... and the WORST thing is that since the whole process will overlap TWO administrations, anyone with connections to the Bush or McCain/Obama will get the price that they want ... with fries ... and super sized.

Yes, our government will spend 4-bits to buy a 2-bit stock ... that's what governments do all the time.

 

[Willie99]

Cincy, what you're calling "unregulated mortgage practices" I'm calling poor mortgage practices initiated by government regulations forcing banks to make bad loans secured by government guarantees.

 

[cincy_]

If Lehman could have kept them on their books till default and avoided these huge write downs they never would have failed this week.

I have heard the same thing ... but that has more to do with "accounting" practices than regulations ... it's the rule that everyone in the world plays by.

 

[cincy_]

Cincy, what you're calling "unregulated mortgage practices" I'm calling poor mortgage practices initiated by government regulations forcing banks to make bad loans secured by government guarantees.

It was never forced, Willie ... it was a decision they made ... no bank had to take those loans ... and many banks didn't.

... and the problem with the mortage industry was not in "regulation" ... it was more in "legality" and "ethics" ... if someone is going to lie, regulations won't do diddly squat to stop them ... criminal prosecution might.

 

[Willie99]

The problem with the bailout is the PRICE ... does the government spend $50 to buy something that is probably worth $20? How does anyone know the value of these mortgages?

... and the WORST thing is that since the whole process will overlap TWO administrations, anyone with connections to the Bush or McCain/Obama will get the price that they want ... with fries ... and super sized.

Yes, our government will spend 4-bits to buy a 2-bit stock ... that's what governments do all the time.

They have to bring liquidity back into the markets. The alternative would be far worse. Once again, government regulations helped create these insolvency issues, and such regs need to be revisited.

For example, if a mortgage is current, why be forced to write it down?

 

[Willie99]

Community Reinvestment Act of 1977

It was never forced, Willie ... it was a decision they made ... no bank had to take those loans ... and many banks didn't.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.
<table id="toc" class="toc" summary="Contents"> <tbody><tr> <td>

• 1 Original Act
• 2 Clinton Administration Changes of 1995
• 3 George W. Bush Administration Proposed Changes of 2003
• 4 Changes of September 2005
• 5 Criticism
• 6 References
• 7 External links

</td> </tr> </tbody></table> <script type="text/javascript"> //<![CDATA[ if (window.showTocToggle) { var tocShowText = "show"; var tocHideText = "hide"; showTocToggle(); } //]]> </script>
Original Act

The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act. [1]

The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).


----------------------------------------------------------------------


Clinton Administration Changes of 1995

In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs. These revisions<sup id="cite_ref-0" class="reference">[1]</sup> with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.<sup class="noprint Template-Fact">[citation needed]</sup>
----------------------------------------------------------------------
The results:

Subprime mortgage activity grew an average 25% a year from 1994 to 2003, outpacing the rate of growth for prime mortgages. The industry accounted for about $330 billion, or 9%, of U.S. mortgages in 2003, up from $35 billion a decade earlier. (Chart: Key players in subprime game)

http://www.usatoday.com/money/perfi/housing/2004-12-07-subprime-day-2-usat_x.htm

 

[mamatried]

There is definitely enough blame here to go around. And, yes, the strict accounting rules for valuation of loans and the pressure on banks to make risky loans to people who couldn't afford them were contributing factors.

But the bottom line is, when the value of homes is less than the value of the mortgages, there are going to be significant defaults. And the real problem is all of the losses incurred by the institutions who underwrote these defaulted loans via credit default swaps.

 

[Risk44]

I knew that you would come out and Support your President and his Corporate Welfare plan sooner or later Willie, as soon as Rush and Hannity and the rest of the spindoctors got on the radio to brainwash folks like you..

Fox news wont call it a trillion on any piece they do.. "just in the Billions"... They are the henchmen for Bush and you bite it Hook, Line, and Sinker...

 

[Willie99]

I knew that you would come out and Support your President and his Corporate Welfare plan sooner or later Willie, as soon as Rush and the rest of the spindoctors got on the radio to brainwash folks like you..

great counter

I knew you would enlighten us all. Like I've said before, I never have to call you any names, you can speak for yourself. Thank you :toast:

 

[Risk44]

Well how come today all of a sudden you have something to blame it on? Last night a person was on here blaming minorities for the mess.. So Im just wondering WHERE you got your latest talking points from? What did you think before someone else started thinking for you? Come on you are an honest man, tell us where you heard all of this information in your top post...Im wanting to know..

 

[Willie99]

I don't have talking points Sweetpea, I research, understand and comprehend issues. I write my own talking points.

You see Sweetpea, if I was using talking points, wouldn't you know where they're coming from?

 

[cincy_]

SOURCE: NY Times




So let’s try to think this through for ourselves. I have a four-step view of the financial crisis:

• 1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.
• 2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.
• 3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.
• 4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”

The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis?


Well, it might — might — break the vicious circle of deleveraging, step 4 in my capsule description. Even that isn’t clear: the prices of many assets, not just those the Treasury proposes to buy, are under pressure. And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital. Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I’m not happy with this plan?


The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.

That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It’s also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)


But Mr. Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out.

 

[Darwinian]

Willie, Sweetpea is gonna make fun of your mother soon.

 

[roadreeler57]

http://www.petitiononline.com/bailout/petition-sign.html

 

[Risk44]

I don't have talking points Sweetpea, I research, understand and comprehend issues. I write my own talking points.

You see Sweetpea, if I was using talking points, wouldn't you know where they're coming from?

ok Willie so you support the Bailout correct?

 

[tiznow]

the problem is leverage and the banks creating this alternate marketplace and than they packaged them up and dispersed them all over the globe and nobody know who owns what

the crashing housing market wouldn't be that big a deal without all the banking leverage as well as the fancy CDOs, SIVs and other shit associated with it

5% fucking up can fuck up everything and spill into the whole economy as we are seeing

what the treasury is attempting to do is now create a market for this toxic trash nobody wants to take so they can take losses on this garbage and move on.....

the treasury isn't saving the banks many will still go under and they will have to take losses on this shit

they just averting the doomsday scenerio where the whole system locks up