Is the state of our economy due to the fact that people in power were able to manipulate deregulation?
I believe state of our economy is due to the fact that people in power in business and government were able to manipulate deregulation and leverage the stock market to their advantage.
Once upon a time, all mortgages were 20% down, at a fixed interest rate. The people that bought houses could afford houses. People saved money for their down payments. They rarely walked-away from their 20% savings investment in their home.
Then, deregulation came along. "Greed Is Good" was the mantra of the day. In order to stimulate the economic marketplace in the late 70’s due to a recession, congress passed legislation to deregulate the commercial banking / Savings and Loan industries. Thus, the collapse a few years later in the early1980’s of numerous S & L’s, due to bad decision making on the part of greedy CEO’s who had pushed the deregulation and choose to make bad investments to earn outrageous interest rates. These high-rate, high-risk loans to under-capitalized, high-risk people were made with the banks and S & L’s depositors funds – people lost their retirement money, pension plans were wiped-out. But, prior to the Black Monday crash of October 1981 the corporate CEO’s rewarded themselves outrageous compensation packages and golden parachutes… do you recall The Keating Scandal?
Regulation’s were tightened back up… but then in early 2001, the economy went south again… partly due to 9-11. So, to stimulate the marketplace, more deregulation… this time of the mortgage and energy industries.
Energy deregulation came very quickly, with V.P. "Tricky Dick" Cheney having the first-ever closed-door, zero-oversight private meetings at the White House of Energy Company Executives to create policy to regulate… the Energy Industry? (think fox guarding hen house…). Too soon after came the spectacular energy industry failures… (remember Enron? Kenneth Lay was a personal FOB, "Friend of Bush" ) and the massive compensation packages awarded to the CEO’s by themselves. Then, as in the early 1980’s, regulation had to be re-instituted.
The mortgage industry took off… everyone was happy… lots of money was made by most everyone… lenders, home owners, home builders, investors, wall street… but, no one in government had the foresight to look toward the inevitable over-correction, the "bursting-of-the-bubble" in the market… we were distracted by the wars in Iraq and Afghanistan… if you’re not with us, then you’re against us!
A primer: Mortgage loans are "bundled" in sets (blocks) of billions of dollars of investments… which had always been traditionally considered as "safe" (remember the down payments that used to be made…?). Lenders then sell these blocks of bundled mortgage loans to large investors, primarily Fannie May and Freddie Mac, quasi "US government-backed agencies" (think the US Post Office, another quasi government agency, overseen by uncle Fed, but run as it’s own "company"). This selling-off of the bundled loan packages freed-up the mortgage lenders to create new loans, because they had been "re-paid" when sold to Fannie May & Freddie Mac. When the loans being made were sound, the marketplace worked well…
When deregulation or the mortgage industry in early 2002 happened, just about anyone that could fog a mirror and breathe at the same time could suddenly get a mortgage. Previous rules and reg’s on lending went out the window. The more loans they made, the more fee’s they could collect. Lenders made lots of money, meaning their companies made lots of profit. Wall Street invested heavily in these mortgage securities, which now were weighted-down with the shady, undocumented "B" and "C" grade-paper sub-prime loans. More loans, more fees… more loans, more money to loan out, which were based on these mortgage bundles now loaded with poor-performing loans. This fed the gluttony in America for more and more credit: credit cards, equity loans – borrow, borrow borrow!! The wall street CEO’s rewarded themselves handsomely… their companies were making outrageous profits… before they eventually collapsed.
I BLAME UNCLE FED FOR THIS MESS – AND I PARTICULARLY BLAME THE REPUBLICANS, who have such a need to deregulate industries to the extent that corporate greed takes-over and fiscal common-sense falls by the wayside.
Just because they could deregulate doesn’t mean they should have deregulated… when guidelines / rules / regulations go away, greed ALWAYS takes over… EVERY, SINGLE TIME!!!!!!!!!!!!!!!
I’ve worked in Real Estate, Mortgage Banking and as an Escrow Closer for the past 20+ years… saw this disaster coming for the last 5 years…
YOUR THOUGHTS??
P.S. – I didn’t make the loans, I was an administrative staff-support person…
I was personally sickened by the loans being made to the people I knew couldn’t repay them… but I couldn’t do a damn thing about it, except by getting-out of the industry (that was 4 years ago…).
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14 comments
kool_feet on August 30, 2009 at 7:03 am
DEMOCRATS make the rules to fit their socialist agenda!
clyde2575 on August 30, 2009 at 7:03 am
I concur.
TG on August 30, 2009 at 7:03 am
That was really long…the answer to your question is Greed.
I find it interesting that you particularly blame Republicans…it was mostly Democrats that pushed for banks to lend more to people that were probably not credit worthy consumers. I also find it interesting that you so readily blame government, yet seem to ignore those that so eagerly signed the dotted line of their mortgage contract…which they apparently did not understand.
There’s plenty of blame to go around…why don’t we all start owning up to our responsibility in this shall we?
mr p on August 30, 2009 at 7:03 am
You,then, are part of the problem, you should return some of your pay that you stole from unqualified home buyers
luckiydiablo on August 30, 2009 at 7:03 am
Prez Clinton ordered that mortgages be made available to unqualified minorities in 1999. The chickens have come home to roost.
jhw2 on August 30, 2009 at 7:03 am
Bush/McCain support deregulation, and now they wants us to write a big check for Wall Street !
Dave C on August 30, 2009 at 7:03 am
You are correct.. deregulation allowed for banks and other lending institutions (except credit unions) to take riskier chances at making a quick buck.
This crisis just proves that the Republican mantra, "Deregulation is good and industries will self-govern themselves" is completely false.
Industries will do what they can to make profits, even if it means collapsing the industry in the future. The self-governing part comes after a crisis, not before and not in preventing a crisis.
Edit… HAHAHA!
Looks like we still have Republican die-hards using excuse #1 – Blame Clinton.
Banks and financial institutions made money making loans to unqualified people.
If they didn’t don’t you think Bush and the Republican congress would have repealed what Clinton had done?
Bush has 8 years to do so.
The point is the Republican mantra of deregulation and industries will self-regulate… Is now disproven.
surfchic829 on August 30, 2009 at 7:03 am
Yes, but it was not the Republicans’ fault.
I believe Americans need to start living within or below their means. We live in a materialistic society and I think we all need to become more humble; Greed is one of the seven deadly sins, and it is killing our society.
Everyone with a credit card should cut it up. I think CREDIT cards should be correctly re-named DEBT cards, since all they do is make people accumulate debt.
sophieb on August 30, 2009 at 7:03 am
someone (who was supposed to) wasn’t watching the store. If you place blame then that only delays and prolongs the situation and outcome. Deal with the problem at hand first, then later take those at fault to task. The mess that was made (by whomever drafted the mortgage documents and allowed them to be used) is the culprit. Clearly those people were trying to make brownie points.
I was a real estate agent for the past 11 years and just recently let my license drop. I’m ashaled of the RE industry who pushed people into getting loans who they clearly knew couldn’t afford them. Most people think they start at the real estate agent level but in fact they are supposed to start at the "how much can I borrow" level with the bank or mortgage company. So it depends on where they started as to who to blame. If it meant a large commission on a home that doubled or trippled in price then I blame the real estate agents…if it meant a commission to the mortgage company (overenthusiastic workers) then it’s the mortgage company to blame (if you really have the time to point fingers…I don’t).
haha…how could you blame the republicans when it was a democrat in office when this mess began. It would be best if all of us just stopped blaming our leaders for things and just let them lead.
convinceme on August 30, 2009 at 7:03 am
I’d love to eat steak every day but I have a hamburger budget. People live in the I want instant gratification these days. Just because someone dangles a carrot in front of your face doesn’t mean you have to eat it. People always scream about government getting into their business then when they don’t well then they are at fault. I’m no fan of any of this crap that’s going on. rep. and dem’s alike are about as useless as tits on a bore hog. I don’t want to pay for any ones speed boat when I work hard to stay a float. But I also don’t want to pay off a mortgage on someones house that is worth more than mine is. There have been a lot of times in my life that I needed a hand. No one was there for me. I have no sympathy.
Court on August 30, 2009 at 7:03 am
Yes the proof is in the pudding. For instance fact number 1. washington mutual was taking funds from its mortgage holders that were sent in to pay the down the principal, but they misappropriated the funds and applied them to the interest. You literally have to fight them tooth and nail to reverse it, but it’s in their best INTEREST to keep your balance as high as possible for the interest to stay high.
Fact number 2. All complaints filed with the F.T.C where ignored! So you tell me. What frigging regulation…..they let them run wild!
vvSTRIDEvv on August 30, 2009 at 7:03 am
That was a great summation, I have to agree completely.
Leslie g on August 30, 2009 at 7:03 am
We currently live in a two system government. Wall Street and Loan Companies aren’t simply there for the individuals who qualify for home mortgages. When an individual doesn’t qualify for a home loan through a bank or mortgage company (and I’m no real estate economist so you know your job better than me…but I am a political scientist/public policy advocate so here’s what I’ve been thinking about that has yet to be mentioned) HUD and Section 8 Housing is a form of socialized government. Native American Soveriegnty Acts which allow loans within a tribal government are forms of socialized government. Food Stamps and Indian allotments are forms of socialized government. Medicaid/Sooner Care and Native American free health care are forms of socialized government. All of these things are paid for by a source. Tribal Governments pay for their social programs with money accumulated within the tribal self determination programs (ie: casinos). The United States Federal Government pays for their social programs with loans from banks and taxpayer money. For example: Property taxes fund the schools in the designated areas. Here’s where I believe the Republican Congress crossed the line and how they are responsible for the crisis that many (although many of us don’t feel the pain from Wall Street, especially if we are Native American) are feeling today. When Congress enacted HUD/Section 8, Sooner Care, food stamps, and other social programs that would benefit the individuals tfalling below a said poverty level they had to get the money from somewhere and since taxpayers seem to frown on taxes the money was borrowed from banks. Lenders such as Lynch and AGI put up BIDS to see who the government chooses to borrow from. The same lenders that turn us down in the beginning are the ones lending the Federal Government Programs the money because Republican legislation caters to an open market and because there is no regulation in the fair market there is nothing for banks to lose. They refuse to give individuals credit if they think the individual cannot pay but they still make their profit off of the individual through government programs and if the person fails to pay then the program is responsible NOT THE LENDER and that is where taxpayer money comes back into the picture.
Peace
Obama 08*
May the best man win
mark32541 on August 30, 2009 at 7:03 am
There have been no deregulation bills concerning the mortgage or energy industry passed sine BUSH was President.
So the entire premise of your question is faulty.
And it was the democratic party, that advanced the idea and encouraged banks to make sub prime loans to people who could not afford them.
Janet Reno, even threatened to sue banks that did not make those kinds of loans.