What you sow, so you reap

[Brainfade]

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1 In 1999, the Clinton government interfered with the mortgage industry. Those chickens have finally come home to roost. This kind of "well-intentioned" but misguided socialism is what I am afraid will kill the healthcare industry. Fannie Mae Eases Credit To Aid Mortgage Lending By STEVEN A. HOLMES Published: September 30, 1999 In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring. Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans. ''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.'' Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market. In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped. Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings. Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites. Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent. In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent. Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings. In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups. The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

[King Tendulkar]

I thought this thread would be about pak and there funding, support of terrorists!

[zubinpepsi]

I thought this thread would be about pak and there funding' date=' support of terrorists![/quote'] exactly my thought aswell.... sheessh... how disappointing.. :D

[punjabi_khota]

Haha..pressure from stock holders. Now they can take their stock and shove it.

[triam]

I think the thread title should be "If only good intentions end up in good results" Any government when it implements any plan with out thinking through, even though they had good intentions will face the same end result..

[THX_1138]

Actually this is a very very important point that we had been discussion ad infinitum in my macroeconomics class last semester: What did lead to this credit crisis? The policies of the Clinton regime, and numerous regimes previous to Clinton have laid considerable emphasis on realization of the proverbial "american dream". Even Alan Greenspan pointed to this policy emphasis from the higher ups in the white house and the congress as placing an individual in a home of his/her own is probably the corner stone of this american dream: where you can indeed go from rags to riches, or at least a decent two bedroom condominium. However, to realize this dream, either the prospective purchasers must evolve their spending habits and conjure up the extra savings required to realize this, which well did not happen as rapidly as lending practices were liberalized. Eventually, a lot of people jumped on the bandwagon of making cash on mortgage based securities, when they could have just as easily invested in alternative energies, high tech blue chip companies, or a plethora of other items... (this is where the bush administration faltered: it did not do enough to promote these other sectors) and thus, today the current credit crisis. to paraphrase my s.o., "this is a cluster ***** that has resulted from a number of people doing a lot of stupid sh*t" Thus, while one particular administration cannot take all the blame, the deregulation of the market by the current administration does take the lion's share of the blame.

[Brainfade]

Actually this is a very very important point that we had been discussion ad infinitum in my macroeconomics class last semester: What did lead to this credit crisis? The policies of the Clinton regime, and numerous regimes previous to Clinton have laid considerable emphasis on realization of the proverbial "american dream". Even Alan Greenspan pointed to this policy emphasis from the higher ups in the white house and the congress as placing an individual in a home of his/her own is probably the corner stone of this american dream: where you can indeed go from rags to riches, or at least a decent two bedroom condominium. However, to realize this dream, either the prospective purchasers must evolve their spending habits and conjure up the extra savings required to realize this, which well did not happen as rapidly as lending practices were liberalized. Eventually, a lot of people jumped on the bandwagon of making cash on mortgage based securities, when they could have just as easily invested in alternative energies, high tech blue chip companies, or a plethora of other items... (this is where the bush administration faltered: it did not do enough to promote these other sectors) and thus, today the current credit crisis. to paraphrase my s.o., "this is a cluster ***** that has resulted from a number of people doing a lot of stupid sh*t" Thus, while one particular administration cannot take all the blame, the deregulation of the market by the current administration does take the lion's share of the blame.

Wait a sec. You talk about the mistakes made by the Clinton regime and talk about the other regimes. The article I posted clearly shows a DIRECT relationship between what Clinton started and predicted exactly where this was going. But, in the end, you argue that the current administration should cop the lion's share of the blame? Where did that come from? Certainly not from the points you made above.

[Lurker]

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

Lets take those two arguments further CA. The downfall of the market(as per the article) are: a) Policies of Clinton. b) Force of Stock Holders. Would you point exactly how Clinton "forced" Fannie May and Freddie Mack? Could you also put a %age of what part a) played in whole fiasco, and what b) did. This doesnt have to be to the point number, but some ball park figures so we can narrow down the weightage of the problematic issues.

[Brainfade]

Lets take those two arguments further CA. The downfall of the market(as per the article) are: a) Policies of Clinton. b) Force of Stock Holders. Would you point exactly how Clinton "forced" Fannie May and Freddie Mack? Could you also put a %age of what part a) played in whole fiasco, and what b) did. This doesnt have to be to the point number, but some ball park figures so we can narrow down the weightage of the problematic issues.

That quote is not mine. It is the NYT that said it. I was just copy-pasting. But, if you put a gun to my head - I'd say 70-30 Govt.

[novpj]

This is BS. Yes Clinton is partly responsible but thats because he repealed the glass-spiegel act but the current crisis is not due to mortgages doled out in 1999 instead this problem is because of the low rates in 2004 due to mr. greenspans cuts. greenspan was just trying to ensure a Bush victory since he was considered responsible for Bush seniors defeat (he increased interest rates right before elections and the economy tanked). Also lets not forget how the Bush admin turned a blind eye to all the fraud by mortgage lenders. Also go and check the timelines - when sub prime crisis started the admin allowed Fanny and Freddy to make jumbo loans to increase credit availability and in a few months they folded. How can the govt not know the state of these institutions and why did it allow them to take more risk?

[Lurker]

That quote is not mine. It is the NYT that said it. I was just copy-pasting. But' date=' if you put a gun to my head - I'd say 70-30 Govt.[/quote'] I would disagree with merely following NYT at this time CA, specifically since at this time it is the "experts" who have brought us to this position. The two points mentioned - Clinton's policy and share market - both have a role to play. However at best what Clinton did was to "encouarge" Fannie mae and Freddie Mac. Unless NYT, or other publications, can show in black and white that Clinton actually send some sort of written note(or even word of mouth) this is at best an encouragement and is no different to what any politicians does to push his agenda. The share market is a big culprit here. Look, anyone who has worked for a decade plus will tell you the enormous pressure it has put on businesses and has fundamentally altered the nature of business. When I started work(I work in IT) I was generating 6 months, 12 months reports. As in compare 2008 first half with second half. Today I am generating reports real time. This is done because share market wants to make judgement based on live data and NOT on 6 months. Companies are cutting corners everywhere and trying to make more profits. I will give you a very specific example that I saw in 2001 in Credit Card Industry which collapsed due to this exact same problem that we are seeing now. I was working for the company so I know what happened. Let me know if you are interested. xxx

[Brainfade]

This is BS. Yes Clinton is partly responsible but thats because he repealed the glass-spiegel act but the current crisis is not due to mortgages doled out in 1999 instead this problem is because of the low rates in 2004 due to mr. greenspans cuts. greenspan was just trying to ensure a Bush victory since he was considered responsible for Bush seniors defeat (he increased interest rates right before elections and the economy tanked). Also lets not forget how the Bush admin turned a blind eye to all the fraud by mortgage lenders. Also go and check the timelines - when sub prime crisis started the admin allowed Fanny and Freddy to make jumbo loans to increase credit availability and in a few months they folded. How can the govt not know the state of these institutions and why did it allow them to take more risk?

What you're saying is the WJC's policy opened the floodgates, and GWB's ignorance opened them further. Good points. I do agree that the GWB govt should've seen this coming, and regulated better. But to absolve the Democrats of any wrongdoing is incorrect.

[Brainfade]

I would disagree with merely following NYT at this time CA, specifically since at this time it is the "experts" who have brought us to this position. The two points mentioned - Clinton's policy and share market - both have a role to play. However at best what Clinton did was to "encouarge" Fannie mae and Freddie Mac. Unless NYT, or other publications, can show in black and white that Clinton actually send some sort of written note(or even word of mouth) this is at best an encouragement and is no different to what any politicians does to push his agenda. The share market is a big culprit here. Look, anyone who has worked for a decade plus will tell you the enormous pressure it has put on businesses and has fundamentally altered the nature of business. When I started work(I work in IT) I was generating 6 months, 12 months reports. As in compare 2008 first half with second half. Today I am generating reports real time. This is done because share market wants to make judgement based on live data and NOT on 6 months. Companies are cutting corners everywhere and trying to make more profits. I will give you a very specific example that I saw in 2001 in Credit Card Industry which collapsed due to this exact same problem that we are seeing now. I was working for the company so I know what happened. Let me know if you are interested. xxx

I defer to your judgment on that. But, tell me one thing - if that is true, why is everyone blaming the GWB government for all the current economic woes? People can't have it both ways. That is my only point.

[Lurker]

I defer to your judgment on that. But' date=' tell me one thing - [b']if that is true, why is everyone blaming the GWB government for all the current economic woes? People can't have it both ways. That is my only point.

I am not sure if everyone is only blaming the GWB Govt for this. Most experts agree that the rout started in early 90s and was there in some level all through the 90s. George Bush gets maximum flak because: a) He frankly has NO good news for US citizens in 8 years. I would pick even 1 good news but there isnt none. b) Economy has progressively tanked(but for extreme wealthy). If you saved X dollars in 2000 today it would be an amount less than X. Joblessness is on the up, fiscal debt is huge, oil prices are high etc etc. c) When the market started collapsing, Democrats pounced on him, and Bush started his plan to bail out Wall Street vultures which made him a pariah even for Fiscal Conservatives. Frankly people, and this include people on both side of the aisle, just dont beleive him.

[Brainfade]

I am not sure if everyone is only blaming the GWB Govt for this. Most experts agree that the rout started in early 90s and was there in some level all through the 90s. George Bush gets maximum flak because: a) He frankly has NO good news for US citizens in 8 years. I would pick even 1 good news but there isnt none. b) Economy has progressively tanked(but for extreme wealthy). If you saved X dollars in 2000 today it would be an amount less than X. Joblessness is on the up, fiscal debt is huge, oil prices are high etc etc. c) When the market started collapsing, Democrats pounced on him, and Bush started his plan to bail out Wall Street vultures which made him a pariah even for Fiscal Conservatives. Frankly people, and this include people on both side of the aisle, just dont beleive him.

The biggest mistake has been the War - since 2001, there's been a pall of gloom because of that. Money and precious American lives lost. But, they all voted for it - Republicans and Democrats. So, no one can point fingers.

[Lurker]

The biggest mistake has been the War - since 2001' date=' there's been a pall of gloom because of that. Money and precious American lives lost. But, they all voted for it - Republicans and Democrats. So, no one can point fingers.[/quote'] I was one of those who supported going in. Although now I realize I was mistaken but it is retrospect and all that. I think big(ger) mistake could very well be the bailout. I think it is a dangerous think to do and may very well change the finance system of USA for good.

[Brainfade]

I was one of those who supported going in. Although now I realize I was mistaken but it is retrospect and all that. I think big(ger) mistake could very well be the bailout. I think it is a dangerous think to do and may very well change the finance system of USA for good.

But Obama supported it all along and voted for it. So, if it does work, one can credit him for the big economic turnaround. If it fails, one can say McCain voted for it, and it'll all be even.

[CC1981]

I was talking about the same subject a few days ago with a college friends of mine - This isnt actually an 'administration-related' issue, the rabbit hole goes much deeper. One dude pointed out how this whole 'economic meltdown' isnt affecting several nations - nations like France, Scandinavians, Italy, etc. nearly as much as the Americans and the 'America-sensetive' economies ( read: most of western Europe,South-east Asias, Latin Americas, Canada,etc). The reasons for that are numerous, but the bottomline, is the consumer culture of the societies. The bottomline is, Americans love to spend money they don't have. This isn't about borrowing money for stupid business startups or giving loans to questionable characters - those are the symptoms, not the disease. The disease is the Americans (and many non-americans too) buying stuff with money they don't have ( read: Credit). Compare the credit history of various nations- it becomes stunning how much the average American buys stuff on 'credit' compared to the French or the Scandinavians, etc. For a culture like that, meltdowns is just a matter of time and the American economy has seen many such downturns cyclically over the last 30 years ( though, not as major, but hey- the chickens come home to roost SOME DAY!). Bottomline is, don't buy a frigging SUV unless you figure, you can afford atleast 20-25% of it in cash, up front. THAT kind of culture needs to be promoted, not the 'hey, you havnt defaulted on loans, so we'll give you a 40,000 dollar car for 400 bucks a month for the next 8 years!' stupidity, where there are zillions of defaults/the proverbial doodoo hitting the fan etc. Ultimately, everyone is a loser if America is a loser, because America is the center of this world currently- but go look up the credit histories of these nations, it becomes obvious : nations that spend less 'money that they dont have' and pay more in 'money that they actually have' are affected least by this stupid credit crunch in the Americas. You can blame homes or SUVs or a stupid TV or whatever the hell consumer good you pick on, the answer is still the same, really.

[Lurker]

But Obama supported it all along and voted for it. So' date=' if it does work, one can credit him for the big economic turnaround. If it fails, one can say McCain voted for it, and it'll all be even.[/quote'] Yes and if you check my posts on this website you will see I am overly critical of the bailout package. Not very happy with Obama, or McCain, on this issue. I am a financial conservative on this issue.

The bottomline is, Americans love to spend money they don't have. This isn't about borrowing money for stupid business startups or giving loans to questionable characters - those are the symptoms, not the disease.

Thats not only an American tendency. British are quite infamous credit defaulters. India is replete with cases of Nawabs who would borrow money only to support their lifestyle. Although I would agree that in USA this is increased manifold since most of the citizens are in debt one way or the other. xxx