so is the U.S stock market going to crash heavily in 2016?

[KevinNYC]

You know more than Forbes, I suppose...

Forbes is now a content farm, similar to Huffington Post. It's very easy to get a job writing there.

The Financial Crisis Inquiry Commission report is available online for anyone to read. It's very well done.

The best book on the scope and breadth of what caused the crisis is this one



It was a multi-causal crisis and I'm not saying government was not part of it

My whole argument, from the beginning, was that the housing bubble was influenced and partly caused by governmental actions. That. Is. Not. Debatable.

I'm saying the government action that you cite as a cause, changes to the Community Reinvestment Act is myth.

And you have not cited any governmental actions that would have caused Ameriquest to do what they did or Wall Street to do what they did.

Why did Ameriquest actively seek out riskly borrowers? What government action caused that?
Why did Ameriquest promote loans where borrowers didn't have to verify their income A. K. A. Liar's loans? What government action caused that?

Why Wall Street want to buy so many risky loans from Ameriquest, Loans that they knew were based on stated income? What government action caused that?



Bonus question: What government action caused mortgages from Texas to behave very differently from mortgages from Arizona

[TheGreatDeraj]

Incorrect.

Ameriquest and Countrywide made those loans because they were the most profitable. The more risk the more profitable. Government was not pushing them in any way.

Wall street was under no obligation to buy subprime loans but they bought billions worth. Because it was profitable.
Talk in specifics.

Sure, Ameriquest and Countrywide f*cked up. But they didn't do it on their own accord and that was not the major cause.

Government was pushing, and not just with the CRA

Government was pushing loans towards lower incomes with Government Sponsored Enterprise(GSE) Freddie Mae and Fannie Mac

The Housing and Community Development Act of 1992 established an affordable housing loan purchase mandate for Fannie Mae and Freddie Mac, and that mandate was to be regulated by HUD. Initially, the 1992 legislation required that 30 percent or more of Fannie’s and Freddie’s loan purchases be related to affordable housing.

This target was increased to 50% in 2000 and 52% in 2005. Under the Bush Administration HUD continued to pressure Fannie and Freddie to increase affordable housing purchases – to as high as 56 percent by the year 2008.To satisfy these mandates, Fannie and Freddie eventually announced low-income and minority loan commitments totaling $5 trillion. Critics argue that, to meet these commitments, Fannie and Freddie promoted a loosening of lending standards - industry-wide.

So the government had no effect on loans to low income housing when they continually increased the mandate for Fannie’s and Freddie’s loan purchases related to affordable housing up to 56%? This had no effect in the industry?

Government has no effect on these loans when they manipulate the interest rates through the federal reserve?

Ron Paul talking to Congress in 2001 predicting the housing Bubble

Federal reserve creates more credit, that was suppose to stimulate economy, but ends up in real estate bubble

3.2 trillion of debt by Government Sponsored Enterprises Freddie Mae, Fannie Mac, and Federal loan home bank artificially keep housing market afloat despite a slowdown

Spending through GSE cause consumption spending considering the GSE get special artificially low interest rates due to line of credit to US treasury.

Federal reserve gives GSE securities special treatment. Fed monetizes GSE securities as if they are treasury bills.

GSE's borrow without restraint to subsidize new mortgages, records sales and refinancing which lead to housing prices rising to record levels.

refinancing help consumers to keep spending even in a slowing economy

high credit card debt is rolled into second mortgages since interest on mortgage debt is tax deductible

Fannie Mae and Freddie mac are heavily involved in hedging interest rates bets.

Ron Paul in Banking Committee predicts Housing Bubble in 2003

...The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions...Like all artificially-created bubble, the boom in housing prices cannot lost forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have been had government policy no actively encouraged over-investment in housing

We could listen to people like Ron Paul

Or we can listen to people like the federal reserve who deny the CRA and GSEs had any impact on the housing bubble.

more than 84 percent of the subprime mortgages came from private lending institutions in 2006. The share of subprime loans insured by Fannie Mae and Freddie Mac also decreased as the bubble got bigger (from a high of insuring 48 percent to insuring 24 percent of all subprime loans in 2006)


The Federal Reserve also estimated that only six percent of higher-priced loans were extended by Community Reinvestment Act-covered lenders to lower-income borrowers or CRA neighborhoods.

I'm sure the government doesn't manipulate those statistics like they do the statistics of unemployment, inflation, GDP, the debt etc.

Oh wait...

To make its estimate, the Federal Reserve did not directly analyze the characteristics of the loans (such as downpayment sizes); rather, it assumed that loans carrying interest rates 3% or more higher than normal rates were subprime and loans with lower interest rates were prime. Critics dispute the Federal Reserve's use of interest rates to distinguish prime from subprime loans. They say that subprime loan estimates based on use of the high-interest-rate proxy are distorted because government programs generally promote low-interest rate loans – even when the loans are to borrowers who are clearly subprime.

As it did with respect to GSE loans, the Federal Reserve assumed that all CRA loans were prime unless they carried interest rates 3% or more above the normal rate, an assumption disputed by others.

and of course

Fannie and Freddie did not buy a significant amount of high-risk mortgage backed securities must be evaluated in light of subsequent SEC security fraud charges brought against executives of Fannie Mae and Freddie Mac in December 2011. Significantly, the SEC alleged (and still maintains) that Fannie Mae and Freddie Mac reported as subprime and substandard less than 10 percent of their actual subprime and substandard loans. In other words, the substandard loans held in the GSE portfolios may have been 10 times greater than originally reported

Nah probably all wrong...let's listen to the people who told us there was no housing bubble, like:

federal reserve chairman: Ben Bernake

Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week

I bet the federal reserve and the countless analyst who denied there was a housing bubble knows more about the cause of the housing bubble than those who predicted it as the boom and bubble formed.

Pretty interesting that the same people who denied the housing bubble even existed go on to claim they know who caused it, and then have the audacity to say don't listen to the people who correctly identified there was a problem(and it's causes) before it happened.

[KevinNYC]

You're going to quote Ron ****ing Paul about something factual? Your Wikipedia quotes are just more Wallison and Pinto who are frauds.

Sure, Ameriquest and Countrywide f*cked up. But they didn't do it on their own accord and that was not the major cause.

Ameriquest and Countrywide absolutely did it of their own accord because subprime = higher priced.

subprime does not mean “lower than prime.” In fact, it’s just the opposite. Subprime lenders charge rates that are higher than prime, the rate offered to a bank’s most creditworthy customers — sometimes much higher.

Nonbank lenders and Wall Street got into the risky loan business not because the government pushed them, but because it was insanely profitable (at least while home prices were going up.) They loved having folks take out these loans, in fact, there were a lot of cases where people whose credit could get them into cheaper loans on mortgages that "conformed" to Fannie standards, were pushed towards riskier subprime mortgages because Ca-ching! that meant more money for the lender. They called this predatory lending. Adjustable rate loans, where the loan payment was super low and then shot up in two years? You can't sell those to Fannie Mae, but subprime lenders loved them. Interest only loans, where buyers are not even paying the principle? Yup. NINJA loans -No Income No Job verification? Sure, why not. Why did subprime lenders love these risky loans? Why push people into these loans? Because in two years, when they can't make monthly payments, you get to refinance them into another expensive mortgages and take giant origination fees!

These were not CRA banks that took deposits, they were financed by Wall Street and were free of CRA requirements.

The Center’s study found that at least 21 of these Subprime 25 lenders were either owned outright by the biggest banks or former investment houses, or had their subprime lending hugely financed by those banks, either directly or through lines of credit. In other words, the largest American and European banks made the bubble in subprime lending possible by financing it on the front end, so they could reap the huge rewards from securitizing and selling mortgage-backed securities on the back end. The demand was insatiable, and the backing excessive. Between 2000 and 2007, underwriters of subprime mortgage-backed securities — primarily Wall Street and European investment banks — poured $2.1 trillion into the business,

SUBPRIME LENDING DOES NOT EQUAL CRA LENDING. full stop.

but you believe the massively scrutinized government data on the economy is all manipulated, so this will lead nowhere.

[KevinNYC]

The government could have cracked down on predatory lending. Lots of regulations were already on the books that could have been used to stop the housing bubble.

It also could have straight out outlawed these risky loans. The reason I keep bringing up Texas is that is has very strict state mortgage laws and these crazy mortgages would be illegal there.

[KevinNYC]

Fannie and Freddie should certainly have been required to hold more capital.
Republicans argued that for years.

But so should the Wall Street banks who were taking massive risks. Every time the Democrats pushed for raising capital limits across the board, Republicans balked.

[KevinNYC]

Here's Peter Wallison proving my point that fanny and freddie were not buying up risky mortgages at the beginning of the housing bubble and also that they were acting to maximize profits

[QUOTE]We understand from the rules of corporate governance that the directors of corporations like Fannie Mae and Freddie Mac are expected to serve the interests of the corporation and the shareholders by seeing to the maximization of profits. .....

This is very clearly seen in Fannie and Freddie

[bladefd]

Holy crap! What you guys doing here? I read the first 4 pages then I saw HUGE WALLS of text from Deraj and KevinNYC on 5th page that I just gave up. Seems like you guys enjoy arguing

(don't worry, I'm the same way.. I'm just not very passionate about this topic though )