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eavesdropper
Participant[quote=CA renter][quote=eavesdropper] In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.[/quote]
Totally spot on, eavesdropper, UCGal, and BG.
As for the bolded part, I don’t think the financial wizards were blinded at all. They were making more money than they could ever have imagined just 10-20 years before. They were NOT going to stop that gravy train, and figured they would just plead ignorance when the SHTF. That’s why we have “The Crisis That Nobody Ever Saw Coming,” when in fact, we have plenty of evidence that LOTS of people saw it coming and were trying to sound the alarm many years ago. Think about it…why do you think they keep repeating the point that “nobody knew”? They are trying to get that message out to the sheeple so that we don’t go after them with pitchforks.
Problem is, if they acknowledged that they knew what was going on, they’d be in jail right now instead of sailing around on their yachts (and “doing God’s work”), courtesy of taxpayers’ money.[/quote]
CAR, I see your point, and agree with much of what you say. However, I recently saw a documentary (NOVA on PBS) that talked about mental beliefs and attitudes that could explain why at least some of the “smart guys” didn’t see this coming. It’s called “Mind Over Money”, and it’s available for instant viewing on the PBS website, or if you belong to Netflix. Here’s the description from the website:
“Mind Over Money investigates the shattering impact the recent global financial meltdown had on how economists think. Why did so few of the brightest minds in finance not only fail to predict the crash but also argue that it was impossible? With insights from experts and scientific experiments that highlight the hidden money drives in us all, NOVA explores a seismic shift in our efforts to understand the marketplace.”
I really enjoyed it, and found that it posed some plausible explanations. That being said, I do agree that the mortgage bankers themselves knew exactly what was going on, and wanted to exploit it. I was referring to being ethically and morally blinded by the money to be made by following that path. And it was too bad that the general public was still so trusting of their image of financial stewards (the wonders of advertising didn’t hurt there).
Participant[quote=bearishgurl] Don’t know if it was the chicken or the egg which came first but the unscrupulous loan brokerages fueled price escalation and price escalation fueled more unscrupulous loan brokerages. Selling off mortgages immediately upon origination played a HUGE PART in this as well. This is my .02, based upon the situation I am seeing homeowners in now.
eavesdropper, I don’t really see how origination of mortgage loans can be returned to the ways of the “good-old days” (if that’s what they were). What few lenders are left now seem to be going so overboard the other way (in the loan-application process), so we can all pay for their past lending mistakes, even if we don’t deserve to be treated like that :={[/quote]
BG, agree with you completely, and admire your diligence in mapping out the byzantine details of the “boom/bust”. This was a massive meltdown, of enormous breadth, depth and complexity. There were so many players, some with major causal roles, and some that were responsible by failing to act; and there was a multitude of contributing actions and factors. It’s frustrating as hell for me every time I hear someone opine that “none of this would have happened had it not been for the CRA” or “It’s all the fault of Barney Franks and Chris Dodds” (that one really pisses me off because it’s patently impossible for 2 members of Congress to find their way out of a paper bag, much less mastermind the worst financial meltdown in history. But if you’re going to insist that they did, you can at least get their names right. It’s not like they’re difficult names, duh!)
The one that really gets my blood going, however, is “The banks were doing their jobs, but they were FORCED to lend money to people who couldn’t afford houses”. Shit, man, those banks couldn’t write those mortgages fast enough. They were dragging people in off the street, and when it was unavoidably clear that they didn’t have the financial wherewithal for another round of financing, the banks got creative with their products (e.g., interest-only and neg am). I swear, it was like one of those “find the hidden object” pictures when we were kids, except it was looking at all this unbelievable crap going down, and wondering when the “smart” people in charge were finally going to see the flashing red neon “DANGER” sign.
As you can see, I wrote a rather lengthy response to UCGal clarifying my earlier response to your post. I agree that we will probably never return to the days of yore with regard to loan origination. But, frankly, I don’t see that any real changes have been mandated by the government. I think the only reason you don’t have these fly-by-night, drive-in-window mortgage “lenders” is, simply, that there’s not enough money to go around. Houses are falling in value, so there’s not the insanely-paced buying and selling that was going on, not to mention home equity lending. I figure that the big banks are doing their own policing (of a sort) in order to keep their own piece of mortgage lending turf safe from poachers.
I don’t know what’s happening in California, but here in DC there’s lots of lending still going on to underqualified buyers. In fact, I fully expect another wave of foreclosures in 2011-2012 on post-bust mortgages. In the interest of spurring the economy and lighting a fire under the moribund housing market, and with the help of federal and state homebuying assistance programs, a lot of very young first-time buyers with shaky financial foundations got (and are still getting) loans. One problem is that 2nd or 3rd time homebuyers, who might have been interested in trading up, were prevented from doing so by an inability to sell their houses. So many of the banks were left with the “kids” as customers.
My stepdaughter and her boyfriend have been approved to purchase a 2 BR, 2 BA home in a depressed semi-rural area. House is a foreclosure, and recently had its price lowered to $225K. I love my daughter, but she and her BF have no business buying a home, and no resources to keep it. She’s 22 years old, and is currently working high-end retail (5 mos on job), and her BF (28) works a minimum wage job in a mall kiosk (3 mos). She’s entitled to financial assistance with the down payment, with the closing costs, and with the mortgage rate (I swear, I’m waiting for them to tell her that there’s a government program that will pay her a stipend for buying a house!). Even with all that, I truly worry that they will lose this house inside of two years. Not only will that be a bad experience for her, I fail to see how this type of government-funded home buying activity is helping the economy. Maybe I’m just shortsighted.
Participant[quote=bearishgurl] Don’t know if it was the chicken or the egg which came first but the unscrupulous loan brokerages fueled price escalation and price escalation fueled more unscrupulous loan brokerages. Selling off mortgages immediately upon origination played a HUGE PART in this as well. This is my .02, based upon the situation I am seeing homeowners in now.
eavesdropper, I don’t really see how origination of mortgage loans can be returned to the ways of the “good-old days” (if that’s what they were). What few lenders are left now seem to be going so overboard the other way (in the loan-application process), so we can all pay for their past lending mistakes, even if we don’t deserve to be treated like that :={[/quote]
BG, agree with you completely, and admire your diligence in mapping out the byzantine details of the “boom/bust”. This was a massive meltdown, of enormous breadth, depth and complexity. There were so many players, some with major causal roles, and some that were responsible by failing to act; and there was a multitude of contributing actions and factors. It’s frustrating as hell for me every time I hear someone opine that “none of this would have happened had it not been for the CRA” or “It’s all the fault of Barney Franks and Chris Dodds” (that one really pisses me off because it’s patently impossible for 2 members of Congress to find their way out of a paper bag, much less mastermind the worst financial meltdown in history. But if you’re going to insist that they did, you can at least get their names right. It’s not like they’re difficult names, duh!)
The one that really gets my blood going, however, is “The banks were doing their jobs, but they were FORCED to lend money to people who couldn’t afford houses”. Shit, man, those banks couldn’t write those mortgages fast enough. They were dragging people in off the street, and when it was unavoidably clear that they didn’t have the financial wherewithal for another round of financing, the banks got creative with their products (e.g., interest-only and neg am). I swear, it was like one of those “find the hidden object” pictures when we were kids, except it was looking at all this unbelievable crap going down, and wondering when the “smart” people in charge were finally going to see the flashing red neon “DANGER” sign.
As you can see, I wrote a rather lengthy response to UCGal clarifying my earlier response to your post. I agree that we will probably never return to the days of yore with regard to loan origination. But, frankly, I don’t see that any real changes have been mandated by the government. I think the only reason you don’t have these fly-by-night, drive-in-window mortgage “lenders” is, simply, that there’s not enough money to go around. Houses are falling in value, so there’s not the insanely-paced buying and selling that was going on, not to mention home equity lending. I figure that the big banks are doing their own policing (of a sort) in order to keep their own piece of mortgage lending turf safe from poachers.
I don’t know what’s happening in California, but here in DC there’s lots of lending still going on to underqualified buyers. In fact, I fully expect another wave of foreclosures in 2011-2012 on post-bust mortgages. In the interest of spurring the economy and lighting a fire under the moribund housing market, and with the help of federal and state homebuying assistance programs, a lot of very young first-time buyers with shaky financial foundations got (and are still getting) loans. One problem is that 2nd or 3rd time homebuyers, who might have been interested in trading up, were prevented from doing so by an inability to sell their houses. So many of the banks were left with the “kids” as customers.
My stepdaughter and her boyfriend have been approved to purchase a 2 BR, 2 BA home in a depressed semi-rural area. House is a foreclosure, and recently had its price lowered to $225K. I love my daughter, but she and her BF have no business buying a home, and no resources to keep it. She’s 22 years old, and is currently working high-end retail (5 mos on job), and her BF (28) works a minimum wage job in a mall kiosk (3 mos). She’s entitled to financial assistance with the down payment, with the closing costs, and with the mortgage rate (I swear, I’m waiting for them to tell her that there’s a government program that will pay her a stipend for buying a house!). Even with all that, I truly worry that they will lose this house inside of two years. Not only will that be a bad experience for her, I fail to see how this type of government-funded home buying activity is helping the economy. Maybe I’m just shortsighted.
Participant[quote=bearishgurl] Don’t know if it was the chicken or the egg which came first but the unscrupulous loan brokerages fueled price escalation and price escalation fueled more unscrupulous loan brokerages. Selling off mortgages immediately upon origination played a HUGE PART in this as well. This is my .02, based upon the situation I am seeing homeowners in now.
eavesdropper, I don’t really see how origination of mortgage loans can be returned to the ways of the “good-old days” (if that’s what they were). What few lenders are left now seem to be going so overboard the other way (in the loan-application process), so we can all pay for their past lending mistakes, even if we don’t deserve to be treated like that :={[/quote]
BG, agree with you completely, and admire your diligence in mapping out the byzantine details of the “boom/bust”. This was a massive meltdown, of enormous breadth, depth and complexity. There were so many players, some with major causal roles, and some that were responsible by failing to act; and there was a multitude of contributing actions and factors. It’s frustrating as hell for me every time I hear someone opine that “none of this would have happened had it not been for the CRA” or “It’s all the fault of Barney Franks and Chris Dodds” (that one really pisses me off because it’s patently impossible for 2 members of Congress to find their way out of a paper bag, much less mastermind the worst financial meltdown in history. But if you’re going to insist that they did, you can at least get their names right. It’s not like they’re difficult names, duh!)
The one that really gets my blood going, however, is “The banks were doing their jobs, but they were FORCED to lend money to people who couldn’t afford houses”. Shit, man, those banks couldn’t write those mortgages fast enough. They were dragging people in off the street, and when it was unavoidably clear that they didn’t have the financial wherewithal for another round of financing, the banks got creative with their products (e.g., interest-only and neg am). I swear, it was like one of those “find the hidden object” pictures when we were kids, except it was looking at all this unbelievable crap going down, and wondering when the “smart” people in charge were finally going to see the flashing red neon “DANGER” sign.
As you can see, I wrote a rather lengthy response to UCGal clarifying my earlier response to your post. I agree that we will probably never return to the days of yore with regard to loan origination. But, frankly, I don’t see that any real changes have been mandated by the government. I think the only reason you don’t have these fly-by-night, drive-in-window mortgage “lenders” is, simply, that there’s not enough money to go around. Houses are falling in value, so there’s not the insanely-paced buying and selling that was going on, not to mention home equity lending. I figure that the big banks are doing their own policing (of a sort) in order to keep their own piece of mortgage lending turf safe from poachers.
I don’t know what’s happening in California, but here in DC there’s lots of lending still going on to underqualified buyers. In fact, I fully expect another wave of foreclosures in 2011-2012 on post-bust mortgages. In the interest of spurring the economy and lighting a fire under the moribund housing market, and with the help of federal and state homebuying assistance programs, a lot of very young first-time buyers with shaky financial foundations got (and are still getting) loans. One problem is that 2nd or 3rd time homebuyers, who might have been interested in trading up, were prevented from doing so by an inability to sell their houses. So many of the banks were left with the “kids” as customers.
My stepdaughter and her boyfriend have been approved to purchase a 2 BR, 2 BA home in a depressed semi-rural area. House is a foreclosure, and recently had its price lowered to $225K. I love my daughter, but she and her BF have no business buying a home, and no resources to keep it. She’s 22 years old, and is currently working high-end retail (5 mos on job), and her BF (28) works a minimum wage job in a mall kiosk (3 mos). She’s entitled to financial assistance with the down payment, with the closing costs, and with the mortgage rate (I swear, I’m waiting for them to tell her that there’s a government program that will pay her a stipend for buying a house!). Even with all that, I truly worry that they will lose this house inside of two years. Not only will that be a bad experience for her, I fail to see how this type of government-funded home buying activity is helping the economy. Maybe I’m just shortsighted.
Participant[quote=bearishgurl] Don’t know if it was the chicken or the egg which came first but the unscrupulous loan brokerages fueled price escalation and price escalation fueled more unscrupulous loan brokerages. Selling off mortgages immediately upon origination played a HUGE PART in this as well. This is my .02, based upon the situation I am seeing homeowners in now.
eavesdropper, I don’t really see how origination of mortgage loans can be returned to the ways of the “good-old days” (if that’s what they were). What few lenders are left now seem to be going so overboard the other way (in the loan-application process), so we can all pay for their past lending mistakes, even if we don’t deserve to be treated like that :={[/quote]
BG, agree with you completely, and admire your diligence in mapping out the byzantine details of the “boom/bust”. This was a massive meltdown, of enormous breadth, depth and complexity. There were so many players, some with major causal roles, and some that were responsible by failing to act; and there was a multitude of contributing actions and factors. It’s frustrating as hell for me every time I hear someone opine that “none of this would have happened had it not been for the CRA” or “It’s all the fault of Barney Franks and Chris Dodds” (that one really pisses me off because it’s patently impossible for 2 members of Congress to find their way out of a paper bag, much less mastermind the worst financial meltdown in history. But if you’re going to insist that they did, you can at least get their names right. It’s not like they’re difficult names, duh!)
The one that really gets my blood going, however, is “The banks were doing their jobs, but they were FORCED to lend money to people who couldn’t afford houses”. Shit, man, those banks couldn’t write those mortgages fast enough. They were dragging people in off the street, and when it was unavoidably clear that they didn’t have the financial wherewithal for another round of financing, the banks got creative with their products (e.g., interest-only and neg am). I swear, it was like one of those “find the hidden object” pictures when we were kids, except it was looking at all this unbelievable crap going down, and wondering when the “smart” people in charge were finally going to see the flashing red neon “DANGER” sign.
As you can see, I wrote a rather lengthy response to UCGal clarifying my earlier response to your post. I agree that we will probably never return to the days of yore with regard to loan origination. But, frankly, I don’t see that any real changes have been mandated by the government. I think the only reason you don’t have these fly-by-night, drive-in-window mortgage “lenders” is, simply, that there’s not enough money to go around. Houses are falling in value, so there’s not the insanely-paced buying and selling that was going on, not to mention home equity lending. I figure that the big banks are doing their own policing (of a sort) in order to keep their own piece of mortgage lending turf safe from poachers.
I don’t know what’s happening in California, but here in DC there’s lots of lending still going on to underqualified buyers. In fact, I fully expect another wave of foreclosures in 2011-2012 on post-bust mortgages. In the interest of spurring the economy and lighting a fire under the moribund housing market, and with the help of federal and state homebuying assistance programs, a lot of very young first-time buyers with shaky financial foundations got (and are still getting) loans. One problem is that 2nd or 3rd time homebuyers, who might have been interested in trading up, were prevented from doing so by an inability to sell their houses. So many of the banks were left with the “kids” as customers.
My stepdaughter and her boyfriend have been approved to purchase a 2 BR, 2 BA home in a depressed semi-rural area. House is a foreclosure, and recently had its price lowered to $225K. I love my daughter, but she and her BF have no business buying a home, and no resources to keep it. She’s 22 years old, and is currently working high-end retail (5 mos on job), and her BF (28) works a minimum wage job in a mall kiosk (3 mos). She’s entitled to financial assistance with the down payment, with the closing costs, and with the mortgage rate (I swear, I’m waiting for them to tell her that there’s a government program that will pay her a stipend for buying a house!). Even with all that, I truly worry that they will lose this house inside of two years. Not only will that be a bad experience for her, I fail to see how this type of government-funded home buying activity is helping the economy. Maybe I’m just shortsighted.
Participant[quote=bearishgurl] Don’t know if it was the chicken or the egg which came first but the unscrupulous loan brokerages fueled price escalation and price escalation fueled more unscrupulous loan brokerages. Selling off mortgages immediately upon origination played a HUGE PART in this as well. This is my .02, based upon the situation I am seeing homeowners in now.
eavesdropper, I don’t really see how origination of mortgage loans can be returned to the ways of the “good-old days” (if that’s what they were). What few lenders are left now seem to be going so overboard the other way (in the loan-application process), so we can all pay for their past lending mistakes, even if we don’t deserve to be treated like that :={[/quote]
BG, agree with you completely, and admire your diligence in mapping out the byzantine details of the “boom/bust”. This was a massive meltdown, of enormous breadth, depth and complexity. There were so many players, some with major causal roles, and some that were responsible by failing to act; and there was a multitude of contributing actions and factors. It’s frustrating as hell for me every time I hear someone opine that “none of this would have happened had it not been for the CRA” or “It’s all the fault of Barney Franks and Chris Dodds” (that one really pisses me off because it’s patently impossible for 2 members of Congress to find their way out of a paper bag, much less mastermind the worst financial meltdown in history. But if you’re going to insist that they did, you can at least get their names right. It’s not like they’re difficult names, duh!)
The one that really gets my blood going, however, is “The banks were doing their jobs, but they were FORCED to lend money to people who couldn’t afford houses”. Shit, man, those banks couldn’t write those mortgages fast enough. They were dragging people in off the street, and when it was unavoidably clear that they didn’t have the financial wherewithal for another round of financing, the banks got creative with their products (e.g., interest-only and neg am). I swear, it was like one of those “find the hidden object” pictures when we were kids, except it was looking at all this unbelievable crap going down, and wondering when the “smart” people in charge were finally going to see the flashing red neon “DANGER” sign.
As you can see, I wrote a rather lengthy response to UCGal clarifying my earlier response to your post. I agree that we will probably never return to the days of yore with regard to loan origination. But, frankly, I don’t see that any real changes have been mandated by the government. I think the only reason you don’t have these fly-by-night, drive-in-window mortgage “lenders” is, simply, that there’s not enough money to go around. Houses are falling in value, so there’s not the insanely-paced buying and selling that was going on, not to mention home equity lending. I figure that the big banks are doing their own policing (of a sort) in order to keep their own piece of mortgage lending turf safe from poachers.
I don’t know what’s happening in California, but here in DC there’s lots of lending still going on to underqualified buyers. In fact, I fully expect another wave of foreclosures in 2011-2012 on post-bust mortgages. In the interest of spurring the economy and lighting a fire under the moribund housing market, and with the help of federal and state homebuying assistance programs, a lot of very young first-time buyers with shaky financial foundations got (and are still getting) loans. One problem is that 2nd or 3rd time homebuyers, who might have been interested in trading up, were prevented from doing so by an inability to sell their houses. So many of the banks were left with the “kids” as customers.
My stepdaughter and her boyfriend have been approved to purchase a 2 BR, 2 BA home in a depressed semi-rural area. House is a foreclosure, and recently had its price lowered to $225K. I love my daughter, but she and her BF have no business buying a home, and no resources to keep it. She’s 22 years old, and is currently working high-end retail (5 mos on job), and her BF (28) works a minimum wage job in a mall kiosk (3 mos). She’s entitled to financial assistance with the down payment, with the closing costs, and with the mortgage rate (I swear, I’m waiting for them to tell her that there’s a government program that will pay her a stipend for buying a house!). Even with all that, I truly worry that they will lose this house inside of two years. Not only will that be a bad experience for her, I fail to see how this type of government-funded home buying activity is helping the economy. Maybe I’m just shortsighted.
Participant[quote=Arraya] Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.[/quote]
Arraya, I’m with you on this. But maybe I’m just too old, or too cynical. In all likelihood, I’m both. But I digress.
Any snippet of idealism I’ve managed to retain through the years was destroyed in the events of the last couple years. I’m seeing a situation in which the largest and most powerful financial institutions in the world have clearly played a significant causal role, and yet: (1) they go unpunished; (2) they are not only completely unpenitent, but they refuse to take even the tiniest amount of blame, and they’re arrogant, to boot (if anyone would like to dispute this, I suggest they check out YouTube film of bankers/financial execs testifying before Congress in Feb 09 and Jan 10) ; (3) they complain about how broke they are (and some don’t complain about being broke at all), and the government gives them all a huge pot of cash; and (4) they are continuing to engage in much of the highly risky behavior (and being handsomely rewarded financially for it) thought to have brought their institutions and this nation to its collective knees.
I’d feel better about things if the outrage of the poor and the middle class was directed at both Congress and these modern day robber barons. But every day I see megawealthy media demagogues telling their faithful (and significantly less wealthy) followers that their constitutional rights are being violated by members of Congress who want to vote against extending tax cuts for the wealthy, and that the current administration is causing a loss of jobs by their ceaseless persecution of corporations (the same corporations that have been and continue to outsource jobs overseas). I don’t blame the talking heads for doing this; after all, it is their constitutional right to do so. But I admit to succumbing to an overwhelming sense of hopelessness when I think of middle-class people, some of whom will never in their lifetimes make more than $25K per year, who are in a never-ending struggle to put food on the table, clothe their children, and keep a roof over their heads, blindly following their “idols” and mindlessly repeating every one of their distorted maxims, often word for word.
The power and influence held by these massive financial institutions is frightening to think about, and they have our elected officials in a stranglehold. While I agree with your statement about the amorality and immorality of the big banks, there are many of our citizens who, despite being affected by their actions, do not share in this indictment of them. Instead spurred on by their idols, and with the conviction borne of their own internal prejudices, these citizens insist on blaming a ridiculously small, statistically insignificant group of people for the entire financial crisis, or holding two or three congressman responsible for it. Instead of directing their considerable outrage at the relatively few enormously powerful individuals who have gradually stripped them of their insignificant wealth, their job security, and their dignity, they voice their concern over the repeal of tax cuts that will never, ever affect them or anyone they know, or fret about the fair treatment of corporations who continue permanent job layoffs in the US while shipping those same jobs to India.
Until the middle-class citizenry of this nation universally recognize the lack of morality in the big banks and other major players in this debacle, there is little chance of a restored morality. I.e., much as I like the idea of walking away from a mortgage issued by a morally- and ethically-bankrupt institution in theory, if it is not a universal endeavor, it will not be successful. Because our elected officials are busy representing the interests of the large financial institutions, we cannot count on them protecting the citizens of their constituencies. Let’s face it: if they had taken action against the banks two or three years ago, there might not be the need for “strategic defaults” today.
Arraya, I apologize for what may appear to be my apathy, or indifference to the situation. It’s not that, I assure you; it’s just a different perspective, albeit a jaded one. But I am thankful for your insight, your concern, and your conviction. I hope that you’re right on this one, and that the action of a few can force essential reform.
Participant[quote=Arraya] Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.[/quote]
Arraya, I’m with you on this. But maybe I’m just too old, or too cynical. In all likelihood, I’m both. But I digress.
Any snippet of idealism I’ve managed to retain through the years was destroyed in the events of the last couple years. I’m seeing a situation in which the largest and most powerful financial institutions in the world have clearly played a significant causal role, and yet: (1) they go unpunished; (2) they are not only completely unpenitent, but they refuse to take even the tiniest amount of blame, and they’re arrogant, to boot (if anyone would like to dispute this, I suggest they check out YouTube film of bankers/financial execs testifying before Congress in Feb 09 and Jan 10) ; (3) they complain about how broke they are (and some don’t complain about being broke at all), and the government gives them all a huge pot of cash; and (4) they are continuing to engage in much of the highly risky behavior (and being handsomely rewarded financially for it) thought to have brought their institutions and this nation to its collective knees.
I’d feel better about things if the outrage of the poor and the middle class was directed at both Congress and these modern day robber barons. But every day I see megawealthy media demagogues telling their faithful (and significantly less wealthy) followers that their constitutional rights are being violated by members of Congress who want to vote against extending tax cuts for the wealthy, and that the current administration is causing a loss of jobs by their ceaseless persecution of corporations (the same corporations that have been and continue to outsource jobs overseas). I don’t blame the talking heads for doing this; after all, it is their constitutional right to do so. But I admit to succumbing to an overwhelming sense of hopelessness when I think of middle-class people, some of whom will never in their lifetimes make more than $25K per year, who are in a never-ending struggle to put food on the table, clothe their children, and keep a roof over their heads, blindly following their “idols” and mindlessly repeating every one of their distorted maxims, often word for word.
The power and influence held by these massive financial institutions is frightening to think about, and they have our elected officials in a stranglehold. While I agree with your statement about the amorality and immorality of the big banks, there are many of our citizens who, despite being affected by their actions, do not share in this indictment of them. Instead spurred on by their idols, and with the conviction borne of their own internal prejudices, these citizens insist on blaming a ridiculously small, statistically insignificant group of people for the entire financial crisis, or holding two or three congressman responsible for it. Instead of directing their considerable outrage at the relatively few enormously powerful individuals who have gradually stripped them of their insignificant wealth, their job security, and their dignity, they voice their concern over the repeal of tax cuts that will never, ever affect them or anyone they know, or fret about the fair treatment of corporations who continue permanent job layoffs in the US while shipping those same jobs to India.
Until the middle-class citizenry of this nation universally recognize the lack of morality in the big banks and other major players in this debacle, there is little chance of a restored morality. I.e., much as I like the idea of walking away from a mortgage issued by a morally- and ethically-bankrupt institution in theory, if it is not a universal endeavor, it will not be successful. Because our elected officials are busy representing the interests of the large financial institutions, we cannot count on them protecting the citizens of their constituencies. Let’s face it: if they had taken action against the banks two or three years ago, there might not be the need for “strategic defaults” today.
Arraya, I apologize for what may appear to be my apathy, or indifference to the situation. It’s not that, I assure you; it’s just a different perspective, albeit a jaded one. But I am thankful for your insight, your concern, and your conviction. I hope that you’re right on this one, and that the action of a few can force essential reform.
Participant[quote=Arraya] Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.[/quote]
Arraya, I’m with you on this. But maybe I’m just too old, or too cynical. In all likelihood, I’m both. But I digress.
Any snippet of idealism I’ve managed to retain through the years was destroyed in the events of the last couple years. I’m seeing a situation in which the largest and most powerful financial institutions in the world have clearly played a significant causal role, and yet: (1) they go unpunished; (2) they are not only completely unpenitent, but they refuse to take even the tiniest amount of blame, and they’re arrogant, to boot (if anyone would like to dispute this, I suggest they check out YouTube film of bankers/financial execs testifying before Congress in Feb 09 and Jan 10) ; (3) they complain about how broke they are (and some don’t complain about being broke at all), and the government gives them all a huge pot of cash; and (4) they are continuing to engage in much of the highly risky behavior (and being handsomely rewarded financially for it) thought to have brought their institutions and this nation to its collective knees.
I’d feel better about things if the outrage of the poor and the middle class was directed at both Congress and these modern day robber barons. But every day I see megawealthy media demagogues telling their faithful (and significantly less wealthy) followers that their constitutional rights are being violated by members of Congress who want to vote against extending tax cuts for the wealthy, and that the current administration is causing a loss of jobs by their ceaseless persecution of corporations (the same corporations that have been and continue to outsource jobs overseas). I don’t blame the talking heads for doing this; after all, it is their constitutional right to do so. But I admit to succumbing to an overwhelming sense of hopelessness when I think of middle-class people, some of whom will never in their lifetimes make more than $25K per year, who are in a never-ending struggle to put food on the table, clothe their children, and keep a roof over their heads, blindly following their “idols” and mindlessly repeating every one of their distorted maxims, often word for word.
The power and influence held by these massive financial institutions is frightening to think about, and they have our elected officials in a stranglehold. While I agree with your statement about the amorality and immorality of the big banks, there are many of our citizens who, despite being affected by their actions, do not share in this indictment of them. Instead spurred on by their idols, and with the conviction borne of their own internal prejudices, these citizens insist on blaming a ridiculously small, statistically insignificant group of people for the entire financial crisis, or holding two or three congressman responsible for it. Instead of directing their considerable outrage at the relatively few enormously powerful individuals who have gradually stripped them of their insignificant wealth, their job security, and their dignity, they voice their concern over the repeal of tax cuts that will never, ever affect them or anyone they know, or fret about the fair treatment of corporations who continue permanent job layoffs in the US while shipping those same jobs to India.
Until the middle-class citizenry of this nation universally recognize the lack of morality in the big banks and other major players in this debacle, there is little chance of a restored morality. I.e., much as I like the idea of walking away from a mortgage issued by a morally- and ethically-bankrupt institution in theory, if it is not a universal endeavor, it will not be successful. Because our elected officials are busy representing the interests of the large financial institutions, we cannot count on them protecting the citizens of their constituencies. Let’s face it: if they had taken action against the banks two or three years ago, there might not be the need for “strategic defaults” today.
Arraya, I apologize for what may appear to be my apathy, or indifference to the situation. It’s not that, I assure you; it’s just a different perspective, albeit a jaded one. But I am thankful for your insight, your concern, and your conviction. I hope that you’re right on this one, and that the action of a few can force essential reform.
Participant[quote=Arraya] Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.[/quote]
Arraya, I’m with you on this. But maybe I’m just too old, or too cynical. In all likelihood, I’m both. But I digress.
Any snippet of idealism I’ve managed to retain through the years was destroyed in the events of the last couple years. I’m seeing a situation in which the largest and most powerful financial institutions in the world have clearly played a significant causal role, and yet: (1) they go unpunished; (2) they are not only completely unpenitent, but they refuse to take even the tiniest amount of blame, and they’re arrogant, to boot (if anyone would like to dispute this, I suggest they check out YouTube film of bankers/financial execs testifying before Congress in Feb 09 and Jan 10) ; (3) they complain about how broke they are (and some don’t complain about being broke at all), and the government gives them all a huge pot of cash; and (4) they are continuing to engage in much of the highly risky behavior (and being handsomely rewarded financially for it) thought to have brought their institutions and this nation to its collective knees.
I’d feel better about things if the outrage of the poor and the middle class was directed at both Congress and these modern day robber barons. But every day I see megawealthy media demagogues telling their faithful (and significantly less wealthy) followers that their constitutional rights are being violated by members of Congress who want to vote against extending tax cuts for the wealthy, and that the current administration is causing a loss of jobs by their ceaseless persecution of corporations (the same corporations that have been and continue to outsource jobs overseas). I don’t blame the talking heads for doing this; after all, it is their constitutional right to do so. But I admit to succumbing to an overwhelming sense of hopelessness when I think of middle-class people, some of whom will never in their lifetimes make more than $25K per year, who are in a never-ending struggle to put food on the table, clothe their children, and keep a roof over their heads, blindly following their “idols” and mindlessly repeating every one of their distorted maxims, often word for word.
The power and influence held by these massive financial institutions is frightening to think about, and they have our elected officials in a stranglehold. While I agree with your statement about the amorality and immorality of the big banks, there are many of our citizens who, despite being affected by their actions, do not share in this indictment of them. Instead spurred on by their idols, and with the conviction borne of their own internal prejudices, these citizens insist on blaming a ridiculously small, statistically insignificant group of people for the entire financial crisis, or holding two or three congressman responsible for it. Instead of directing their considerable outrage at the relatively few enormously powerful individuals who have gradually stripped them of their insignificant wealth, their job security, and their dignity, they voice their concern over the repeal of tax cuts that will never, ever affect them or anyone they know, or fret about the fair treatment of corporations who continue permanent job layoffs in the US while shipping those same jobs to India.
Until the middle-class citizenry of this nation universally recognize the lack of morality in the big banks and other major players in this debacle, there is little chance of a restored morality. I.e., much as I like the idea of walking away from a mortgage issued by a morally- and ethically-bankrupt institution in theory, if it is not a universal endeavor, it will not be successful. Because our elected officials are busy representing the interests of the large financial institutions, we cannot count on them protecting the citizens of their constituencies. Let’s face it: if they had taken action against the banks two or three years ago, there might not be the need for “strategic defaults” today.
Arraya, I apologize for what may appear to be my apathy, or indifference to the situation. It’s not that, I assure you; it’s just a different perspective, albeit a jaded one. But I am thankful for your insight, your concern, and your conviction. I hope that you’re right on this one, and that the action of a few can force essential reform.
Participant[quote=Arraya] Well, they are already trying to penalize “strategic defaulters” and some in congress are trying to stop it, thankfully.
Also, remember they are only a “deadbeats” if they are of modest means, if they are well-to-do or a corporation, it’s just practicing sound financial judgement. Of course, the well-to-do default at higher rates than others.
The current housing bust should be viewed for what it is: a systemic market failure – not a moral failure on the part of millions of American homeowners.
In fact, I’d go as far as to say, that “strategically defaulting” is the moral choice rather than propping up massive systemic fraud.
The big banks are not just amoral but immoral. We need a restored morality, which must grow again from the ground up. We won’t find remnants of it in existing structures. Paradoxically, strategically defaulting is a step in the right direction to restore morality.
Geithner helps the big banks unload all the risk and bad bets on the people and then he turns around and threatens the people from walking. That is the definition of “GALL” and will blow up in his weaselly face.[/quote]
Arraya, I’m with you on this. But maybe I’m just too old, or too cynical. In all likelihood, I’m both. But I digress.
Any snippet of idealism I’ve managed to retain through the years was destroyed in the events of the last couple years. I’m seeing a situation in which the largest and most powerful financial institutions in the world have clearly played a significant causal role, and yet: (1) they go unpunished; (2) they are not only completely unpenitent, but they refuse to take even the tiniest amount of blame, and they’re arrogant, to boot (if anyone would like to dispute this, I suggest they check out YouTube film of bankers/financial execs testifying before Congress in Feb 09 and Jan 10) ; (3) they complain about how broke they are (and some don’t complain about being broke at all), and the government gives them all a huge pot of cash; and (4) they are continuing to engage in much of the highly risky behavior (and being handsomely rewarded financially for it) thought to have brought their institutions and this nation to its collective knees.
I’d feel better about things if the outrage of the poor and the middle class was directed at both Congress and these modern day robber barons. But every day I see megawealthy media demagogues telling their faithful (and significantly less wealthy) followers that their constitutional rights are being violated by members of Congress who want to vote against extending tax cuts for the wealthy, and that the current administration is causing a loss of jobs by their ceaseless persecution of corporations (the same corporations that have been and continue to outsource jobs overseas). I don’t blame the talking heads for doing this; after all, it is their constitutional right to do so. But I admit to succumbing to an overwhelming sense of hopelessness when I think of middle-class people, some of whom will never in their lifetimes make more than $25K per year, who are in a never-ending struggle to put food on the table, clothe their children, and keep a roof over their heads, blindly following their “idols” and mindlessly repeating every one of their distorted maxims, often word for word.
The power and influence held by these massive financial institutions is frightening to think about, and they have our elected officials in a stranglehold. While I agree with your statement about the amorality and immorality of the big banks, there are many of our citizens who, despite being affected by their actions, do not share in this indictment of them. Instead spurred on by their idols, and with the conviction borne of their own internal prejudices, these citizens insist on blaming a ridiculously small, statistically insignificant group of people for the entire financial crisis, or holding two or three congressman responsible for it. Instead of directing their considerable outrage at the relatively few enormously powerful individuals who have gradually stripped them of their insignificant wealth, their job security, and their dignity, they voice their concern over the repeal of tax cuts that will never, ever affect them or anyone they know, or fret about the fair treatment of corporations who continue permanent job layoffs in the US while shipping those same jobs to India.
Until the middle-class citizenry of this nation universally recognize the lack of morality in the big banks and other major players in this debacle, there is little chance of a restored morality. I.e., much as I like the idea of walking away from a mortgage issued by a morally- and ethically-bankrupt institution in theory, if it is not a universal endeavor, it will not be successful. Because our elected officials are busy representing the interests of the large financial institutions, we cannot count on them protecting the citizens of their constituencies. Let’s face it: if they had taken action against the banks two or three years ago, there might not be the need for “strategic defaults” today.
Arraya, I apologize for what may appear to be my apathy, or indifference to the situation. It’s not that, I assure you; it’s just a different perspective, albeit a jaded one. But I am thankful for your insight, your concern, and your conviction. I hope that you’re right on this one, and that the action of a few can force essential reform.
Participant[quote=UCGal][quote=eavesdropper][quote=bearishgurl][quote=UCGal]
For the life of me (I wasn’t working in RE when this practice became common), I HAVE NO IDEA WHY ANY LENDER (either the one holding the 1st TD or a diff. one) would subordinate themselves to themselves or to the 1st TD holder at the time of purchase and make a 2nd “purchase money” loan (for a dn. pymt. perhaps?) and obtain a 2nd TD (purchase $$ NON RECOURSE paper) from the “buyer” in their “favor.” How risky is that??? It’s effectively 100%(+) financing and makes absolutely no sense at all to me.These lenders must have been two jokers short of a full deck.[/quote]
I don’t know, bg. Do you think it has anything to do with the fact that about 10 or 15 years ago, banks stopped hiring rather forbidding-looking pinstripe-suited people actually educated/trained in finance, accounting, and risk management, and replaced them all with friendly and approachable 22 year-olds, clad in polo shirts and khakis, who had proven track records in…..SALES?[/quote]
I don’t think the personel at the retail outlets of the banks are the cause – they’re the symptoms. What triggered the lower underwriting standards was the money being generated by writing loans, selling them to the secondary market, bundling them into mortgage backed securities and selling them as investment grade vehicles… Profits were taken at every step – and they wanted more mortgages to feed the MBS beast… pretty soon you barely needed a pulse to get a loan and downpayments… pppht… who needs that. There was little risk to the banks originating the loans since they were sold off as soon as they were written and the borrower only had to make payments for the first 2 years… so underwriting standards looked for 2 years worth of solvency on a 30 year loan.
The khaki/polo clad folks at the bank were a symptom, not the cause. The underwriting standards were lowered by the corporate officers, not the clerks in comfortable attire.[/quote]
UCGal, exactly what I meant, even if I phrased it poorly. I meant no harm or insult to the khaki-clad friendly folk at the banks (actually, they seem to be very nice people). What I was trying to say was perhaps it was when the senior management of the financial institutions decided that their primary (dare I say “only”) goal was to create, market, and sell low-overhead products to the masses. With cheap money available to them courtesy of the Federal Reserve, their message changed from “save for a rainy day” (or kids’ college, or retirement, or a house) to the siren call of “You can have it NOW!” I listened to a lot of classical radio while at work back in the 90s, and I remember being disturbed by the incredible increase in bank advertising, almost all of it having to do with home equity loans. Those ads were alternated with commercials from luxury automobile companies and dealerships, jewelry stores, and high end electronics retailers, almost always with some variation of the line “Never has it been more affordable…” The financial institutions got astounding results for their advertising dollars, and as customers for loans began flooding bank branches, major philosophical shifts were inevitable, and these institutions shed their traditional “responsible stewards of your money” roles and responsibilities, and went after the “real” money to be made in selling loans, thus creating the personnel changes I mentioned. You’re absolutely right: the khaki-clad staff were just a symptom of the fever that had seized senior management.
Problem was that no one at the banks thought to tell the general public that they should be paying a lot more attention to their own money, and perhaps they should also enroll in the MBA curriculum at Wharton or Harvard, because, lord knows, that’s not what we do here at Bank of America and Wachovia anymore.
Believe me, I’m not making excuses for the hundreds of thousands of borrowers out there who are saying that they thought the bank would have warned them if they were taking a larger mortgage than they could afford. Aside from clear-cut cases of predatory lending, most people should have known that they couldn’t afford an $850,000 house on a $70,000 household income. But the while the banks were clearly engaging in the aggressive marketing of loans in the complete absence of responsible lending practices and banking standards, they still presented themselves to the public as sincere, knowledgeable, and skilled stewards of their money.
In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.
Participant[quote=UCGal][quote=eavesdropper][quote=bearishgurl][quote=UCGal]
For the life of me (I wasn’t working in RE when this practice became common), I HAVE NO IDEA WHY ANY LENDER (either the one holding the 1st TD or a diff. one) would subordinate themselves to themselves or to the 1st TD holder at the time of purchase and make a 2nd “purchase money” loan (for a dn. pymt. perhaps?) and obtain a 2nd TD (purchase $$ NON RECOURSE paper) from the “buyer” in their “favor.” How risky is that??? It’s effectively 100%(+) financing and makes absolutely no sense at all to me.These lenders must have been two jokers short of a full deck.[/quote]
I don’t know, bg. Do you think it has anything to do with the fact that about 10 or 15 years ago, banks stopped hiring rather forbidding-looking pinstripe-suited people actually educated/trained in finance, accounting, and risk management, and replaced them all with friendly and approachable 22 year-olds, clad in polo shirts and khakis, who had proven track records in…..SALES?[/quote]
I don’t think the personel at the retail outlets of the banks are the cause – they’re the symptoms. What triggered the lower underwriting standards was the money being generated by writing loans, selling them to the secondary market, bundling them into mortgage backed securities and selling them as investment grade vehicles… Profits were taken at every step – and they wanted more mortgages to feed the MBS beast… pretty soon you barely needed a pulse to get a loan and downpayments… pppht… who needs that. There was little risk to the banks originating the loans since they were sold off as soon as they were written and the borrower only had to make payments for the first 2 years… so underwriting standards looked for 2 years worth of solvency on a 30 year loan.
The khaki/polo clad folks at the bank were a symptom, not the cause. The underwriting standards were lowered by the corporate officers, not the clerks in comfortable attire.[/quote]
UCGal, exactly what I meant, even if I phrased it poorly. I meant no harm or insult to the khaki-clad friendly folk at the banks (actually, they seem to be very nice people). What I was trying to say was perhaps it was when the senior management of the financial institutions decided that their primary (dare I say “only”) goal was to create, market, and sell low-overhead products to the masses. With cheap money available to them courtesy of the Federal Reserve, their message changed from “save for a rainy day” (or kids’ college, or retirement, or a house) to the siren call of “You can have it NOW!” I listened to a lot of classical radio while at work back in the 90s, and I remember being disturbed by the incredible increase in bank advertising, almost all of it having to do with home equity loans. Those ads were alternated with commercials from luxury automobile companies and dealerships, jewelry stores, and high end electronics retailers, almost always with some variation of the line “Never has it been more affordable…” The financial institutions got astounding results for their advertising dollars, and as customers for loans began flooding bank branches, major philosophical shifts were inevitable, and these institutions shed their traditional “responsible stewards of your money” roles and responsibilities, and went after the “real” money to be made in selling loans, thus creating the personnel changes I mentioned. You’re absolutely right: the khaki-clad staff were just a symptom of the fever that had seized senior management.
Problem was that no one at the banks thought to tell the general public that they should be paying a lot more attention to their own money, and perhaps they should also enroll in the MBA curriculum at Wharton or Harvard, because, lord knows, that’s not what we do here at Bank of America and Wachovia anymore.
Believe me, I’m not making excuses for the hundreds of thousands of borrowers out there who are saying that they thought the bank would have warned them if they were taking a larger mortgage than they could afford. Aside from clear-cut cases of predatory lending, most people should have known that they couldn’t afford an $850,000 house on a $70,000 household income. But the while the banks were clearly engaging in the aggressive marketing of loans in the complete absence of responsible lending practices and banking standards, they still presented themselves to the public as sincere, knowledgeable, and skilled stewards of their money.
In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.
Participant[quote=UCGal][quote=eavesdropper][quote=bearishgurl][quote=UCGal]
For the life of me (I wasn’t working in RE when this practice became common), I HAVE NO IDEA WHY ANY LENDER (either the one holding the 1st TD or a diff. one) would subordinate themselves to themselves or to the 1st TD holder at the time of purchase and make a 2nd “purchase money” loan (for a dn. pymt. perhaps?) and obtain a 2nd TD (purchase $$ NON RECOURSE paper) from the “buyer” in their “favor.” How risky is that??? It’s effectively 100%(+) financing and makes absolutely no sense at all to me.These lenders must have been two jokers short of a full deck.[/quote]
I don’t know, bg. Do you think it has anything to do with the fact that about 10 or 15 years ago, banks stopped hiring rather forbidding-looking pinstripe-suited people actually educated/trained in finance, accounting, and risk management, and replaced them all with friendly and approachable 22 year-olds, clad in polo shirts and khakis, who had proven track records in…..SALES?[/quote]
I don’t think the personel at the retail outlets of the banks are the cause – they’re the symptoms. What triggered the lower underwriting standards was the money being generated by writing loans, selling them to the secondary market, bundling them into mortgage backed securities and selling them as investment grade vehicles… Profits were taken at every step – and they wanted more mortgages to feed the MBS beast… pretty soon you barely needed a pulse to get a loan and downpayments… pppht… who needs that. There was little risk to the banks originating the loans since they were sold off as soon as they were written and the borrower only had to make payments for the first 2 years… so underwriting standards looked for 2 years worth of solvency on a 30 year loan.
The khaki/polo clad folks at the bank were a symptom, not the cause. The underwriting standards were lowered by the corporate officers, not the clerks in comfortable attire.[/quote]
UCGal, exactly what I meant, even if I phrased it poorly. I meant no harm or insult to the khaki-clad friendly folk at the banks (actually, they seem to be very nice people). What I was trying to say was perhaps it was when the senior management of the financial institutions decided that their primary (dare I say “only”) goal was to create, market, and sell low-overhead products to the masses. With cheap money available to them courtesy of the Federal Reserve, their message changed from “save for a rainy day” (or kids’ college, or retirement, or a house) to the siren call of “You can have it NOW!” I listened to a lot of classical radio while at work back in the 90s, and I remember being disturbed by the incredible increase in bank advertising, almost all of it having to do with home equity loans. Those ads were alternated with commercials from luxury automobile companies and dealerships, jewelry stores, and high end electronics retailers, almost always with some variation of the line “Never has it been more affordable…” The financial institutions got astounding results for their advertising dollars, and as customers for loans began flooding bank branches, major philosophical shifts were inevitable, and these institutions shed their traditional “responsible stewards of your money” roles and responsibilities, and went after the “real” money to be made in selling loans, thus creating the personnel changes I mentioned. You’re absolutely right: the khaki-clad staff were just a symptom of the fever that had seized senior management.
Problem was that no one at the banks thought to tell the general public that they should be paying a lot more attention to their own money, and perhaps they should also enroll in the MBA curriculum at Wharton or Harvard, because, lord knows, that’s not what we do here at Bank of America and Wachovia anymore.
Believe me, I’m not making excuses for the hundreds of thousands of borrowers out there who are saying that they thought the bank would have warned them if they were taking a larger mortgage than they could afford. Aside from clear-cut cases of predatory lending, most people should have known that they couldn’t afford an $850,000 house on a $70,000 household income. But the while the banks were clearly engaging in the aggressive marketing of loans in the complete absence of responsible lending practices and banking standards, they still presented themselves to the public as sincere, knowledgeable, and skilled stewards of their money.
In truth, the financial institutions had shifted their focus completely, from making profits via sound financial management practices to making astronomical profits from the changing housing market. The guys who had the financial brains and education should have recognized the beginnings of the boom for what it was, but were instead blinded by the money to be had. At that point it became necessary to shed personnel who were skilled in fiscal management and replace them with those who could create new products when conditions that had created earlier boom markets became unsustainable (interest-only mortgages and negative amortization loans are two of them that come to mind) and those who could sell them.
There’s plenty of blame to go around in this mess. But the financial wizards are the ones that were supposed to know better. At least that’s what they told us for as long back as I can remember.
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