Father of the SubPrime Mortgage Crisis?

[Mark in Oshawa]

http://www.cnbc.com/id/35694762/

Here is the argument out there of where the US subprime mess started was in Andrew Cuomo's office when he was head of HUD in the Clinton administration.

[Rollo]

Alan Greenspan and The Fed dropped the official US Cash rate down to 1% in 2002, which effectively flooded the market which cheap liquidity.

If lenders could effectively borrow at a shade over the cash rate and sell mortgages to consumers at 6% & 7%, then they've had made an easy 5% return, and people who shouldn't really have have a mortgage in the first place were given them.
George W Bush himself advanced the idea of home ownership publicly on May 17 of 2002 - again which allowed people be given mortgages who shouldn't really have have them in the first place.

Freddie Mac, Fannie May, The Fed and even the President himself were all complicit in creating the housing bubble, but did anyone actually bother to think about the prudential regulation to underline it?

The subprime market started well before Cuomo's time at the HUD mind you, it could be argued that it goes even before 1993 with further deregulation of the banking system.

[Mark in Oshawa]

Alan Greenspan and The Fed dropped the official US Cash rate down to 1% in 2002, which effectively flooded the market which cheap liquidity.

If lenders could effectively borrow at a shade over the cash rate and sell mortgages to consumers at 6% & 7%, then they've had made an easy 5% return, and people who shouldn't really have have a mortgage in the first place were given them.
George W Bush himself advanced the idea of home ownership publicly on May 17 of 2002 - again which allowed people be given mortgages who shouldn't really have have them in the first place.

Freddie Mac, Fannie May, The Fed and even the President himself were all complicit in creating the housing bubble, but did anyone actually bother to think about the prudential regulation to underline it?

The subprime market started well before Cuomo's time at the HUD mind you, it could be argued that it goes even before 1993 with further deregulation of the banking system.

Hey, I wont dispute any of it....I have contended all along politicians of both parties wear the mess. I just thought I would put it out there for public consumption.

[Rollo]

I actually think that the idea of a subprime mortgage is an inherently stupid one.
You'd think that as part of the mortgage process, lenders would assess their credit risk in selling a mortgage in the first place.

Back in the days of Mr Mainwaring if a Bank Manager (now there's an archaic concept right there) didn't think that the prospective mortgagor was worth the risk, then they didn't lend the money.
Somewhere down the line, banks became far more aggressive with lending and I bet that a lot of mortgagees lost sight of the risks involved. I wonder how many bankers in the Subprime Crisis remembered the crash of '87?

[Mark in Oshawa]

I actually think that the idea of a subprime mortgage is an inherently stupid one.
You'd think that as part of the mortgage process, lenders would assess their credit risk in selling a mortgage in the first place.

Back in the days of Mr Mainwaring if a Bank Manager (now there's an archaic concept right there) didn't think that the prospective mortgagor was worth the risk, then they didn't lend the money.
Somewhere down the line, banks became far more aggressive with lending and I bet that a lot of mortgagees lost sight of the risks involved. I wonder how many bankers in the Subprime Crisis remembered the crash of '87?

Canadian Banking regs don't allow for it, which may be why we never lost a bank. The whole concept of pushing easier to get loans to people unable likely to pay them off is stupidity at its highest level. I think the politicians kept thinking the Banks would make it all work....turns out it was a Ponzi scheme as everyone bought and sold the mortgages.

[Alexamateo]

Well the loan process became politicized, because certain disadvantaged groups were turned down more than other. At the same time, deregulated Wall Street came up with all the mortgage backed securities to sell off these loans and slice them up to "reduce" risk. Add to that credit default swaps to supposedly further reduce risk.

Then it became a numbers game. Why worry about someone being able to pay their mortgage 15-30 years because they were selling them off anyway. To make money they had to make more mortgages.

That fueled a boom and housing prices rose which kept feeding on itself and rising housing prices even more. Until one day, someone looks around and says this is stupid to pay this much for a house.

Same old story since Tulip Mania back in the 1600's. Human Nature doesn't change.

[Jag_Warrior]

Well the loan process became politicized, because certain disadvantaged groups were turned down more than other. At the same time, deregulated Wall Street came up with all the mortgage backed securities to sell off these loans and slice them up to "reduce" risk. Add to that credit default swaps to supposedly further reduce risk.

Then it became a numbers game. Why worry about someone being able to pay their mortgage 15-30 years because they were selling them off anyway. To make money they had to make more mortgages.

That fueled a boom and housing prices rose which kept feeding on itself and rising housing prices even more. Until one day, someone looks around and says this is stupid to pay this much for a house.

Same old story since Tulip Mania back in the 1600's. Human Nature doesn't change.

Good summation. :up:

[Mark]

The thing is that if you look at history, even recent history, you find that exactly the same thing happens roughly every 30 years or so!
Of course those involved think, well this time it's different because... But of course it isn't!

[Alexamateo]

The thing is that if you look at history, even recent history, you find that exactly the same thing happens roughly every 30 years or so!
Of course those involved think, well this time it's different because... But of course it isn't!

Yep, the next asset bubble we'll read about is gold, which last peaked in, yes you guessed it, 1980!, 30 years ago. :p :