causes of the sub prime crisis the real slim DEEPy: easy credit and poor federal regulation- relaxed credit standards and sub-prime financial tools like arm and no money down loans- introduced in reaction to meeting the increasingly unsustainable lending standards of the Community Reinvestment Act (over which acorn lobbied and sued , until it was amended to acorn's liking) proved detrimental. the cra caused all sorts of issues in an attempt to force banks to lend more and more to sub-prime borrowers- in an effort to stamp out alleged "racism" in lending practices. this was in reaction to many african-american, would-be sub-prime borrowers who claimed that they were victims of racial discrimination, when they were not approved for the loans. the banks defense was that both the would-be-borrow and the property in question were high risks; however, the powers-that-be (along with acorn) were convinced that the situation was akin to the "jim crow" laws, and stopped at nothing to force the banks to invest in blighted communities and lend to less-than-worthy applicants. the real slim DEEPy: in an effort to meet the cra's ever increasing standards, the sub-prime tools of the no money down, arm, interest-only and other sub-prime mortgage tools were developed, then improperly used by middle class homebuyers, who used them to second or multiple homes, to flip them or rent them out. since they were buying with the intention of dumping them on someone else, all the gained equity from the high demand for housing was negated when the house was put back on the real estate market or opened up to would-be renters. others took advantage of the easy credit standards and/or new sub-prime tools to take out home equity loans, or to buy bigger houses than they should have as "investments", in order to capitalize on the rising property values. when these owners saw the equity disappear, as home prices fell, they walked away from their "investment" homes, for they were only in it for the increased equity and had no value for a depreciating home. the real slim DEEPy: the cra not only forced banks to lend to less-worthy applicants by forcing investment in high-risk, "blighted" neighborhoods- it also encouraged all sorts of mayhem by allowing traders of other securities such as insurance companies to buy sub-prime securities in order to gain special privileges under the cra, including the ability to reposition themselves as banks, as well as still carrying on insurance trading. this ability to earn licenses to trade multiple securities took the absolute oversight of these companies from the sec, since they now fell underneath the federal reserve, as well. this created a situation of "well, the other guy is doing it" when it came to governmental oversight of these new "hybrid" financial institutions. the governments choice to implement the BASIL II banking standards, which reduced the assumed risk ratings of mortgages across the board, allowed for sub-prime mortgages to be bundled as securities and re-assigned the credit of their originator, and automatically set up a tier system of bank credit ratings- each bank of each subsequent level would automatically receive a score of one notch less than the bank directly above (regardless of individual bank's true financial conditions, or standard credit rating) going all the way back to the top level of banks, the holding banks directly under the fed reserve, who received an automatic credit rating of AA+- one notch lower than the fed reserve's perfect score of AAA. of mortgages and reduced the reserve levels of banks. the sec, in an attempt to limit stock price manipulation, placed a ban on "short-selling" stocks (selling more stocks than you have the ability or permission to sell in order to cause a sharp drop in the stock's value, and then acquiring and delivering the stocks necessary to complete the sale at a later time, after which the original short-sale has already been posted to the stock exchange and, thus, the price of the stock is likely lowered at the time of purchase, then what it was at the time of the original short-sale sale). this ban defined a short sale as one which the stocks had not been delivered within 3 days; thus, actually creating a loophole to legally short-sell stocks, as long as the transaction was complete within 3 days. this short-sale loophole also allowed for insurance brokers to sell unlimited insurance policies, whether they had permission to sell that many or not. this allowed for hedges (a type of insurance for or against a particular security, market sector or company) to be issued without limit. since the cra allowed favoritism of companies that met their standards, an insurance company could become a bank and issue both hedges while conducting stock sales, a dangerous conflict of interests which was difficult to regulate, since both the sec and the fed reserve thought that the "other guy" was overseeing these "hybrid" institutions. goldman-sachs, originally an insurance broker, purchased enough sub-prime securities to earn favoritism under the CRA and was able to gain a license to become a holding bank- placing it underneath the oversight of both the sec and the fed reserve, and allowing it to manipulate the stock market by simultaneously issuing and investing in "hedges" and issuing short-sales. allegedly, goldman-sachs was short-selling aig stock while issuing a large amount of hedges in favor of aig AND simultaneously buying hedges against aig. thus, they manipulated the stock down with the short sale of aig stock, which caused them to fold; thus goldman sachs profiteered off the short-sale, got to keep all the money of those who purchased hedges in favor of aig AND got to cash in on hedges against aig, when they failed. the real slim DEEPy: ben bernake, chair of the fed reserve, had lowered the interest (lending) rates of the fed reserve to encourage borrowing and, this, economic growth, for he believed that we were in a depression. he never saw the rise of property value which ensued as a boom, nor did he recognize that it was leading to a bust. he was warned that the housing bubble was forming, and was going to "pop" unless he "deflated" it by carefully raising the interest rates, and he refused to listen to this advice. when the sub-prim e collapse finally became apparent, he quickly and sharply raised the interest rates. this affected thousands of homeowners with adjustable rate mortgages- leading them into foreclosure, since they could not afford their payments at the new interest rates. he did too much and he did it too late, and it made the crash that much worse than it would have been if he had listened to the advice of others. the real slim DEEPy: -greedy bankers and the focus on quarterly profits the greed of bankers, who ignored the true risk and refused to revise their credit ratings systems, even in light of a "new" economy full of sub-prime tools, governmental pressure to lend to poorer borrowers and a new national credit standard- the BASIL II. the relaxing of credit standards and involved greed also led to a situation where loan originators and banks were so eager to make new loans, that they failed to verify incomes, as had always been done in years previous, or they fudged numbers and documentation. bankers cared little about their long-term losses, for they earned bonuses by the quarter on these bad 30 year loans. \ the real slim DEEPy: from the sec, since they now fell underneath the federal reserve, as well. this created a situation of "well, the other guy is doing it" when it came to governmental oversight of these new "hybrid" financial institutions. the governments choice to implement the BASIL II banking standards, which reduced the assumed risk ratings of mortgages across the board, allowed for sub-prime mortgages to be bundled as securities and re-assigned the credit of their originator, and automatically set up a tier system of bank credit ratings- each bank of each subsequent level would automatically receive a score of one notch less than the bank directly above (regardless of individual bank's true financial conditions, or standard credit rating) going all the way back to the top level of banks, the holding banks directly under the fed reserve, who received an automatic credit rating of AA+- one notch lower than the fed reserve's perfect score of AAA. of mortgages and reduced the reserve levels of banks. the real slim DEEPy: the sec, in an attempt to limit stock price manipulation, placed a ban on "short-selling" stocks (selling more stocks than you have the ability or permission to sell in order to cause a sharp drop in the stock's value, and then acquiring and delivering the stocks necessary to complete the sale at a later time, after which the original short-sale has already been posted to the stock exchange and, thus, the price of the stock is likely lowered at the time of purchase, then what it was at the time of the original short-sale sale). this ban defined a short sale as one which the stocks had not been delivered within 3 days; thus, actually creating a loophole to legally short-sell stocks, as long as the transaction was complete within 3 days. the real slim DEEPy: this short-sale loophole also allowed for insurance brokers to sell unlimited insurance policies, whether they had permission to sell that many or not. this allowed for hedges (a type of insurance for or against a particular security, market sector or company) to be issued without limit. since the cra allowed favoritism of companies that met their standards, an insurance company could become a bank and issue both hedges while conducting stock sales, a dangerous conflict of interests which was difficult to regulate, since both the sec and the fed reserve thought that the "other guy" was overseeing these "hybrid" institutions. goldman-sachs, originally an insurance broker, purchased enough sub-prime securities to earn favoritism under the CRA and was able to gain a license to become a holding bank- placing it underneath the oversight of both the sec and the fed reserve, and allowing it to manipulate the stock market by simultaneously issuing and investing in "hedges" and issuing short-sales. the real slim DEEPy: -bad investment practices by individuals improper speculation and bad investing, based on the assumption that houses would always gain value, and that the related stocks and securities were secure, led to an unsustainable housing boom and mortgage-related-security stock market boom. the collapse was necessary to reset the economy and let it balance out, since stocks and property had increased in so much value that the rest of the economy could no longer afford it, and, thus, it crumbled. day traders (individual traders who are not professionals and do not allow brokers to guide their investments) exacerbated every move of the dow-jones, by selling when its low, and buying when its high- instead of holding out for the long run and selling when it has gained value over long periods of time. every time a stock gains a bit, everyone would jump on the bandwagon and buy; thus, causing a domino effect in the stock prices which led to stock hyper-inflation. eventually, when it comes to hyper-inflation of products, there is a breaking point, and the stocks drop because they have become unaffordable to the market. when the stocks begin to drop, all the day traders then sell, thus causing another domino effect- this one to the negative. the real slim DEEPy: -the auto industry: unions, 9/11 and oil prices 0% interest rate deals on autos from the late '90's dot.com crash days also led to a situation where losses in the auto industries were pushed into future quarters. when the oil supply shock of 9/11 hit, the effect of pushing this loss into future quarters finally caught up with chrysler and chevy. the perceived oil supply shock of post 9/11 led to an increase in gasoline prices, which led to poor truck and suv sales. since the unions brought on the hyper-inflation of wages, particularly in the auto industry, the big 3 could not turn a profit off economy cars anymore and depended on their suv sales to roll over their payroll. an auto worker making a cavalier makes no less than a worker involved with escalade production, so, it is easy to understand why they depend on luxury vehicle sales to turn a profit. when the big 3 began to suffer in the post 9/11 world, they began to close factories in order to save costs. union workers (unskilled laborers who were best suited to work construction for $15 an hour) lost the real slim DEEPy: their plush $75 an hour careers, and were devastated- for they had planned to work at these jobs until retirement, and had purchased their large homes, luxury cars and boats accordingly- never planning for a rainy day. since they were faced with the grim reality of $15 an hour labor at best, as opposed to remaining unemployed, they had little choice but to put their large houses up for sale. in the summer of 1996, a year before the sub-prime collapse was said to begin, entire neighborhoods in michigan, comprised almost entirely of ex-auto worker residents, saw nearly all their homes go up for sale at once- deviating the property values in these neighborhoods (due to the law of supply and demand), and subsequently, to surrounding neighborhoods- slowly spreading across the nation, as the high energy prices and/or low demand for manufactured parts began to affect (largely unionized) industries in other regions. the real slim DEEPy: -conclusion these are several of the various factors which led to the current economy. you can see that the majority of them were poor governmental regulations- but not the lack of regulation, as it was suggested in an effort to pass the new financial reforms, which do NOTHING to get to the root of these TRUE causes of the collapse.  lori100: from Department of Homeland Security plans----------economic collapse, gun control...... thread---------------The latest from “DHS Insider” (Part I)------DH: What’s going on now? RB: People better pay close attention over the next few months. First, there won’t be any meaningful deal about the fiscal crisis. This is planned, I mean, the lack of deal is planned. In fact, it’ necessary to pave the way for what is in the short term agenda. DH: Wait, you’re DHS – not some Wall Street insider. RB: So you think they are separate agendas? That’s funny. The coming collapse of the U.S. dollar is a done deal. It’s been in the works for years – decades, and this is one of the most important cataclysmic events that DHS is preparing for. I almost think that DHS was created for that purpose alone, to fight Americans, not protect them, right here in America. But that’s not the only reason. There’s the gun issue too.  sixty 9 yrs of wanda:  lol ..... i cant understand this stuff but i sure admire you for being able to the real slim DEEPy: Proof by verbosity (argumentum verbosium, proof by intimidation) – submission of others to an argument too complex and verbose to reasonably deal with in all its intimate details. lori100: Jamie Dimon Resigns From JP Morgan, Says ‘Put Bankers in Jail’ dailycurrant.com Jamie Dimon, often cited at the most responsible head of a Wall Street investment bank, reigned as Chairman and CEO of JP Morgan Chase today. In a blistering letter published this morning in Britian's Financial News, Dimon says he is tired of working in the "bankrupt moral ...  OCD_OCD: I couldn't agree more, Deep. Look at where the GSE's are (Fannie Mae and Freddie Mac) The government regulations screwed lending up totally and now they have the opportunity to do the same thing with the insurance industry. Madness. Inept madness. OCD_OCD: The government thinks that it can either manipulate or force a market where none exists. And the taxpayers are the ones who always end up holding the bag. (Post deleted by the real slim DEEPy ) OCD_OCD: The entire Freddie Mac and Fannie Mae debacle could have been prevented, but the Clinton Administration thought that everyone deserved to own a home, even if they couldn't afford it. Bush tried to reign them in in 2003, but Barney Frank, et. al. stalled any attempt to get them to stop their ridiculous and profligate lending practices. Even in 2006 Barney Frank et. al., was shouting praises and screaming that Fannie and Freddie were on solid ground even when the OFHEO proved that they were lying on their balance sheets and were completely out of control. Being warned over and over that the lid is about to blow off of their insane lending practices did nothing. Barney Frank and a like-minded Congress paid no heed. The bastards. lori100: The Confiscation Scheme Planned for US and UK Depositors » Counterpunch: Tells the Facts, Names the. www.counterpunch.org The Confiscation Scheme Planned for US and UK Depositors | Politics Chat Room 53 People Chatting Similar Conversations |
