BlogHer - election 08 - Comments

If you can't buy love, can you buy trust?

Mary Clare Hunt — Sat, 04 Oct 2008 18:18:18 -0500

Stabilizing a balance sheet isn't stabilizing the trust factor. I saw an interview with a small biz owner in California who has had a profitable business for 12 years. Every fall she takes out a loan to gear up for the holidays. This year the bank turned her down. If a sure thing isn't worth trusting and loaning money to, then I don't know how taking bad money off the books is going to instantly create trust between a bank and it's customers.

If you can't buy love, can you buy trust?

Mary Clare Hunt — Sat, 04 Oct 2008 18:18:11 -0500

Absolutely

Suzanne Reisman — Fri, 03 Oct 2008 19:53:54 -0500

I worked in community lending institutions from 1998-2006, and this is absolutely the way it goes. It is not just a handout. These were carefully administered and successful loans. The default rate at my organization was less than 1/2 of 1%. CRA rocks. Loans with no money down, interest only, nonconforming amortizations with balloon payments, and other vehicles created to move Americans into 3,500 square foot McMansions with long commutes are much more of a problem. You want to talk about places that lost their value - these are the homes that cannot be refinanced.

Suzanne Reisman, Contributing Editor - Feminism & Gender
Campaign for Unshaved Snatch (CUSS) & Other Rants

I Lived It 2001-2004

Gena Haskett — Thu, 02 Oct 2008 18:49:17 -0500

I don't have to imagine. I flat out know that your income is no longer disposable or even yours.

I know having to choose between food and transportation to look for a job. I know there will be more people collecting cans and bottles just to make sure they have a bit of cash to go into the supermarket to buy marked down food. Being on the verge of not being able to make payments that you pay at the very last minute.

So when I say let it ride I don't say it lightly. But what has to change is our compulsion to use credit to fund a lifestyle we can afford. Let me be specific.

Many of the people in the crisis where purchasing second homes when they couldn't afford the first one. Some of them got caught in the "house flipping" game and got burned.

It was towards the end of the the madness when they started to let anybody with a pulse to buy a home, "No SSN, no problem." "Have a paycheck that you sweat buckets making it into the bank, no problem." "No paycheck? We can work with that."

Some people were mislead and lied to. Other did not understand what they were getting into when buying a home.

My concern is for those people who were lied and mislead about buying their first home or folks being told to switch from fixed rate to Adjustable Rate Mortgages. My concern is for the small business folks who had nothing to do with this situation and getting burned just trying to run a legit business.

These are the folks that need a bail out/rescue. So if it passes I will be disgusted because the people it will help are not the ones I care about. But maybe it will stall some of the bad stuff from happening a little while longer.
But it will happen.
Gena - Out On The Stoop

The CRA

Southerngirl — Thu, 02 Oct 2008 14:34:24 -0500

The CRA was passed in 1977 and expanded during Bill Clinton's presidency. It did not take from 1977 to 2003 to cause this mess. How much money do you really think was loaned to low income people? THe thing it gave banks was the ability to use utilities and rental history as credit history. Otherwise those without cars or credit cards would never be eligible for a loan. Mainly low income people. In the south they buy mobile and manufactured homes which are less than 100K in the north they buy rowhouses and walkups which until the housing mess started were less than 100K. This problem lay squarely in deregulation and greed. In whatever order.

Michelle

I blog at http://www.mommycan.blogspot.com/

CRA, Fannie Mae & Freddie Mac did not create the crisis

Maria Niles — Thu, 02 Oct 2008 14:24:42 -0500

The vast majority of subprime loans (80%) were not CRA loans. CRA loans have a much lower foreclosure rate than non-CRA mortgages - probably because CRA borrowers more often receive some up front counseling rather than just get put into the loan that will be most profitable for the lender.

As you note it was the perception that Fannie Mae & Freddie Mac mortgages were backed by the government that helped fuel their growth. It is not the fault of borrowers or of government that banking institutions relied on that inaccuracy and relied on it being risk free when in fact it was not. Fannie and Freddie were allowed to sell mortgage backed derivatives but that was after the market was invented by investment banks and they did not sell the majority of those securities it was the investment banks who now need a bailout.

The credit swap derivative market is $62 trillion and the subprime mortgage market is $1 trillion. It is the effort of the banking industry to profit from paper profits and delude itself that somehow this ultra risky business was risk free that is driving the crisis.

McCain spoke in favor of regulating Fannie & Freddie but he did not author the legislation. And Bush was touting expanded homeownership as a cornerstone of his "ownership society" legacy. It was his major success. Their opposition to Fannie & Freddie wasn't some sort of prescient warning of impending doom, it was an effort to ensure that the profits were flowed back to cronies like Phil Gramm/UBS & Henry Paulson/Goldman Sachs.

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Alternatives to this Bailout

Deb S — Thu, 02 Oct 2008 14:20:06 -0500

I'm against this type of pay out.

I encouraged my representives by email and phone to meet with the pay as to go, (blue dog) democratics. One of these is Marcy Kaptur from, Ohio. They are working on a plan that is much like the plan used in the 1987 housing bubble. The FDIC saved 3,000 banks by restructuring, etc. I won't go into all the other things they did but interest rates came down from the 20% highes they were at. I'm actually old enough to remember things times. It did cost tax dollars but many of those costs were covered by the banking industry I think it was around 1.8 million at that time.

www.house.gov/Kaptur If I remember correctly this is the link. Just go to the house.gov site and you will find it.

Marcy, explains it a lot better than I ever could.

In the meantime, I think it would be pretty easy to set up a temporary bank to handle emergency funding for payrolls, etc for companies that don't have long term credit lines. This would all be money that would be short term loans just like businesses have been doing with their current institutions.

Yes, the free fall in real

Norma156 — Thu, 02 Oct 2008 12:33:54 -0500

Yes, the free fall in real estate values is certainly a contributing factor. Yes, no one knows which banks are holding "good" or "bad" paper because FM/FM bundled them together.

Yes, executive did buy the paper, but there was no risk because it was from a GSE.

In 1995, McCain drafted legislation to impose increased regulation on FM/FM which passed out of the banking committee but was withdrawn because the then-minority democrats in the Congress threatened a filibuster.

Bush and his people warned Congress repeatedly the meltdown was on the way. Congress choose not to listen.

So the alternative is to

Laura Scott — Thu, 02 Oct 2008 10:43:27 -0500

So the alternative is to give everyone a check -- basically put all Americans on the dole -- and then when I need a car loan I go get it from my neighbors and when my business needs a business loan I get it from the guy at the gas station or the clerk at the supermarket. ;)

/snark

Seriously, the claim that this is bailing out Wall Street is false, from what I can tell. It's helping to prevent the closing of my local bank. As a business owner, I am frightened by the "punish Wall Street" attitudes. This is about protecting the flow of the financial markets. If customers and their customers cannot finance their capital investments and ventures, then we lose customers and then we are laying people off and not being customers to our vendors, and on it goes.

Then we all get to suffer together, but at least we'll have stuck it to Wall Street---

--except that the multimillionaires on Wall Street won't be hurting nearly as much as we will.

Poison indeed

Laura Scott — Thu, 02 Oct 2008 10:09:19 -0500

My understanding is the problem isn't that suddenly low income people cannot pay, it's that suddenly real estate values have crashed. And that the problem is that, in this unregulated market, nobody even knows who's holding the paper. Mortgage-backed securities have been bought and sold so many times with no requirement for transparency that it has become a big shell game. Lenders say "why not offer this ridiculous unsecured loan" because they will unload it to an investment bank anyway.

And the investment banks etc. go for it because they are run by executives who make millions of dollars, win or lose. They are paid to take long shots, and for a few years they got away with it. Now the shareholders are hurting, the executives and board members get comfy golden parachutes, and the mortgages with debt greater than their real estate security value choke up the credit markets.

Frankly I feel that these invocations of the ghost of Clinton challenge all credibility. If anybody was the cheerleader of overbuilding and rampant lending, it was Bush and his touting of the "ownership society". But no President can bring down the economy, not even Bush. This is bigger than that, imho.

Just because a market is "free" doesn't mean it's healthy.

Be Careful

ksuzanne — Thu, 02 Oct 2008 10:08:01 -0500

I had to comment on everyone's opposition to the bail out bill. Personally, I think it might be more responsible to call it a "rescue" bill.

I wouldn't say that I am "for" the bill, but really, have you thought about they way it could go if the bill does not go through and the "free market forces" have their way with the US economy? Have you thought about your way of life? Not being able to pay your bills? Losing your house? Your vehicle? Your disposable income you buy a latte or a tasty lunch with?

It could be dire, truly "Great Depression Take Two." I would be willing to bet that most of these commenters before me do not work in the financial industry, either. I happen to work in a business that is entrenched in this market, and I can see first hand the actual consequences of what could happen without the bill. While it might not sound positive to say "bail out" (sure, it leaves a bad taste in our conservative value mouths), it unfortunately is needed.

So, have you thought about it? Have you thought about what life would be like if we just let it all play out? I'd be willing to bet that all of the commenters aren't quite looking past the end of their noses on this one.

I would also like to note that the link to "opencongress.org" doesn't hold much water with me, personally. The first line on the page is "Congress Gossip Blog" and I don't consider that legitimate. Gossip?

Pick your poison

Norma156 — Thu, 02 Oct 2008 09:07:04 -0500

The community reinvestment act required (or mandated, pick your word) banks to make loans throughout the area they served, including loans to low income people. It was a provision that was supposed to prevent redlining.

Pari passu doesn't apply in this context. Risk was removed from the market. No risk to the banks who made bad loans because Fannie Mae and Freddie Mac were buying them. No risk to Fannie Mae or Freddie Mac because the government was backing them. No risk to the entities which bought the mortgage backed securities because FM/FM was a GSE and the widespread belief was that the government would never let FM/FM fail.

We are in this mess precisely because there was no risk to any of the players, except to the people who were encouraged to buy mortgages and now face foreclosure and other pleasurable events.

Also, I didn't say the bad loans were made to low income people exclusively. Plenty of speculators got into the real estate market.

Correction of Nature of Approved Bail Out Bill

Gena Haskett — Thu, 02 Oct 2008 07:49:08 -0500

I was under the impression that this was an solitary independent bill in its own right. From what I now understand, and I could be wrong, it is actual was appended to a Mental Health bill and that had a bunch of riders attached to it as well.

From Open Congress.org
http://www.opencongress.org/articles/view/700-Senate-Passes-Bailout-Bill

The bailout is going to be considered as a substitute amendment to a mental health parity bill that Democrats in Congress have been working to pass for the past few years. But the bailout amendment will include the mental health parity bill within it, so if the amendment passes, the mental health bill will tag along on the legislative ride and, pending approval by the House and President, eventually be signed into law. The bill would mandate that any mental health coverage provided by an insurer cannot be more restrictive, in any way, than the treatment they provides for medical and surgical benefits.

Also included in the bailout amendment will be a package of tax extenders that Congress has been working to pass. The tax extensions include a renewable energy and conservation tax credit bill, tax relief for disaster victims, a one-year patch of the alternative minimum tax, and more. Again, if the bailout passes, the tax extenders pass as well.

Including the alternative minimum tax patch is supposed to give the bill more Main St. appeal. If Congress doesn’t pass an ATM patch, it could increase taxes on about 20 million middle-to-upper class Americans next year. “Adding this tax relief will ensure that regular working Americans get the financial help they need in this time of crisis,” Max Baucus (D-MT), the chairman of the Senate Committee on Finance, said in a statement on Tuesday. And since the ATM patch is basically a big tax cut, Republicans like it as well."

On Open Secrets.org you can see how much money the finance industry gave to both political parties.

Mr. Obama $25 million. Mr. McCain $22 Million.

http://www.opensecrets.org/news/2008/09/finance-sector-gave-50-percent.h...

Nobody hands in Congress are clean.

Gena - Out On The Stoop

Not quite accurate

Suzanne Reisman — Thu, 02 Oct 2008 07:26:58 -0500

Banks are not mandated to make risky loans to low income buyers. That is twisting what the Act was about. Further, this mess is NOT the exclusive fault of low income people. PLENTY of middle income and upper income earners went ahead and bought homes they could not afford under gimmicky mortgages. This problem cuts across class lines. However, the problem is that low income communities were targeted for subprime loans even when people qualified for standard, less risky ones. I've read that in several papers, so they were unfairly hit harder.

And Fannie and Freddie certainly made the situation worse, as you describe, but this situation was not created by them. They did not lead the way in making risky loans - banks did that. Plus, the McCain campaign is drowning in links to Freddie and Fannie, so pointing fingers in this situation is, uh, pointless.

There's a lending term that is politically appropriate here, pari passu. Essentially, pari passu means that everyone involved with the loan shares the risk equally. And when the shit hits the fan, everyone gets splattered equally.

Suzanne Reisman, Contributing Editor - Feminism & Gender
Campaign for Unshaved Snatch (CUSS) & Other Rants

Evil corporations, Freddie, and Fannie

Suzanne Reisman — Thu, 02 Oct 2008 07:16:28 -0500

That was sarcasm.

As for Fannie and Freddie, their responsibility is to cover loans that lenders make so that lenders can make loans. They do not "push" anything. They are NOT lenders. The only blame that can be put on Freddie and Fannie is that the guidelines on what types of loans they would secure was changed, which enabled lenders to make loans that people could not afford. Again, Fannie and Freddie are NOT lenders and this mess was NOT created by them, but by lenders and the people who took out loans that they couldn't afford. Period.

Suzanne Reisman, Contributing Editor - Feminism & Gender
Campaign for Unshaved Snatch (CUSS) & Other Rants