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The crisis can be attributed to a number of factors pervasive in both housing and credit markets, factors which emerged over a number of years. Causes proposed include the inability of homeowners to make their mortgage payments, due primarily to adjustable rate mortgages resetting, borrowers overextending, predatory lending, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, monetary policy, international trade imbalances, and government regulation (or the lack thereof). Two important catalysts of the subprime crisis were the influx of moneys from the private sector and banks entering into the mortgage bond market and the predatory lending practices of mortgage brokers, specifically the adjustable rate mortgage, 2-28 loan. Ultimately, though, specific to the bailout of Wall Street and the financial industry moral hazard lay at the core of many of the causes.
In its "Declaration of the Summit on Financial Markets and the World Economy," dated 15 November 2008, leaders of the Group of 20 cited the following causes:
During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.
There is a lot of blame to go around....
FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders.
FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers.
Over time, private mortgage insurance (PMI) companies came into play, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.
Is the program your referring to and you neglected to mention that its federally insured. Of course what banks tended to do was this:
An adjustable rate mortgage (ARM) is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices. Among the most common indices are the rates on 1-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). A few lenders use their own cost of funds as an index, rather than using other indices. This is done to ensure a steady margin for the lender, whose own cost of funding will usually be related to the index. Consequently, payments made by the borrower may change over time with the changing interest rate (alternatively, the term of the loan may change). This is not to be confused with the graduated payment mortgage, which offers changing payment amounts but a fixed interest rate. Other forms of mortgage loan include the interest only mortgage, the fixed rate mortgage, the negative amortization mortgage, and the balloon payment mortgage. Adjustable rates transfer part of the interest rate risk from the lender to the borrower. They can be used where unpredictable interest rates make fixed rate loans difficult to obtain. The borrower benefits if the interest rate falls and loses out if interest rates rise.
Adjustable rate mortgages are characterized by their index and limitations on charges (caps). In many countries, adjustable rate mortgages are the norm, and in such places, may simply be referred to as mortgages.
Adjustable rate mortgages are sometimes sold to consumers who are unlikely to be able to repay the loan should interest rates rise. In the United States, extreme cases are characterized by the Consumer Federation of America as predatory loans. Protections against interest rate rises include (a) a possible initial period with a fixed rate (which gives the borrower a chance to increase his/her annual earnings before payments rise); (b) a maximum (cap) that interest rates can rise in any year (if there is a cap, it must be specified in the loan document); and (c) a maximum (cap) that interest rates can rise over the life of the mortgage (this also must be specified in the loan document).
Keep in mind 80% of the mortgages in the United States are ARM loans.
In an article in the January 17, 2008 New York Times, George Mason University economics professor Tyler Cowen described "predatory borrowing" as potentially a larger problem than predatory lending:
"As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default. Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers."
It should be noted that mortgage applications are usually completed by mortgage brokers, rather than by borrowers themselves, making it difficult to pin down the source of any misrepresentations. The only situation in which the application would not done by the broker, but rather the borrower, would be in a "stated income loan."
A stated income loan application is done by the borrower, and no proof of income is needed. When the broker files the loan, they have to go by whatever income is stated. This opened the doors for borrowers to be approved for loans that they otherwise would not qualify for, or afford.
Several commentators have challenged the notion of "predatory borrowing," accusing those making this argument as being apologists for the lack of lending standards and other excesses during the credit bubble.
Although the target for most scammers, lending institutions were often complicit in what amounted to multiparty mortgage fraud. The Oregonian obtained a JP Morgan Chase memo, titled "Zippy Cheats & Tricks." Zippy was Chase's in-house automated loan underwriting system, and the memo was a primer on how to get risky mortgage loans approved.
Now to understand why Brokers would willingly falsify documents to get loans approved you would have to understand they work on a commission basis just like Real Estate Agents. So in order to earn a living in the Real Estate Buisness you have to sell the products....
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The Cato Institute is a pro-free market, libertarian think tank headquartered in Washington, D.C.
The Institute's stated mission is "to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets, and peace" by striving "to achieve greater involvement of the intelligent, lay public in questions of (public) policy and the proper role of government." Cato scholars conduct policy research on a broad range of public policy issues, and produce books, studies, op-eds, and blog posts. They are also frequent guests in the media.
The Cato Institute is non-partisan, and its scholars' views are not consistently aligned with either major political party. For example, Cato scholars were sharply critical of the second Bush administration (2001 - 2009) on a wide variety of issues, including the Iraq war, civil liberties, education, health care, agriculture, energy policy, and excessive government spending. However, on other issues, most notably Social Security, global warming, tax policy, and immigration, Cato scholars had praised Bush administration initiatives. During the 2008 U.S. presidential election, Cato scholars criticized both major-party candidates, John McCain and Barack Obama.
Yeah they aren't biased at all....
Social Security isn't the problem, even people living to long is not the problem its the antique cap at 150k a year on social security taxes thats at issue. Remove the cap which has not been adjusted for inflation and Social Security is fine.
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So yesterday I was listening to the Wizards of Smart on the news shows talk about what the results of last weeks elections meant. They all seemed to gree that the governer's races meant very little but that the two special House elections showed the mood of the public. To me this isn't the case. I think that they all show that there is an anti-incumbant sentement in the country right now, sort of a throw all the bums out and start over attitude. I don't know if it will carry over to next years midterm elections, but I think that right now the professionals are looking at this the wrong way. Either that or we have to say that all the elections were meaningless in terms of a bigger picture. I don't think that people should be cherry picking the results that they want to count, they need to be looked at as a total package.
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So yesterday I was listening to the Wizards of Smart on the news shows talk about what the results of last weeks elections meant. They all seemed to gree that the governer's races meant very little but that the two special House elections showed the mood of the public. To me this isn't the case. I think that they all show that there is an anti-incumbant sentement in the country right now, sort of a throw all the bums out and start over attitude. I don't know if it will carry over to next years midterm elections, but I think that right now the professionals are looking at this the wrong way. Either that or we have to say that all the elections were meaningless in terms of a bigger picture. I don't think that people should be cherry picking the results that they want to count, they need to be looked at as a total package.
I agree, although I'll point out that, to my knowledge, Corzine was the only incumbent who actually got thrown out. My analysis: these elections were "all over the place", and reflect a political climate that is equally "all over the place" :)
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I agree, although I'll point out that, to my knowledge, Corzine was the only incumbent who actually got thrown out.:)
Strictly speaking yes, however, the Democrats were the incumbant party in Vrginia and the Republicans were the incumbant party in New York's 23rd district. So even though the actual incumbant were not thrown out in those two races, the incumbant party was.
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I think that they all show that there is an anti-incumbent sentiment in the country right now, sort of a throw all the bums out and start over attitude.
I have seen this attitude very strongly for some time now. I have noticed however, that long term incumbents stand a much better chance then normal to keep their position. So that, when we kick the "bum out," we are in fact kicking the new guy out and the old guy who has been in his position for several terms now, is still in office.
I however, have not checked the times that all incumbents have been in office. Does anyone have any idea if this is the case or if I am just seeing something that isn't there?
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I don't know about that but I don't know how long a lot of these guys have served. I've never seen tha anti-incumbant attitude this bad before, and I have been a political junkie since Reagan was innagurated.
I have seen it pretty bad before but this does happen to be the worst I have noticed it too.
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Ok so I have a question and maybe you smart people can answer it for me. Who are the most important people in the country and why?
So there is Obama and secritary of State Clinton. But who else fits the bill of important to this country and what is thier role?
Here's a few more:
Ben Bernanke, Chairman of the Federal Reserve. He makes a lot of the decision that determine the economic policy of the country, and the Fed's decisions have a ripple effect throughout the entire economy.
Sen. Harry Ried, Sen. Mitch McConnell, and to a lesser extent Speaker of the House Nancy Pelosi. A lot of the big decisions legislatively are made in the Senate, and those first two names are the ones steering that policy, to a greater or lesser extent. I put Pelosi as a distant third because her job is frankly a lot easier. The Democratic majority in the House has fewer procedural hurdles to getting its legislation passed, so the heavy lifting tends to be done in the Senate.
There are other names that I'm sure people will think of too, but those were the ones that came to mind immediately.
The best argument I've ever heard against the death penalty in America is a conservative one. Basically the government is simply to corrupt and incompetent to be trusted with the power of life and death in the criminal justice system. As a minarchist I find this argument the most compelling.I'm opposed to the death penalty because states which use the death penalty have higher violent crime rates. Seriously, check it out sometime. The South (including Texas) has the highest execution rate AND the highest murder rate. The correlation is so strong it's almost overwhelming.That's about the only coherent argument against it I've ever heard -- I'll have to look into the stats. Usually people say it's not fair, or that it's too harsh a punishment, but I always felt it wasn't so much a punishment as an assurance: an executed murderer or rapist has a 0% chance of repeating his crime. But if it actually does spawn more of them, then that's not much use.
State officials would rather kill a prisoner than give him a DNA test.