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The Financial Crisis Inquiry Commission has spoken:

As this report goes to print, there are more than 26 million Americans who are out of work, cannot find full-time work, or have given up looking for work. About four million families have lost their homes to foreclosure and another four and a half million have slipped into the foreclosure process or are seriously behind on their mortgage payments. Nearly $11 trillion in household wealth has vanished, with retirement accounts and life savings swept away.

Businesses, large and small, have felt the sting of a deep recession. There is much anger about what has transpired, and justifiably so. Many people who abided by all the rules now find themselves out of work and uncertain about their future prospects. The collateral damage of this crisis has been real people and real communities. The impacts of this crisis are likely to be felt for a generation.   And the nation faces no easy path to renewed economic strength. [...]

How is your nest-egg doing?


Financial Crisis Inquiry Commission -- January 2011 -- Summary Report (pdf)

Link to the official FCIC site, with a lot more Inquiry details.


Here are their Summary conclusions, with some interesting excerpts, explaining those conclusions.

* We conclude this financial crisis was avoidable.

The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public.
[...]

Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.

The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not. The record of our examination is replete with evidence of other failures:

-- financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective;

-- firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities;

-- and major firms and investors blindly relied on credit rating agencies as their arbiters of risk.

What else could one expect on a highway where there were neither speed limits nor neatly painted lines?


* We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.

The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets. In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor.

Yet we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. [...]

* We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.
[...]
Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding. In many respects, this reflected a fundamental change in these institutions, particularly the large investment banks and bank holding companies, which focused their activities increasingly on risky trading activities that produced hefty profits. They took on enormous exposures in acquiring and supporting subprime lenders and creating, packaging, repackaging, and selling trillions of dollars in mortgage-related securities, including synthetic financial products. [...]


* We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
[...]
Within the financial system, the dangers of this debt were magnified because transparency was not required or desired. Massive, short-term borrowing, combined with obligations unseen by others in the market, heightened the chances the system could rapidly unravel.
[...]
Yet, over the past 30-plus years, we permitted the growth of a shadow banking system—opaque and  laden with short-term debt—that rivaled the size of the traditional banking system. Key components of the market—for example, the multi-trillion-dollar repo lending market, off-balance- sheet entities, and the use of over-the-counter derivativeswere hidden from view, without the protections we had constructed to prevent financial meltdowns.

* We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.
[...]
While there was some awareness of, or at least a debate about, the housing bubble, the record reflects that senior public officials did not recognize that a bursting of the bubble could threaten the entire financial system. Throughout the summer of 2007, both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson offered public assurances that the turmoil in the subprime mortgage markets would be contained.


* We conclude there was a systemic breakdown in accountability and ethics.
[...]
And the report documents that major financial institutions ineffectively sampled loans they were purchasing to package and sell to investors. They knew a significant percentage of the sampled loans did not meet their own underwriting standards or those of the originators. Nonetheless, they sold those securities to investors. The Commission’s review of many prospectuses provided to investors found that this critical information was not disclosed.

Nice guys, eh?   Those "financial institutions" betting on, and over-leveraging OUR Nation's economic future.  "No guts, No Glory!" they routinely say on the Street.  A motto to live by;  a motto to 'crash and burn' by ...


"The impacts of this crisis are likely to be felt for a generation" ... Millions hurting, Families shaken, Futures foreclosed --

All because of WHY again?  per FCIC's Conclusions:

financial crisis was avoidable

failures in financial regulation and supervision

failures of corporate governance and risk management

government was ill prepared for the crisis

systemic breakdown in accountability and ethics


And why does it matter? Why should we care?  

Well ...

Nearly $11 trillion in household wealth has vanished, with retirement accounts and life savings swept away.

About four million families have lost their homes to foreclosure and another four and a half million have slipped into the foreclosure process or are seriously behind on their mortgage payments.

The government ultimately committed more than $180 billion because of concerns that AIG’s collapse would trigger cascading losses throughout the global financial system.

And that Bail Out was ONLY the beginning.  TARP at one point, had drained away $700 Billion from the Govt Revenues, all because of those little lapses of the Free Marketeers on Wall Street.

These lapses on Wall Street ... They matter -- BIG Time!


If Markets are NOT indeed Self-Correcting, as Greenspan told us at every turn, then maybe the Govt Regulators have to perform this vital Braking function, to reduce Risk -- themselves?   The FCIC commission is saying as much.

The hazards of the Investing Road are many.  Someone 'responsible' needs to be driving the Bus, that's holding all our nest-eggs, and carrying them to the Future;  our pensions, our 401ks, our Home Equity.  ... SOMEONE needs to be Watching the Road!


Another reason why the Wild West attitude on Wall Street matters, is because the next 'treasure chest' of the Nation's Wealth that they want to be able to actively manage -- is our Surplus Social Security Retirement Funds -- all 2.6 Trillion Dollars worth of them -- now safely tucked away in the Trust Fund.

THAT is the goal of Paul Ryan's Road Map for America -- to privatize Social Security.  To take our Trust Funds, safely invested in Govt T-Bills, and move them into the Stock Market -- where according to this Commission Report:   "Nearly $11 trillion in household wealth has vanished" -- virtually overnight.

All due to "failures of corporate governance and risk management" among other non-correcting things.


Now they want OUR Social Security Funds too;  to be able to "put that money to work" too.  Just trust them.  

Yeah Right!


I'll trust them maybe, when they begin to "make good" on the untold damage, they've already done to the Economy, to the country, to the world.

I'll trust them maybe, when they agree to give up the Bush Tax Cuts.

I'll trust them maybe, when they agree to a higher Capital Gains Tax.

I'll trust them maybe, when they agree to meager Transaction Tax on all their lightning-fast trading-bots.

I'll trust them maybe, when they agree to take the speculative hedging, out of Derivatives, and start managing Risk, like Adults, for the long term.


That'll be the Day!  The day I trust the Republicans to deliver Social Security into the hands of Wall Street  ...

That Day ... like about -- Never!



Yet Mr. Ryan is in a position to make his plans a reality, or at least the next political football -- since he is the new Chairman of the House Budget Committee.  That's a role noteworthy in its power.

That's a role, that makes him "empowered and dangerous" as Ms. Bachmann might say.


If Chairman Ryan keeps getting a free ride on the 'Social Security's is Broken' bandwagon rhetoric -- Look out!

Your Social Security retirement dignity might end up going the same way as all those millions of Foreclosed Mortgages.  Or so the conclusions of the Financial Crisis Inquiry Commission report should have us seriously wondering.


If you dig into its details, you might walk away with the conclusion -- that the main thing that has changed on Wall Street -- is the calendar.   As far as "Accountability" is concerned, that's still a problem in search of a solution:

We do place special responsibility with the public leaders charged with protecting our financial system, those entrusted to run our regulatory agencies, and the chief executives of companies whose failures drove us to crisis. These individuals sought and accepted positions of significant responsibility and obligation. Tone at the top does matter and, in this instance, we were let down. No one said "no."


SOOO,  I would argue, that "No one" should be able to get their hands on our Social Security Funds, either -- in spite of the coming ramped-up Austerity rhetoric to do just that.

Some things were never meant to be on Free Market.  Some things, are just too precious, to risk them -- to "the whims" of Market Forces.  


Uncontrollable "forces" like these, that we just endured:

financial crisis was avoidable

failures in financial regulation and supervision

failures of corporate governance and risk management

government was ill prepared for the crisis

systemic breakdown in accountability and ethics



Why does it matter?   Well ...  it's OUR Future ... for now anyways.

Remember, as the Commission concluded:

There is much anger about what has transpired, and justifiably so. Many people who abided by all the rules now find themselves out of work and uncertain about their future prospects.

So Next Time ... SOMEONE definitely needs to say NO!  


... Let start with Social Security tinkering -- as in HELL NO you can't!  

thank you very much, Free Market Privateers.  ... But NO Thanks.  


This once in a life time chance, of Trusting Wall Street, is definitely more than enough, to have helped us to learn its many painful lessons.

Lessons Learned!   Loud and Clear.



Originally posted to Digging up those Facts ... for over 8 years. on Sun Jan 30, 2011 at 06:03 AM PST.

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Comment Preferences

  •  Well done (but systemic not systematic) n/t (6+ / 0-)

    Dream, that's the thing to do (Johnny Mercer)

    by plankbob on Sun Jan 30, 2011 at 06:10:55 AM PST

  •  During the Bush years... (5+ / 0-)

    I think a lot of us already knew things were awry and that the financial calamity was headed our way.  I am not sure that the "lesson" has been learned by those who seemingly have control over these things.  

    •  On lessons learned? (10+ / 0-)

      From the NY Times business section this morning:

      Yet the report still makes for compelling reading because so little has changed as a result of the debacle, in both banking and in its regulation. Providing chapter and verse, for example, on the bumbling and siloed management at the nation’s largest banks is enlightening, in that many of these institutions are even bigger than they were before. With too-big-to-fail institutions now larger than ever, we are almost certain to go through another episode like 2008 in the not-too-distant future.

      http://www.nytimes.com/...

      •  Yves Smith critique of the FCIC report (10+ / 0-)

        is well worth considering. Link.

        •  A very important link (4+ / 0-)
          Recommended by:
          jfdunphy, LivesInAShoe, DorothyT, jamess

          Puts the FCIC report in better perspective.  We may be happy to see what is in the report, but it shows that the report probably has less "bite" than it should have.

          Thanks,

          Just waitin' around for the new Amy Winehouse album

          by jarbyus on Sun Jan 30, 2011 at 07:05:44 AM PST

          [ Parent ]

          •  I read through the summary (3+ / 0-)

            and some of the detailed hearings too.

            And I kept wondering So what are they recommending as corrective actions?

            and then I read this:

            Our financial system is, in many respects, still unchanged from what existed on the eve of the crisis. Indeed, in the wake of the crisis, the U.S. financial sector is now more concentrated than ever in the hands of a few large, systemically significant institutions.

            While we have not been charged with making policy recommendations, the very purpose of our report has been to take stock of what happened so we can plot a new course. In our inquiry, we found dramatic breakdowns of corporate governance, profound lapses in regulatory oversight, and near fatal flaws in our financial system. We also found that a series of choices and actions led us toward a catastrophe for which we were ill prepared. These are serious matters that must be addressed and resolved to restore faith in our financial markets, to avoid the next crisis, and to rebuild a system of capital that provides the foundation for a new era of broadly shared prosperity.

            The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.

            This report should not be viewed as the end of the nation’s examination of this crisis. There is still much to learn, much to investigate, and much to fix. This is our collective responsibility. It falls to us to make different choices if we want different results.


            And they wonder, why the People grow tired, of Commissions, to solve our many serious problems.


            I dream of things that never were  -- and ask WHY NOT?
            -- Robert F. Kennedy

            by jamess on Sun Jan 30, 2011 at 07:54:18 AM PST

            [ Parent ]

      •  Even Krugman has said that TBTF not the issue (6+ / 0-)

        As I’ve written repeatedly, I don’t think that too-big-to-fail is at the heart of our financial problems.

        http://krugman.blogs.nytimes.com/...

        Proper regulation of the TBTF is what we needed.  Now Frank-Dodd limits their investment activity, will give regulators resolution authority, and will put CDS into the daylight.

        "The way to see by faith is to shut the eye of reason." - Thomas Paine

        by shrike on Sun Jan 30, 2011 at 06:28:09 AM PST

        [ Parent ]

    •  I new something was seriously wrong (3+ / 0-)

      with the Housing mania boom,

      around 2004-2005.


      The Lesson we should have learned,
      is NOT to trust Wall Street,

      to have OUR best interests at heart.


      Who's going to make sure, they play fair?

      No One.   as the commission put it.


      I dream of things that never were  -- and ask WHY NOT?
      -- Robert F. Kennedy

      by jamess on Sun Jan 30, 2011 at 07:13:16 AM PST

      [ Parent ]

  •  Remember this - last October? (4+ / 0-)

    Link

    (Reuters) - The Obama administration said it found no sign so far of "systemic" home foreclosure troubles that threaten U.S. financial stability, or structural problems that could undermine investments linked to mortgages.

    But Housing and Urban Development Secretary Shaun Donovan said a four-month probe of big banks' mortgage practices had discovered "significant variation" in compliance with government rules, and vowed to force changes as needed.

    SNIP

    Donovan spoke after huddling with Treasury Secretary Timothy Geithner and top Justice Department official Thomas Perrelli to coordinate regulators' response to a foreclosure mess that some analysts say poses risks to the fragile housing market and the broader economy.

    I guess it was just a bunch of one-offs.

  •  I think they knew. (4+ / 0-)
    Recommended by:
    TracieLynn, LivesInAShoe, jamess, ozsea1

    The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public.

    If you look carefully at the number of politicians invested in hedgefunds during this collapse, at what I think was outright thievery from the national treasury during the Iraq war...I don't give them the excuse of ignorance.  

  •  This is the best summation of the FCIC report (4+ / 0-)
    Recommended by:
    jfdunphy, jamess, yellow dog in NJ, zqxj

    I have seen here.  It should be a reference point for discussion.  Great graphics too. Sadly though, if you had blamed Geithner in the title somehow it would get more attention.  

    "The way to see by faith is to shut the eye of reason." - Thomas Paine

    by shrike on Sun Jan 30, 2011 at 06:42:31 AM PST

  •  Great Essay, Jamess! (6+ / 0-)

    My favorite part of the Cat Food Comission  testimony was Geithner speaking to lack of regulation.

    Um...but... Mr. Geithner, as Chairman of the NY Fed - wasn't that partly YOUR responsibility?

    Sad is the soul that slumbers ...

    by yellow dog in NJ on Sun Jan 30, 2011 at 07:13:54 AM PST

  •  Wal Mart employees can be fired "at will" (6+ / 0-)

    especially for cause .... but even when a gull government commission finds cause for firing the money czars, no one gets fired. Inverse accountability. Caesar used decimation to help his troops get motivated after a battlefield loss.

  •  One big disagreement I have with this (5+ / 0-)
    Recommended by:
    LivesInAShoe, kck, shrike, jamess, ozsea1

    Not with the diary but with what I've read so far about the report.  I will read the report and hope to write an analysis.

    But I think this is a big problem already:

    - financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective;

    -- firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities;

    -- and major firms and investors blindly relied on credit rating agencies as their arbiters of risk.

    The first bullet point I have no problem with.  The next two seem fundamentally not to understand the nature of mortgage backed securities in the banking system.

    The main thing is that MBS were designed and sold as cash equivalents.  They were intended to be triple A rated, so that they qualified as "investment grade securities" that banks could invest in and trade freely, including for overnight funds.

    I should disclose here that way back in the jurassic era, I used to analyze and draft disclosure documents for mortgage backed securities, before I returned to the nonprofit and education sectors.  I did this for several years.

    The commission seems to be saying that a bank that buys mbs as an asset or that takes it as collateral over night, needs to investigate the nature of that particular security or tranche of securities.  

    This is impossible.

    Banks and other institutional investors can no more investigate the substance of a particular MBS is buys or trades than you or I could investigate the substance of every dollar bill that we accept from a bank or use to buy groceries.  Cash equivalents have to be, well, cash equivalents.

    As someone who became somewhat expert in reading the very documents that explain how a particular MBS is structured, it took me a week, at least, to plow through the legal language and math.  No bank taking MBS over night can accomplish this.  

    This is where the credit rating agencies come in.  The idea is that Moody's or S&P do that analysis for the bank and summarize their findings in a single rating -- AAA, for example.

    The financial system is NEVER going to function in a way such that every investor in MBS reads and understands the disclosure documents.  That's the job of ratings agencies.

    So I would say the biggest blame goes to the agencies because they were slapping AAA ratings on MBS that they themselves did not understand, or that they mis-rated because they were essentially being bribed by the underwriters (investment banks) with fees.  

    It was as though millions of consumers suddenly realized that Consumer Reports, rather than being independent and non profit, and extremely expert at telling us what air conditioners are efficient and what toasters are electrically safe, were being bribed by air conditioning and toaster manufacturers.  

    That said, there is no alternative except for having honest ratings agencies.  There is no conceivable system in which every bank reads through 2,000 pages of disclosure and does pages of advanced algebra before taking an MBS as security for an overnight loan.  

    The other villain is the Securities and Exchange Commission.  They are the regulators who regulate how well the substance of an MBS is actually disclosed.

    It is well known that the SEC under Bush let the underwriters issue any crap they wanted to issue and slap a AAA rating on it.  The un-named, unheralded villain of this mess was Bush's SEC chairman, Christopher Cox, who has managed, Cheshire Cat like, to simply disappear.

    •  from what little I know about it (2+ / 0-)
      Recommended by:
      LivesInAShoe, HamdenRice

      from watching the investigative reports,
      by 60 Minutes, Frontline, and CNBC etc.

      Some of those Sub-prime Loan Mills were very dependent on their Wall Street underwriters,

      to in effect "wire them the funds"

      -- if not nitely, then weekly.


      There was a point, where the Mills,
      were turning Applicants folks away, in droves,
      as the Billions in backing, started "drying up".

      as I recall.  

      sometime in late 2006 early 2007, I think.


      I dream of things that never were  -- and ask WHY NOT?
      -- Robert F. Kennedy

      by jamess on Sun Jan 30, 2011 at 08:04:03 AM PST

      [ Parent ]

      •  I think another confusion is mixing bad mortgages (2+ / 0-)
        Recommended by:
        LivesInAShoe, jamess

        with bad mbs.  They are two completely different issues.

        I wrote about this the other day in a comment, and I'll just cut and paste it here.  I was responding to a diarist who thought that if 10% of mortgages backing a tranche of MBS goes into foreclosure, that the MBS loses 10% of its interest payments or value.  This is not how it works.

        But my main point is that just because a series of mbs has bad mortgages, doesn't mean that the mbs itself can't be triple A rated.  Wall St was indeed trying to make triple A MBS using subprime mortgages, which actually is mathematically possible.  I think most people who are commenting about this don't understand it, and it is counter intuitive.

        Here's what I wrote the other day (edited a bit for clarity):

        You are assuming that all of the interest and principal that comes into a MBS trust automatically goes out to all the bonds equally, so if there are 1000 mortgages and 1/4 of them go bad, the bondholders receive 25% of the principal and interest.

        That's not how it works at all.

        MBS are issued by trusts.  The trusts hold the mortgages.  They take in the mortgage payments and pay out the principal and interest on the bonds.  

        The bonds -- they're not actually bonds, they are trust certificates -- are issued in classes -- many classes.

        So if the trust holds, eg $100 million in mortgages and for simplicity let's say every mortgage is $100,000 and there are a thousand mortgages, the packager will look to historical data to guess how many are likely to go into foreclosure.  If the historical foreclosure rate is 5% or 50 mortgages, then they'll guess that they can create a gold plate triple A class of MBS backed by the first 95% of the mortgages, and another class of crappy MBS.  In fact, they make them safer than that.  They create many classes and put in what's called a "cash waterfall."  Of the $100 million in MBS, maybe $50 million will be triple A, maybe called class A-1.  The agreement says that all money that comes in has to be paid FIRST to Class A-1.  This is called "over-collateralization" because Class A-1 has "too much" collateral.  Then they have a slightly less safe class, called Class B-2 and any money left over after paying class A-1 gets paid to class B-2.  If there is any money left after paying Class A-1 and Class B-2, then the money goes to Class C-3.  

        And so on.  

        There are often dozens of classes and at the bottoms is "Class Z-26 Toxic Trash".  When more than the historical number of foreclosures occur, Class Z-24 Toxic Trash defaults first, keeping A-1 and B-2 and C-3 etc safe.  Depository banks, insurance companies and other institutions that are limited in the quality of their investments were not allowed to buy Class Z-24 toxic trash.  Class Z-24 Toxic Trash was purchased by speculators for reasons I'll explain in a diary soon.

        The bonds don't get paid proportionally less because of mortgage foreclosures.  They get wiped out class by class, up the chain of the cash waterfall.

        This is why widespread foreclosures really hasn't caused many defaults among Triple A rated MBS -- because there was plenty of toxic trash class z-26, Y-25, X-24, etc. to take the hits.

        In other words, the triple A gold plated class A-1 MBS never defaulted because they were cushioned by class after class of trash (although some had technical defaults which is a complicated issue to go into at another time, but basically involved either cross defaults from "Toxic Trash Class Z-26 or the fact that guarantees from investment banks disappeared when those banks went bankrupt).

        What really caused the crisis was that "clever" bankers tried to packaged MBS consisting ENTIRELY of "Class z-24 Toxic Trash."  They figured that if you over collateralized a trust with say, $150 million of Class Z-24 Toxic Trash and only issued $75 million of Triple A, on the bet that not all Toxic Trash could default at once, then they had discovered the goal of alchemy -- turning trash into gold. This stuff was called "collateralized debt obligations," (CDOs) rather than "mortgage backed securities."

        Apparently they were wrong.  

        The default of Triple A rated CBOs is one of many things that spooked the market and caused institutional investors to be unwilling to trust triple A rated MBS.

        •  I don't mean to criticize (2+ / 0-)
          Recommended by:
          LivesInAShoe, HamdenRice

          your past career, or skill set, HamdenRice,

          But this playing games with people's mortgages,

          truly sucks.


          Just look to the folks Underwater now,
          trying to "Renegotiate" their Mortgage, to stay in their homes,

          -- most of the time, they can't even find the deed holder,

          because it's been "tranched" into a thousand little pieces.


          This is not the financial world, I grew up in.

          So much for reaching the American Dream.


          I think they "securitized" that too.

          what would stop them?


          I dream of things that never were  -- and ask WHY NOT?
          -- Robert F. Kennedy

          by jamess on Sun Jan 30, 2011 at 08:24:09 AM PST

          [ Parent ]

          •  Not all subprime were bad (3+ / 0-)
            Recommended by:
            LivesInAShoe, jamess, Calamity Jean

            About 30 years ago, I visited my father at his job.  He was near retirement and worked for the NYC subway system in a rough part of Brooklyn.  He drove a jeep like vehicle and inspected various stations very late at night.  I rode along with him that night.

            At some point we stopped at an intersection in East New York, Brooklyn, a heavily minority neighborhood and he pointed out that if you looked down each street, all four ways, there was not a single inhabited building.  They were all abandoned and/or burned out.  

            The main reason was redlining by mortgage banks.  These banks demanded perfect credit scores and literally drew red lines around minority neighborhoods as places that they would not make any mortgages.  NY Public Interest Research Group did a famous study that showed that the banks did not make one single mortgage in the black neighborhoods of Brooklyn over 10 years.  If people can't get mortgages, they can't buy and sell, even when a homeowner dies or want to move.  Mortgage redlining was a major cause of the abandonment in the Bronx and Brooklyn.

            By the 1990s, all of those buildings were refurbished, purchased and occupied, and almost all of them through sub prime mortgages, because the buyers could not qualify for prime mortgages.

            Subprime mortgages, non-bank mortgage brokers, Fannie's and Freddie's loosened credit requirements, and other techniques that the right has demonized as "Democrats gave poor people mortgages and created the crisis" completely transformed many inner city neighborhoods.  It wasn't all speculation and games with money; it was actual construction of real housing for working class people.  

            I will say though that I left because the securities were getting too exotic and I don't think I or anyone else was taking the weeks to understand them.  This was way back in the 90s, so I can imagine it got much worse.  The last thing I was assigned I thought was preposterous -- it was financing 25 year mortgages for fast food restaurants with 30 day commercial paper.  In other words it was based on the idea that the MBS trust could roll over commercial paper every 30 days without interruption for 25 years.  

    •  I agree that (2+ / 0-)
      Recommended by:
      LivesInAShoe, HamdenRice

      the biggest blame goes to the agencies because they were slapping AAA ratings on MBS that they themselves did not understand, or that they mis-rated because they were essentially being bribed by the underwriters

      although in a Bribery Scenario,

      I say BOTH sides are equally culpable.


      There would be no incentive to issue Fake AAA ratings,

      IF there was not a very serious Demand for them.


      The disincentives  (like jail time) would probably have
      nagged at those Rating Officers,
      everytime they broke out the Rubber Stamps.

      Oh wait who was ruling the show then,
      nevermind!


      I dream of things that never were  -- and ask WHY NOT?
      -- Robert F. Kennedy

      by jamess on Sun Jan 30, 2011 at 08:17:35 AM PST

      [ Parent ]

    •  you have some serious credibility (1+ / 0-)
      Recommended by:
      denise b

      we used to have a poster here that was a retired OCC analyst.

      He was superb but often drowned out by the rabble.

      Norm de Plume was his handle.

      "The way to see by faith is to shut the eye of reason." - Thomas Paine

      by shrike on Sun Jan 30, 2011 at 09:48:20 AM PST

      [ Parent ]

    •  The ratings agencies (1+ / 0-)
      Recommended by:
      jamess

      shouldn't even be called agencies; it implies some sort of public function and obscures the fact that they're for-profit enterprises that are paid by the banks and represent their interests, not the investors'.

      The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt. --Bertrand Russell

      by denise b on Sun Jan 30, 2011 at 01:00:13 PM PST

      [ Parent ]

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