Schwarzman on how we got here from there

September 25th, 2008 2:03 pm by OilyGasMiner

Great summary by Schwarzman. However I find that the loan packages is what really triggered things to head in a spiral direction. Ok, think about this for a moment, bad loans were being wrapped up with good loans, and still the credit rating was not affected. My question then is how were the credit ratings being assessed. IMO if the credit ratings did as intended and indicated the truly creditworthiness of the newly packaged bonds, we could avoided a lot of the contagion that has been occurring. It is my position that the GOV needs to revisit there credit rating system to address this issue. Because even we get in the clear and things are peachy again, if we repeat this process of combining bad debt + good debt and not adjusting the credit rating we are back to square one. I read a post today that also hit this point home. It indicated that the U.S. needs to face the harsh reality that with:
• its cumulative National Debt and current fiscal budget deficit levels;
• its loss in manufacturing jobs;
• an over-extended consumer base; and,
• its enormous and ‘each month growing’ trade deficits (which at the end of August stood at an approximate cumulative U.S.$6.9 trillion, increasing at a rate of approximately U.S.$60 billion each month) it is now, and will increasingly become, DEPENDENT on its trading partners.
: Source

September 28th, 2008 2:08 pm by PAUL JACKSON

Keith - It’s more what the government didn’t do than what it did, IMHO. Since the 1992 election, housing has been seen as a pet political project, with nearly every administration pushing “expanding homeownership” as a platform. None perhaps more so than the current Bush regime, who pushed “the Ownership Society” and pushed for lax lending standards at the FHA as well as prodding the private sector to make questionable loans in the name of increasing the nation’s homeownership rate, relaxing regulation in the process to enable it to happen.

September 30th, 2008 8:13 am by Bill Krueger

CRA is a strawman for those looking to place blame. CRA has been around for 20 years, yet we just now have this problem? I am no fan of ACORN, but all the promises made by financial institutions for affordable housing during the last consolodation, provides mixed results. For example, BofA escaped the housing problem but they bowed to the affordable housing crowd in the past by pledging billions in low income services for the merger creating BofA.

IMHO, it is a systemic issue where the credit rating agencies are paid by the people issuing the bonds. This is a simple conflict of interest, anyone else would would have had a significant issue with this arrangement.

Likewise, you had a number of PhDs in chemistry and Physics building models on limited time series housing and loan data, or rather, ignoring the FHA’s historical default and severity figures to claim this new Subprime version would act more like Prime owner occupied loans than historical FHA loans.

I heard many “old timers” beginning in late 2004 say things were out of control compared to historical benchmarks. Yet The Street continued to generate all new sorts of MBS and CDO structures until early 2007 when New Century and Ameriquest failed.

Sorry, but this is a simple story of greed and those institutions, firms and individuals charged with acting in a fidicuary duty failing to perform their duties. The problem has just been exacerbated by other problems with the American consumer. FYI, look at the Fed’s historical figures of consumer debt as a percentage of income, new all time highs set every year since 2004.