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09/29/2008

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WSJ has, however, been talking about this eventuality for quite some time in its various sections.

I just wish I'd stayed in Korea an extra year at this point.

Yes, mortgage defaults are the original problem but without the insane proliferation of derivatives this would be a market correction, not government nationalization of the banking industry....

Ah yes....now we've finally used the "d" word in the discussion and can move past the subprime canard. If subprime is the fuse just wait until you get to see the explosives! There are over a quadrillion dollars at risk in outstanding derivative contracts still floating around out there just waiting to go bad. Its time to let the Henry's Paulson of this world get bloodied! It will be unpleasant for all of us I concede but maybe real reform will come of it..no more papering problems over!

I'm glad you took steps to protect yourself Wally!

Hats off.

Yeah, we got a mortgage--as it happens, a payment option ARM with a conversion feature is perfect for how we create income--in the spring of 2006. After observing the process of how our home and income were verified and qualified, we looked at each other and officially plotzed.

Got every damn penny out of the markets and into laddered CDs at multiple FDIC-insured institutions before July 1st of that year. IndyMac was giving away the store up until it failed, at which point all our fellow taxpayers kicked in to cover the risk. Sweet!

And if my in-laws, siblings and friends who teased me about being so damn fiscally conservative I'd never get ahead are reading this...well, I tried to explain it but you called me Chicken Little. Despite that: Yes, you can stay in the guesthouse, but you now need a firm move-out date and a reservation.

"This downturn was not a surprise."

In fact, Peter Wallison, of the American Enterprise Institute, predicted the need for a bailout nine years ago. He said,

''From the perspective of many people, including me, this is another thrift industry growing up around us... If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

"And to those who blame this on efforts to get minorities into home ownership, even WSJ couldn't find a way to pin it on poor people."

It's not the "poor people" (Newspeak for "blacks, Hispanic, and other improvident minorities") who are responsible; they merely took advantage of what the lending institutions were forced to offer them. And who forced them? Congress. The whole mess--more recently endorsed by W as well--comes from the mistaken notion that there are "barriers" to minority home ownership. Those "barriers" are the standards of creditworthiness that have been in place for decades: verifiable income; a Social Security number; a credit score that indicates the ability & willingness to repay debt; a history of debt repayment; and the like. The PC-driven liberals determined that it was "racist" to apply sound business practices--the same ones that used to keep banks and other lenders solvent--to "poor people." It's all part of the liberal drive for equality of outcome--an impossible goal--rather than equality of opportunity, a goal more closely reached in the modern US than anywhere--or anytime--else in history.

The WSJ may not have been able to locate the blameworthy parties, but the New York Post (second link above) did.

Squid,
I will concede your point about an ill-conceived plan to boost minority home ownership. The data, however, shows that it is not particularly germane to the current problem. The bulk of troubled loans are located in predominantly white, upper-middle class and wealthier areas. This is primarily a case of the haves attempting to have more in terms of housing than they could afford, not the result of a misguided entitlement attempt for the have-nots. The mere fact that the problem you point out is genuine does not make it causal for the current financial crisis.

I'll meet you partway on this one, Wally. This big problem has many elements, and it is naive to point out only one as the source (which was not my intention; I wanted balance).

Having said that, one of the main sources of the current imbroglio is the relaxed "standards" imposed by the Community Reinvestment Act. The CRA was designed to lower lending standards for minorities and illegal aliens. Bankers let some of that looseness flow over into their assessment of the white middle class, who, as you noted, wanted more house than they could reasonably afford. After all, bigger mortgages mean more money means higher profits, so, as I noted elsewhere, greed and the amoral education that undergirds it were also in play.

On top of that, of course, is the derivative market and all the other financial shenanigans and legerdemain engaged in by the finance industry--also motivated in no small part by greed.

So while the sub-prime mortgages held by minorities and illegal aliens may not represent the largest number of defaults, the rules set in place that established sub-prime mortgages in the first place, rules designed to benefit that particular demographic but also used by others, must be assigned a large portion of the blame.

Squid, I work as a volunteer consultant to an entity that lends CRA funds, and that is the basis for my assertion that you're wrong.

CRA funds distribution requirements are so damn stringent that as a successful enough entrepreneur to be advising the non-profit board, who is demographically eligible for services, I can't qualify for the lending. (Why? Don't have enough W-2 income.)

Community lenders have been holding the tightest purse strings in North America since at least 1998, which is when I got involved. There are more second mortgages and maxed out credit card dollars floating lower-income households than CRA dollars.

Also, you're an idiot in the arena 'what is the CRA?', likely because you get your news from Rush the Pill Freak. The CRA outlawed redlining (look it up) but didn't mandate any change in lending practices for banks other than that.

I listened to Rush once, in 1996. I saw through his tactics and have ignored him since.

I actually got much of my info from this NY Post article. Do you disagree with what it has to say?

Finally, why do you have to resort to insulting me? Is that the only way you know how to "debate"? Can't you disagree without being disagreeable? What is wrong with you?

As I noted earlier, we are witnessing the Death of Politics. Intellectual discourse is distant memory, common courtesy is a long-forgotten notion, and all that's left is insults for those you disagree with.

Count me out.

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