How we got in this financial mess

[slowz1k]

Hey people,

I found this video that describes in pretty good detail as to how we got into this financial mess and what we can probably expect in the near future. I'm sure most of you already know this stuff, but I thought I'd share anyway.
The video is pretty long, but it's produced nicely and rolls along fairly quickly. It starts the ball rolling with the Dot Com burst, so it never really mentions the Clinton years and the Community Reinvestment Act that (In my mind) really put us on the road to ruin. I guess the real point is not why or how we got here, but where we're heading. Anyway, here's the link:

http://www.youtube.com/watch?v=4ECi6WJpbzE

[Survivorman]

As you said this was very long so it would take hours to discuss all the things they touched on. Buying bonds with rates of return that are not possible. Buying new cars left and right. Taking out 125% mortgages. It is not a matter of if but when everything is gonna come flying apart.

[syrinx]

without even watching the video its very simple; banks and super mortgage holders, paid the house and senate to deregulate the process for qualifing to buy a house and or loan, capitalism only works if its regulated.
;

[Rednekdaddy]

I have the real short answer as to when this mess started. It all started a slow road to hell when former president Nixon removed the United States off of the gold standard. I do believe that was when all of the financial decline of our economy. But that is just my humble again.

[cbprice797]

Syrinx please do not make statements that you are not informed of. WHen it comes to the reason for the housing crunch it was not due to DEREGULATION, it was due to NEW regulations that Congress instituted. And te reason I am aware of this is my close connection to both the housing AND mortgage industries. This is how Congress screwed up the housing industry.

Barney Frank and his committee decided that it was the "RIGHT" of every American to own a home. As we are all aware, hopefully, that is not a right. Now in order to do this the committee had to make people that in the not so distant past would NOT qualify for a mrotgage loan able to now magically qualify for said loan. So like the government so often does they set a quota for ALL mortgage lenders to follow. That quota was orignally 40%, later raised to 50%, of ALL loans that were made MUST be made to people that were considered "AT RISK" loans. Now an at risk loan is one that in normal times would not have been made because the mortgage lender sees too much risk in lending money to that person and would not do it. But now there were MILLIONS of people that were at risk loans that the GOVERNMENT said had to be allowed to buy a home.


When the mortgage lenders were first told to do this they informed the new regulartors that if they did this then they would all go out of business when the loans that were made started defaulting. So in order to get the mortgage lenders to go along with this scheme the lenders were GUARANTEED they would lose no money on at risk loans because the GOVERNMENT would buy them at a discounted rate. Enter Fannie Mae and Freddie Mac. These two institutes now were buying bad loans from mortgage lenders and then started securitizing these loans as mortgage-backed securities,ever heard of those? Now in 2003 when the BUSH administration, and that administration ws not a very good one, tried to get Fanni Mae and Freddie Mac under Congressional oversight and get their books in order they were blocked by various Democrats, lead by Barney Frank. So the train continued building up speed until it became a runaway train. By the time 2008 rolled around there was no stopping the train and it went over the cliff and the housing industry went with it.

Now for a couple of anecdotal stories that are rlevant to this. First, my mother was in the real estate business until 2007 when she retired. She would tell me nearly every time I saw her of someone that she sold a house to that they could not afford bt due to thenew lending laws this couple bought a 200k or 250k house. In the Fayetteville area of NC that kind of money will get you a nice house 2k sq ft, garage, 1/4 to 1/3 acre lot, all appliances, sometimes granite counter tops, slate or tile floors, well you get the idea. And sometimes it was even more because the builders wanted you to buy thier home not the next one down the road. She would call these people future foreclosures. And my mom would sit with people and get their income and try to get them something in their price range. But this seldom worked. They wanted that new house and they could get it with the new relaxed lending rules.

At the same time I was working in the mortgage industry until early 2008, I saw the end coming fast and got out unlike nearly all my associates. I tried to tell them that they were going to be hard pressed for new loans when the market tanked and I got laughed at. They said "This market is booming, and the government wont let all these people go belly up. Besides we already got all our money." When I tried explaining that they would not be getting more money when the housing tanked hey again would not listen. BUt I digress. We in the mortgage industry called these people who really could not afford a home ,except for the government stepping in and saying it was their "RIGHT", a Christmas Goose. These loans would make us money and get the couple the home that would soon be forclosed on. Now don't think that I am a big bad mortgage guy for lending to these people. Remember, we were FORCED to loan to them or be fined. We had to make 40% of our loans, later 50%, to what the industry and the government termed "at risk" borrowers.

Sorry for the length but I hope that clears up what happened in the housing crisis syrinx.