So the banks didn’t do anything to cause the financial crisis?


by Sunny
4th November, 2010 at 10:02 am    

Here’s an excerpt from the New Yorker:

You’d think the Street would have learned its lesson. Instead, it’s now threatened by an even bigger back-office crisis: Foreclosuregate. Banks, faced with a flood of delinquent mortgages resulting from the bad loans they made during the housing bubble, have done exactly what the brokerages did forty years ago: they’ve cut corners. They’ve foreclosed on homes without having the proper documentation, and relied on unqualified people to sign affidavits attesting to things they didn’t know—so-called “robosigners.” In a few cases, they seem to have actually tossed people who didn’t have mortgages out of their homes.

As a result, federal regulators and attorneys general in all fifty states are now investigating. And, in the weeks since the scandal first erupted, other issues have appeared, calling into question the legitimacy of the way mortgages were packaged and sold, and raising the possibility that the banks might have to buy back piles of bad mortgages. Forecasts of “catastrophe,” “Armageddon,” and “apocalypse” have now become routine.

Doesn’t look like this crisis will explode, but it shows the extent to which banks deliberately and callously oversold mortgages. There’s still major bad debt on those books. This crisis isn’t going away anytime soon…


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  1. sunny hundal

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  1. joe90 — on 4th November, 2010 at 10:33 am  

    The banking crisis show’s the deep relationship between the politicians and the big banks.

    they look after each other like an elite boy’s club. No wonder people are angry, while joe public is made to suffer from cutbacks these guy’s at the top carry on as if they just made a typing error!

  2. Random63 — on 4th November, 2010 at 2:07 pm  

    This has been going on for almost two years and only now the federal regulators decide to get involved.

    Why weren’t they monitoring this before, and in fact, where were the federal regulators when these sub-prime mortgages were being sold in the first place?

    Allowing a credit bubble to emerge by allowing people with a poor credit history to get mortgages they had no chance of paying back is something the regulators should have got involved in when it started.

    They looked the other way and allowed the banks to shaft people. And now they are trying to make out it was nothiing to do with them.

    The federal regulators were compromised, just as the FSA was over here, and everybody knows it.

  3. cjcjc — on 4th November, 2010 at 2:47 pm  

    They oversold them but they knew that Fannie and Freddie would buy them…it was a systemic failure.

    But you are right – the foreclosure issue is a real scandal and genuinely fraudulent (as opposed to the overselling which was merely unethical…!)

    Stiglitz: We Have To Throw Bankers In Jail Or The Economy Won’t Recover

    http://www.businessinsider.com/nobel-economist-says-we-have-to-prosecute-fraud-or-else-the-economy-wont-recover-2010-11

  4. john — on 4th November, 2010 at 7:22 pm  

    Personally I blame Anwar al-Awlaki for the mess

  5. Scooby — on 4th November, 2010 at 11:05 pm  

    Who is it who claimed that the banks didn’t do anything to cause the financial crisis? Mr Fred Strawman?

    Just to be clear: the US banks wrote a bunch of subprime mortgages that flew in the face of traditional underwriting standards because the Federal government, led by Democrats, passed laws to make them do so, all in the pursuit of the kind of social engineering much loved by the Lefties who inhabit this site. The Democrats sowed the wind and have reaped the whirlwind.

  6. John Christopher — on 4th November, 2010 at 11:25 pm  

    Well I know who I DON”T blame. University students, the sick, the lame, the single mother, the feckless working class and the plain unemployed etc. Yet the CONDEMS would have you believe different. We really do live in a fucked up world….

  7. barry — on 4th November, 2010 at 11:38 pm  

    “the US banks wrote a bunch of subprime mortgages that flew in the face of traditional underwriting standards because the Federal government, led by Democrats, passed laws to make them do so”

    Well this is undoubtedly the single greatest explanation for the financial crisis I’ve seen. The banks were forced to lend money? How did this happen in practice? Why didn’t they say anything? In the world where you saw this happen do the banks not attempt to make money but instead strive valiantly for the common man?

  8. MaidMarian — on 5th November, 2010 at 1:30 pm  

    cjcjc – I’d agree, but the even greater scandal that is not being reported on is monoline insurance.

    http://seekingalpha.com/article/61420-monoline-insurance-bailout-where-s-the-justice-in-that

  9. Scooby — on 5th November, 2010 at 3:17 pm  

    The banks were forced to lend money? How did this happen in practice?

    The Community Reinvestment Act 1977, d’oh. Educate yourself if you are going to comment on US banking history but only have Socialist Worker UK for a guide.

  10. John Christopher — on 5th November, 2010 at 4:34 pm  

    Maid Marian

    Thanks for the headz up but could you please explain in laymen terms exactly what is going on above and beyond I smell a rat. Much appreciated.

  11. barry — on 5th November, 2010 at 7:09 pm  

    “The Community Reinvestment Act 1977, d’oh. Educate yourself”

    From the Federal Reserve Board website (perhaps a better authority on this than the troll-ammo site you linked to):

    “Nor does the law require institutions to make high-risk loans that jeopardize their safety.”

    So no forcing going on there. But wait, what’s this:

    “To the contrary, the law makes it clear that an institution’s CRA activities should be undertaken in a safe and sound manner.”

    Quotes taken from here: http://www.federalreserve.gov/

  12. Scooby — on 5th November, 2010 at 8:15 pm  

    From the Federal Reserve Board website (perhaps a better authority on this than the troll-ammo site you linked to)

    The article I linked was written in 2000, examined the history of the CRA, and predicted that it may well lead to a financial catastrophe. You’d realize that if you had bothered to read it.

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