No, really (kinda).

http://en.wikipedia.org/wiki/Glass-Steagall_Act

On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal is it allowed commercial & investment banks to consolidate.

We could've never had this lovely mess without good 'ol Bill. Repealing Glass-Steagall is what made the mortgage securities market possible. I love how he always gets credit for a good economy, even though his economic policy inflated the dotcom bubble and laid the groundwork for the subprime mess.

You'd think he'd be a little slower to repeal an act that was ratified to help prevent another Great Depression from happening again.

So Clinton signed into law the repeal of an act authorized by the Republican Congress (Gramm and Leach, at least, are both Repubs -- no idea about Bliley), an act that wasn't renewed by the Republican Presidency/Congress, and he is entirely at fault?

The subprime mess resulted in large part from imaginative financing practices, investment in and selling of loan packages, and ever growing home prices (growing in large part because of all the above investments). GLBA might have further enabled the system, but you seem to be blaming the community's alcoholics on the opening of a liquor store.

Part of me wants to blame the group of realtors/morgage brokers that seem to artificially inflate the value of homes through shady practices.

I can see that move by Pres Clinton as an oopsy rather than intentional. Tho now that I think of it wasn't his wife involved in some sort of land grab scam years earlier?

Clintons play dirty as dirty is and they are rewarded for their actions over the years. Only have ourselves to blame (yes I voted for Clinton the first time )

Ahhh, so Fandros is to blame for our economy's collapse! Nice going!

Ahhh, so Fandros is to blame for our economy's collapse! Nice going!

oh great job fandros, why dont you just go around suffocating poor old people with a pillow?! you bastard!

I was hoping to rile up the Clinton worshipers, but never expected such a quick reaction!

The subprime mess resulted in large part from imaginative financing practices, investment in and selling of loan packages, and ever growing home prices (growing in large part because of all the above investments).

Without that act being removed, none of this would have happened.

Home prices didn't spike due to legitimate demand. The artificial demand was a result of the derivatives market funding the mortgage brokers. This mixing of securities and commercial banking would have never happened without Clinton's help.

This sort of speculation driven bubble is precisely what Glass-Steagall hoped to prevent.

GLBA might have further enabled the system, but you seem to be blaming the community's alcoholics on the opening of a liquor store.
That analogy doesn't make any sense to me. Maybe you could say I'm blaming the community's alcoholics on the mayor changing zoning so that dozens of new 24/7 bars opened.

Without that act being removed, none of this would have happened.

This mixing of securities and commercial banking would have never happened without Clinton's help.



Nice suppositions, but you have not offered any proof to support them. Where is the evidence that proves either of those statements?

Tho now that I think of it wasn't his wife involved in some sort of land grab scam years earlier?



Ummm, would that be the Whitewater real estate deal that they were unable to find anything illegal in their investigation?

Nice suppositions, but you have not offered any proof to support them. Where is the evidence that proves either of those statements?

Bad loans could not have been offered as derivatives as long as Glass-Steagall stood.

That was the central, primary goal of the act, not supposition:

Reasons for the Act - Commercial Speculation

Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

After watching speculative lending trigger the Great Depression, this separation of securities and banking was so important to them that it was more important than the FDIC, which was also established in this legislation. As important as we think the FDIC is today, it's just a band-aid compared to how important Glass-Steagal was.

Here's my understanding of the mess... correct me if I'm wrong (duh, of course you will) :

Basically, we have all these organizations (banks? etc) that share huge amounts of debt. Instead of one bank taking on a mortgage for a homeowner, there are hundreds of banks sharing that same debt... so if the owner faults on his debt, it doesn't hurt one bank but the pain is spread around.

So now, when you have so many people using their mortgages as an ATM, without any real reprocussions (whether politically by way of less regulation or whatever) the whole house of cards begins to fall. Not just one bank getting hurt as was the design, but all of them are ... so we now have an entire sector of our economy getting kicked in the teeth for doing business like everyone else does in their sector.

Right?

Here's my understanding of the mess... correct me if I'm wrong (duh, of course you will) :

Basically, we have all these organizations (banks? etc) that share huge amounts of debt. Instead of one bank taking on a mortgage for a homeowner, there are hundreds of banks sharing that same debt... so if the owner faults on his debt, it doesn't hurt one bank but the pain is spread around.

So now, when you have so many people using their mortgages as an ATM, without any real reprocussions (whether politically by way of less regulation or whatever) the whole house of cards begins to fall. Not just one bank getting hurt as was the design, but all of them are ... so we now have an entire sector of our economy getting kicked in the teeth for doing business like everyone else does in their sector.

Right?


LOL...you honestly believe that banks are hurt by foreclosing? Thats how they get assets. Also, one can only use a mortgage as an ATM if a bank lets them.

You can feel corrected now.

Let's see... woman buys a home from some dude for $350k. Dude retires to Florida. Woman ATM's here home with an ARM ... ends up with $450k loan on a house that was worth $350k at the original sell.

Market goes to shit, woman can't pay mortgage... goes bankrupt and loses her ass. Bank left with $450k mortgage and has to sell the house to Kelraz for $300k.

Just how does the bank make out on this? I'm not saying they lack responsiblity in this.... but the -$150k hit doesn't seem positive to me.

Bad loans could not have been offered as derivatives as long as Glass-Steagall stood.

That was the central, primary goal of the act, not supposition:



After watching speculative lending trigger the Great Depression, this separation of securities and banking was so important to them that it was more important than the FDIC, which was also established in this legislation. As important as we think the FDIC is today, it's just a band-aid compared to how important Glass-Steagal was.

Still, no proof of your suppositions. What proof have you that it would not have been done by Bush? With his penchant for aiding business and money institutions, why would this not have been signed off on by Bush as easily as by Clinton? And who brought it and why was the matter brought before him in the first place? And those same people would not have brought it before an even more pro-business president if Clinton had said no?

This is just idle questioning on my part of an idle supposition on yours. :p

Using home equity as an ATM became more prevalent with the subprimes. We had people without an iota of financial sense sitting on top of artificial equity, so it was to be expected that they would act irresponsibly. It's not really a key problem though.

The most fundamental problem that caused the mess we're in is that risk and reward were decoupled throughout the entire process. It should never be profitable to make a loan to someone you don't think will be able to repay it, yet that's exactly what was happening.

For 65 years, Glass-Steagall made sure the risk and reward buck stopped at the same place.

Still, no proof of your suppositions. What proof have you that it would not have been done by Bush? With his penchant for aiding business and money institutions, why would this not have been signed off on by Bush as easily as by Clinton? And who brought it and why was the matter brought before him in the first place? And those same people would not have brought it before an even more pro-business president if Clinton had said no?
Oh, I'm pretty sure you're right that Bush would have done it in a heartbeat, if Clinton hadn't.

I was just pointing out that Clinton fucked us over on that one before Bush even had a chance!

Let's see... woman buys a home from some dude for $350k. Dude retires to Florida. Woman ATM's here home with an ARM ... ends up with $450k loan on a house that was worth $350k at the original sell.

Market goes to shit, woman can't pay mortgage... goes bankrupt and loses her ass. Bank left with $450k mortgage and has to sell the house to Kelraz for $300k.

Just how does the bank make out on this? I'm not saying they lack responsiblity in this.... but the -$150k hit doesn't seem positive to me.


First of all the bank is patently stupid for lending 450k on something worth 350k

Woman see's house she likes, it is on the market for 450k, woman goes to bank for mortgage. Bank offers woman a no doc loan for having 20% down, woman gives 80k + to bank, bank then borrows money from the fed (fed creates money out of thin air) bank lends money it borrows from fed to woman.

Bank now has 80k+ in its pocket, woman pays mortgage for a year (payment is 99.9% interest - almost no principal)

Bank has another 30-40-k interest in its pocket, bank now has 120k in its pocket from woman.

Woman stops paying, (remember if she files bankruptcy she has to pay so bank doesnt lose there)

Bank forecloses, gets judgement against woman, tells fed they have judgement, fed short sells their loan to bank.

Bank sells house for 300k, and now has 420k in its pocket, fed short sold loan, bank pays fed 225k

Bank profits 195k, just for writing a bad loan to a woman that they knew was not capable of paying the loan (which is why they love no doc loans to avoid regulators)

Welcome to the world of business...feel corrected again.

Most of the loans that crashed the thing didn't have down payments. Even with a bad credit score, you could get a no down payment subprime.

Let's see... woman buys a home from some dude for $350k. Dude retires to Florida. Woman ATM's here home with an ARM ... ends up with $450k loan on a house that was worth $350k at the original sell.

Market goes to shit, woman can't pay mortgage... goes bankrupt and loses her ass. Bank left with $450k mortgage and has to sell the house to Kelraz for $300k.

Just how does the bank make out on this? I'm not saying they lack responsiblity in this.... but the -$150k hit doesn't seem positive to me.

That is exactly how it happened. But its not $150k. First, you needed a pretty damn good credit score to get a 0% down mortgage. Odds are she put at least 10% down, and she made payments for 6 months so thats $50,000 at least towards principal. However, in this scenario she also put in hard wood floors and another bathroom and granite counter tops before the foreclosure and thats probably $20,000 worth of work. So we can call it -$130,000.

Going deeper into this, my inspector told me he's inspected a few hundred foreclosures over the course of his life. Many the families are so pissed they are about to lose their house they trash it on the way out costing thousands of dollars in repairs (at the bank's expense) or lowering the property value. The bank also needs to pay a realtor (3%) to sell the property, or an auction house. The bank also in my case was paying $70 / month in home owner dues and definitely some taxes, hence why they were so willing to give me a $429k house for $317k. They can write that off as a loss and get some tax savings, but if this happens to you many times over that has to hurt.

Most of the loans that crashed the thing didn't have down payments. Even with a bad credit score, you could get a no down payment subprime.

There were those 110% or more loans which the banks baited people with. The banks chose to make these loans, they were not forced into it, they didn't do their jobs or in other cases blatantly ran circles around regulations.

Real estate is an asset that banks want and many of these sub prime loans are purposely forced into forclosure by banks who have no desire to service the loans, also, most of the original loan makers sold the loans and the bottom line is they aren't holding the paper at foreclosure time.

Mark my words....watch what is coming with Lehman Bros...they are notorius for forcing foreclosures simply by refusing payments.

How many banks are going out of business due to this? How many banks have you seen go out of business in your lifetime?

Get a clue, a bank hasn't lost since 1929.

How many banks are going out of business due to this? How many banks have you seen go out of business in your lifetime?

Get a clue, a bank hasn't lost since 1929.
That is purely due to the FDIC and assorted government bailouts.

More than 1,000 S&Ls failed in the late 80's alone, but were bailed out by hundreds of billions of dollars of tax money.

Bank now has 80k+ in its pocket, woman pays mortgage for a year (payment is 99.9% interest - almost no principal)
Quick tangent: out of curiosity, what determines how much of a payment is interest and how much is principal? Can you choose to pay extra to reduce the principal early?

(I'll be living in an apartment for the foreseeable future, I'm just curious for when the time comes that it'll be appropriate to buy a house.)

Quick tangent: out of curiosity, what determines how much of a payment is interest and how much is principal? Can you choose to pay extra to reduce the principal early?
The vast majority of the time, you can pay it down as quickly as you're able. There are sometimes prepayment penalties for paying high amounts (say 1/5 the loan balance in a year), but even then they aren't usually as expensive as the interest you'd have paid otherwise.

Oh, I'm pretty sure you're right that Bush would have done it in a heartbeat, if Clinton hadn't.

I was just pointing out that Clinton fucked us over on that one before Bush even had a chance!

I think there is a lot more to this than saying Clinton fucked us without any additional info as to who brought it to his desk for a signature, and why? Was it part of a larger piece of legislation, or attached to something else that was deemed "important"?

This is too general of an issue atm for me to point fingers at Clinton, or anyone else. I need to know if this was a Presidential Order, like the ones Bush is so fond of, or a part of a larger bill, or a case of simply having a signing statement get lost in the shuffle of paperwork, or what.

I am not looking to defend Clinton as much as I am looking to find out if the blame is justified due to a specific decision on a specific matter.

I think there is a lot more to this than saying Clinton fucked us without any additional info...We've been there and heard that one before :p

How many banks are going out of business due to this? How many banks have you seen go out of business in your lifetime?

Get a clue, a bank hasn't lost since 1929.
http://www.fdic.gov/bank/individual/failed/banklist.html

Re-appropriate a clue, as necessary.

I think there is a lot more to this than saying Clinton fucked us without any additional info as to who brought it to his desk for a signature, and why? Was it part of a larger piece of legislation, or attached to something else that was deemed "important"?
It wasn't a rider bill, if that's what you're asking.

The Gramm-Leach-Bliley act (http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act) is what Clinton signed to reverse Glass-Steagall. It was specifically aimed to loosen regulations on the financial and insurance industries.

If you can't hold the President responsible for the legislation he puts his signature on, who can you? Can we excuse Bush for the Patriot Act, by that same logic?

Banks dont want the houses back,. Hell alot of the notes are tied up into securities sold by wall street. detangling who actually owns them is a mess in and of its self. Lots of people made money the whole ride up to this point. From realtors, loan originators and banks who signed off without so much as a pay stub to qualify.

Those hurt by the mess more are those who bought into the market, see forclosures all around there neighborhood and cant sell there house without a huge loss.
One of the more common denominators of last 6 months is people who paid off all there debt with the house equity. decide its not worth it since its upside down and walk away only facing a forclosure on there credit. Keeping all there credit cards paid off cars ect. The banks never thought they would walk from there home to save there credit.

Bankruptcy changes in the law hasnt stopped the tide of filings which have been increasing in high double digits percentages. They made it harder to file for a chapter 7 but few that are filing are bieng forced into the ch 13 plan, 60% of those that file ch 13 are turning around and filing a 7 within 6 months so it back fired on the credit institionalised there as well.

The goverment has been working on repeals and lessoning the standards that the banks rail roaded into action in 05. So BK isnt stopping anyone.

I know alot of loan origniators and realtors looking for new work now. they lived high on the hog for a long time. Even I in the improvement business saw astronimical growth. I knew people where prolly screwing themselves. But then Ive seen my share of people who I sold a few years ago who played the system. Buying alot more than they can afford buying mulitple properties off of inflated values on there main residence with little to no money down we have all seen the late night tv pitch man.

My best friend is one who si getting screwed atm from the market change he finally decided to buy a house, Not having any credit ohter than a car and rental history with no late payments he is having a hard time getting approved. Worked for same hospital for almost 20 years but always paid everything in cash and never had a credit card. Its how he was raised and believed in living he is so pissed right now, understandably.

Its about to go back to double digit loan rates 11% + interest rates for homes ect. Its amazing many dont remember that it wasnt that along ago it was a reality. I was in my early teens back then when the 80s destroyed the economy and houses set idle. Its a good time int he comming two years to take advantage of the market if you have cash or gold. cause it will all cycle around again. anyway Im ranting. The signs have been on the wall for a long time. Some are closer to the effect or industry than others but it gets felt by all.

Me Im saving to put a downpayment on 500 acres of land and become a farmer rancher. Never thought I would. but with the rest of the world wanting to eat like americans and the cost of food crops sky rocketing its a prety sound bet. Deer leases not withstanding.

It wasn't a rider bill, if that's what you're asking.

The Gramm-Leach-Bliley act (http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act) is what Clinton signed to reverse Glass-Steagall. It was specifically aimed to loosen regulations on the financial and insurance industries.

If you can't hold the President responsible for the legislation he puts his signature on, who can you? Can we excuse Bush for the Patriot Act, by that same logic?

That answers my question, regarding being a rider. And, it is a bit silly comparing the Patriot Act to this. Seeing this was a solitary measure, then yes, it is obvious that Clinton messed up much more than just a blue dress.

BTW: my mail route is in a fairly affluent area, with homes going from 400k to over 1 million. There are at least eight houses that have been on the market for over one year, and the speculators are still building seven figure homes that are sitting vacant, for want of buyers. The folks that are finding themselves unemployed and having to sell their homes due to bankruptcy are not able to sell because of the new homes being built around them offering even fancier extras for not that much more money. People are taking real beatings with this market.

Buying alot more than they can afford buying mulitple properties off of inflated values on there main residence with little to no money down we have all seen the late night tv pitch man.


Every time i see one of these I wonder. If you can really make a million dollars a week sipping coffee in your underwear from your PC. then why are you making such a great effort to push your get rich scheme for 40$ a pop?
Somewhere in heaven PT is laughing his ass off!!
I doubt you'll ever be able to quantify with numbers the exact effect on this fiasco that this buy now, buy many, Invest in real estate, Invest NOW, leaverage yourself, leaverage yourself mentality really played into this. but knowing how easily manipulated by media the vast majority of Americans are i bet it played it's part.

BTW: my mail route is in a fairly affluent area, with homes going from 400k to over 1 million. There are at least eight houses that have been on the market for over one year, and the speculators are still building seven figure homes that are sitting vacant, for want of buyers. The folks that are finding themselves unemployed and having to sell their homes due to bankruptcy are not able to sell because of the new homes being built around them offering even fancier extras for not that much more money. People are taking real beatings with this market.
I'm seeing the same thing here.

It's rotting from the inside out, while developers are trying desperately to finish out developments that they're already mired in. No one is winning anymore.

Banks dont want the houses back

Oh yes they do.


This was interesting from the small list of extremely small banks that closed over the past 10 years. Those banks were mostly one branch banks.


Continue to make your loan payments according to your contract terms.

Heres why I know that they want the house...look up "Aurora Loan Finance complaint" that is just one example. They are also known as Lehman Brothers.

What they do is double escrow payments and then refuse to accept payment of the correct amount, they then add on thousands of dollars in attorney fees and push houses into foreclosure.

They are fully aware of what they are doing, they want one of two things, pay the incorrect amount over your actual payment or they foreclose on you. Either way they win.

Quick tangent: out of curiosity, what determines how much of a payment is interest and how much is principal? Can you choose to pay extra to reduce the principal early?

(I'll be living in an apartment for the foreseeable future, I'm just curious for when the time comes that it'll be appropriate to buy a house.)

My mortgage is 5.75 percent interest 30 year fixed. For a $317k loan I'll end up paying over $700k for the house if it takes me 30 years. So I'm paying $500 extra a month towards principal which will chop almost 10 years off. Just gotta make sure you get a mortgage with no early pay penalty. I also set up bi weekly payments so I get a head start on the interest (2 weeks less of interest on half a payment) which cuts another 2 years off.

Today you can probably get a 5 percent loan too with the lower rates! The sad thing is most people don't think that far ahead and don't mind paying almost double what their house costs by only making the minimum payments even when they're able to make more. Now a days you can't get more than 4 percent in a savings acct so you may as well knock off the debt and in turn pay less interest on that debt. When interest rates go back up it'll probably make more sense for me to put the cash in a savings acct or CD.

"Now a days you can't get more than 4 percent in a savings acct so you may as well knock off the debt and in turn pay less interest on that debt."

Except you also get a tax deduction for mortgage interest paid so assuming your average tax rate is 30%, your effective mortgage interest on 5.7% is 3.8% (I think I did the math right).

You will eventually have to pay taxes on the interest earned in a savings account or other investment vehicle, but if you can put it in a tax deferred account, 529 plan, 401(k) with matching funds, etc., you might be better off than paying down your mortgage.

You should also make sure your not getting charged a service fee or extra cost to set up the bi-weekly payments. A lot of banks charge to set that up when you could simply submit two extra mortgage payments per year.

BTW: my mail route is in a fairly affluent area, with homes going from 400k to over 1 million. There are at least eight houses that have been on the market for over one year, and the speculators are still building seven figure homes that are sitting vacant, for want of buyers. The folks that are finding themselves unemployed and having to sell their homes due to bankruptcy are not able to sell because of the new homes being built around them offering even fancier extras for not that much more money. People are taking real beatings with this market.

Well thats not too surprising though. A 30 year old house that sells for $400k here can be built for $200k. Its a matter of land costs and the developers already bought that land, if they only make $150k returns on it instead of $200k they are gonna still take it now.

[quote=Kelraz Bladesinger;135758] A 30 year old house that sells for $400k here can be built for $200k. /quote]

The oldest house for sale on my route for at least the last 12 months is under 15 years old; the majority of homes on my route are under 15, and many under ten.

You can still build a 0 year old house cheaper than buying that 10 year old house, land included, in most places. Thats why you still see new developments popping up all over the place. House costs are so ridiculously high because of the boom of the past 5 years while there are so many contractors that need the work. It'll settle down, but no time soon.

Try to build a new house for the same amount of money AND have the same drive time you needed to downtown DC Kel...

This has been a fun read. You guys have covered many aspects of this from different perspectives.

I don't have much to add ... but a few points.

I do think this is cyclical.

I have seen friends lose their homes and file for bankruptcy but it was all their own fault. I even told them that. They try to place the blame on stupid shit but ultimately they took what ever they could and lived beyond their means.

Now they are trying to climb out of a deep hole and the only tool they have is a shovel so they only go deeper.

This was interesting from the small list of extremely small banks that closed over the past 10 years. Those banks were mostly one branch banks.
Is Bear Stearns big enough for you?

Heh: http://consumerist.com/381032/blame-the-subprime-meltdown-on-the-repeal-of-glass+steagall

Phil Gramm's current job? Finance adviser for John McCain.

As was pointed out by a poster in the link supplied, it was a Republican Congress at the time Clinton signed the legislation, so let's let the blame flow freely to all those elected lawmakers who had a hand in this.

As long as that standard applies equally to Bush and this Democratic Congress.

As long as that standard applies equally to Bush and this Democratic Congress.

Hehe, that should not be difficult; has he signed anything they passed yet?

The minimum wage bill. You know, to benefit the rich. Oh, wait!

You can see most of what the 110th Congress has "accomplished" here: http://thomas.loc.gov/bss/d110/d110laws.html

Looks like they've spent about 90% of their time renaming Federal buildings.