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Thread: Attn: Everyone who voted Obama and yet criticizes excessive spending

  1. #121

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    Excellent, thank you. There seems to be some actual content there and this is the first time I have seen some real data behind those claims. I will certainly consider this carefully.

  2. #122

    StealthSigma's Avatar
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    Well, what you had was the free market "adapting" to these new stimuli. The 1977 CRA was supposed to allow banks to refuse risky loans still, however there were enormous costs and time of investigating these newer recipients which would cause banks to jump in without too much investigation since some other bank may jump in first. Banks make their money by charging interest, not through fees. Fees help mitigate the cost of operating the bank.

    If I take a mortgage for $100,000, the bank doesn't make any money until I've paid them $100,000.01 between interest and principle payments or they sell the loan. If I default on the mortgage after paying just $20,000 towards it, suddenly the bank now is at a loss of $80,000. There is no way, in a free market, that a bank would make a mortgage to a risky individual if they weren't confident that they could sell that mortgage to another institute. Consequently, in a free market, banks wouldn't purchase mortgages from other lending institutes without getting the information on the mortgage and doing some investigation as to whether they will make money off the transaction. That's the nice thing about loans, they're still a liability to a lending institute until that instituted has received payment equivalent to the original loan value (adjusted for inflation). Lending, unlike many other profit ventures, pays off down the line, not right away. So the concept that happens among a few CEOs of making current profit by sacrificing future survivability could not survive in the lending market in a free market, since lending itself is based upon the future, not the present.

    I simply can't fathom how people can think that banks would make loans that were highly likely to go into default by their own free will.
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  3. #123
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    If you were in debt up to your ears, your house was about to be foreclosed on, ect., & you came home & told your spouse, "It's OK honey, we'll just spend MORE money, that'll fix everything!" Would you then be single?

  4. #124
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    The idea that when you default on your mortgage that the Bank which lent you the money has taken a total loss is hogwash. They own the house. The house is a real world asset that has inherit value. The problem comes when homes were bought for more than they are actually worth. It was the inflation of home prices beyond their actual worth which now that home prices are correcting causes the huge losses to the bank. The individual defaulting only causes the lending institution to go from owning a loan to owning a home.
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  5. #125
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    Quote Originally Posted by Minimus View Post
    If you were in debt up to your ears, your house was about to be foreclosed on, ect., & you came home & told your spouse, "It's OK honey, we'll just spend MORE money, that'll fix everything!" Would you then be single?
    some people just never paid attention in school.
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  6. #126
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    Quote Originally Posted by Rafaelz View Post
    some people just never paid attention in school.
    I know it. What are we, 23rd in testing in the world now?
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  7. #127

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    Even that article says that the businesses were highly at fault because they took higher risk in anticipation of higher profit. That still doesn't show the government doing anything that forced them to take more risks; the incentives were there because it IS risky to give those loans, so it in no way absolves the businesses of responsibility.

  8. #128
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    Quote Originally Posted by Woden View Post
    Even that article says that the businesses were highly at fault because they took higher risk in anticipation of higher profit. That still doesn't show the government doing anything that forced them to take more risks; the incentives were there because it IS risky to give those loans, so it in no way absolves the businesses of responsibility.
    The government did NOT directly force them to do anything, I never said that. However, they provided an incentive for risky loans. The businesses took a jump at it because it looked good, but it turned out to be a problem.

    FACT: The risky loans would not have happened without government intervention. Take it as you will.
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  9. #129

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    Quote Originally Posted by Jono View Post
    FACT: The risky loans would not have happened without government intervention. Take it as you will.
    It also seemed like the "fine for discrimination" partway through that article also helped. (or did I misread it?)

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  10. #130

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    Quote Originally Posted by world_warrior View Post
    It also seemed like the "fine for discrimination" partway through that article also helped. (or did I misread it?)
    Yep, the CRA was an affirmative action law. Banks could lose FDIC status or be fined if they were found to be essentially discriminating by redlining. So not only did you have the federal government making an incentive towards making riskier loans, they also provided a punitive damages mechanisms which would shy banks away from doing thorough investigation to avoid the risky loans. You have to realize that even though the banks would have likely been in the right with regard to refusing loans, the legal costs of defending those punitive damages would have been high as well, possibly even more expensive than what they would take in fines.

    Lending institutes were left with three options.

    Properly research for risky loans, refuse them, pay legal fees to prove they were in the right in order to defend against litigious individuals.

    Properly research for risky loans, refuse them, pay the fine instead of going to court against litigious individuals.

    Make the risky loans, bundle a bunch as securities and sell them off the companies like Fannie Mae and Freddie Mac as soon as possible.

    Sadly, the last option was in the best interest of the lending institute. Given the environment, they took the option that was the least damaging to their company and might even have netted them a little profit between the payments from borrowers and money acquired by selling the bundled loans.
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  11. #131

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    stand by for 4 years of suck

  12. #132
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    Quote Originally Posted by MaDJaCk View Post
    stand by for 4 years of suck
    stand by for 4 more years of suck
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