techstepgenr8tion wrote:
http://www.ffiec.gov/cra/
This is an act that people have been talking about a lot lately regarding our current mortgage crisis. This (lax lending policies by mandate), compounded with the low interest rates, and the housing valuation bubble, all contributed in their own way to our subprime crisis. The subprime of course was the first dominoe which then hit Fannie and Freddie, and as well it hit Lehman, AIG, and has of course given anyone else a scare who is dabbling in mortgage equities (ie. Morgan Stanley, Goldman Sachs).
Sorry to disagree, but there was no mandate for the foolishness that caused this mess. Government at various times has tried to reduce unfairness that banks traditionally had towards minority or low income borrowers, but that doesn't come anywhere close to explaining the loans that were given out in the past 6 years. I surround myself with non-low income, non-minority people, and I know quite a few that were encouraged to inflate (ie, lie about) their income, or who got loans where the income was not even checked. My friends were offered huge loans on the assumption that rising home prices would always rise, and that real estate was always a solid investment. It should be obvious that banks were handing out loans like the neighbors hand out candy on Halloween.
Quote:
When I entered this business back in the prehistoric 1970s, commercial bankers followed the 3-6-3 rule: they paid 3% for deposits, lent them out at 6% and were on the golf course by 3 in the afternoon.
Banks were boring, but they were safe. You didn't have to worry about your money because they made loans only to those who were creditworthy and kept them on their books, so that if a loan did go sour, it would have a direct effect on the bank that made it.
This was an outgrowth of the freewheeling 1920s and the crash of 1929. It led to the Glass-Steagall Act, which separated commercial from investment banking.
Investment banks were only loosely supervised by the Securities and Exchange Commission. They could, and did, take big risks.
They magnified their profits -- and their losses --- by borrowing lots of money from the financial markets.
http://www.marketwatch.com/news/story/b ... aspx?guid={2E98DC49-EA62-4E89-AB3B-3138273C3A65}
Quote:
The credit crisis shaking the global economy is forcing a dramatic reconfiguration of Wall Street, where the financial industry in recent years has been driven to take ever-greater risks on increasingly esoteric investments.
...
Nor were government regulators fully aware of the gathering storm. They were hobbled by balkanized oversight and gaps in disclosure rules. "The problem is transparency because regulators weren't able to assess risks at investment banks in the way they are able to with commercial banks," said Mark Gertler, an economics professor at New York University.
...
In recent decades U.S. banks, facing competition from foreign counterparts that had no restrictions barring them from owning brokerages, found loopholes in the law to open or acquire new business lines. In 1999, Congress conceded to the new reality, repealing the 1933 law with the passage of the Gramm-Leach-Bliley Act.
Commercial banks moved increasingly into the traditional domain of investment houses, in some cases acquiring them outright, such as the marquee purchase of Chase Manhattan Bank by J.P. Morgan in 2000. As investment banks faced heightened competition in their traditional business lines, these enterprises leveraged up with borrowed money and went looking for profits, betting on ever-riskier securities and derivatives. That is the trend the crisis of 2008 may reverse, at least for a time.
http://www.sltrib.com/News/ci_10523793
21 Sep 2008, 3:50 pm
