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Edited by Mrph1 on Nov 30th 2023 at 11:03:59 AM
The consumers were the ones committing fraud by lying about their income and their ability to pay back their loans, you do know this right? All the banks (catalyzed by the Fed's lenient monetary police) did was assume people would pay back their loans using the same logic as those people. It was flawed logic, but few people at the time knew this. The banks don't want people to take out loans they can't pay back, it's bad for business.
edited 15th Feb '16 9:58:50 AM by Nihlus1
I've never engaged in real estate before but I've worked in auto lending.
In the case of an auto lien, the consumer rarely submits the loan to the bank. More frequently, it's the middleman auto dealership acting on their behalf. We had an department set up for pursuing reimbursement from the dealer for what we called Equipment Misrepresentation on repossessed vehicles. EM is when the dealer openly lies about the equipment on the vehicle. $500 for power locks that don't exist, $1,000 for a sunroof the car doesn't have, etc.
In these instances, the consumer never even sees the equipment contract. It's part of the paperwork between dealer and lender, not part of the agreement between customer and dealer. The consumer just signs the reasonable-sounding paperwork with a rough value of how much the car costs, blissfully unaware that the dealer is swindling them out of $2-5k in fraudulent claims so they can skim some money off the top.
I once saw a car with over $10,000 in Equipment Misrepresentation. 40% of a $25,000 loan was a lie. Tragically yet inevitably, the loan ended in repossession.
If real estate is anything like auto lending, then I have difficulty blaming the consumer for the actions of realtors.
edited 15th Feb '16 9:54:19 AM by TobiasDrake
My Tumblr. Currently side-by-side liveblogging Digimon Adventure, sub vs dub.The problem with the banks wasn't that they made loans to people who couldn't pay them back. That happens. The house gets foreclosed on and everyone moves on. It's just a fact of the financial market.
The problem was that banks were selling risky loans to each other as non-risky ones, so the banks didn't know the amount of risk they were taking on. Banks can plan for some percentage of their loans defaulting, but not if they don't know how risky the loans they have are.
If Bank A gives me a loan that's considered risky (because it's more than I can easily afford and there's a reasonable chance I'll default on it), then it's not my fault if Bank A turns around and sells my risky loan to Bank B as a non-risky loan, which then bites Bank B in the ass when I default on it because they weren't expecting me to do that.
The personal responsibility of someone taking out a mortgage begins and ends with the mortgage. I default on my mortgage, I lose my house. That happened. That happened to a lot of people, actually, and no one's suggesting that they should be able to keep the house they can't afford.
But blaming those people for the collapse of the economy is asinine.
Really from Jupiter, but not an alien.It is undoubtedly true that there were consumers submitting knowingly fraudulent mortgage applications to "cash in" on the rise in housing prices. However, all of those people were foreclosed on fairly early in the process. Had the damage been limited to them, there would not have been such a huge crisis.
The reason why everything blew up was the web of shadow banking that had grown around the mortgage bubble. That caused the whole credit system to seize up.
There was also the fallout to perfectly responsible consumers (like me) who had bought homes in the rising market that we could easily afford, but suddenly found ourselves with negative equity when the market bottomed out. This blocked the usual avenues of credit that might be available in the event of a crisis, such as losing our jobs, or to consolidate debts, invest in our properties, take vacations, adopt children, or similar major expenditures.
If you are going to tell me that I was committing some kind of fraud or malfeasance to buy a home in 2001 and then borrow against my equity in 2006, then I would like to, respectfully, punch you in the face.
But seriously, portraying banks as some kind of innocent victims in the whole affair is unbelievably ignorant and quite possibly intentionally trolling.
Correct.
edited 15th Feb '16 10:08:52 AM by Fighteer
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"To put it as simply as possible.
I give you a loan I know you can't pay back. I then sell your debt to someone else telling them that you can pay them back.
Debt is asset like any other that can be bought and sold and traded. That is what crashed the economy.
Not the existence of the debt itself but the way it was traded.
Oh really when?BTW, the banks would be legally obligated to tell you that they can transfer the loan. So if you took it out while knowing that, it's still your fault.
What you are doing is basically the same thing as blaming money for the existence of gambling.
edited 15th Feb '16 10:14:59 AM by Nihlus1
edited 15th Feb '16 10:18:17 AM by Fighteer
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"edited 15th Feb '16 10:21:28 AM by NativeJovian
Really from Jupiter, but not an alien.I dunno
Sounds kinda hard to believe or blame the people for making some sort of concerted effort to bring down the economy by going to lengths to not pay their homes, when compared to stupid practices by banks
It has always been the prerogative of children and half-wits to point out that the emperor has no clothesThe reason why everything blew up was the web of shadow banking that had grown around the mortgage bubble. That caused the whole credit system to seize up.
This, by the way, is exactly why the reform has been aimed at increasing interest and lending standards, rather than, say, making the practice of selling mortgages illegal.
Yeah, we're done with Mister Internet Tough Guy here.
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"But the consumers werent the ones who were able to look at the large picture or who handled the vast majority of the money. Those were the banks.
It has always been the prerogative of children and half-wits to point out that the emperor has no clothesEDIT: Seriously? I mean, I knew this would happen sooner or later, but...we've banned someone for breaking the circlejerk again?
Help me out here, where's the line between saying you want to 'respectfully' punch someone in the face and what Nihlus was doing?
edited 15th Feb '16 10:40:31 AM by Achaemenid
Schild und Schwert der Partei@Nihlus: It doesn't matter what the majority of investors were doing, it matters what the market drivers were doing. I did not say that the hedge funds were driving it, I said that hedge funds were buying and selling the side bets that were doing the driving. The difference is important; hedge funds were part of the apparat, but mostly were just trying to make money (ethically on their part, actually). The actually responsible group were the investment firms and banks that were creating the securities market in question. Hedge funds are a scapegoat, you're right.
Since you seem unaware of what I mean by "side bets," let me state that pension funds were absolutely not buying credit-default swaps en masse expecting the housing market to fail. Those were hedge funds shorting the housing market (big warning sign here!). They were shorting the housing market because Goldman Sachs and other firms had created insurance policies that allowed them to do so, in the full knowledge that there'd be a crash. (These are the same firms that were selling securities to the pension funds. Rule #1: The house always wins.)
The income from this market, meanwhile, created an opportunity and pressure on banks to do more business; furthermore, the securitization of the market meant that they had no incentive to do any kind of due diligence on the loans that they'd processed because they didn't lose anything if the loans went bust. There's an economic term for this: "moral hazard," and what it means is that if you lose nothing if a piece of property is destroyed because it's insured or oversold, you have no incentive to ensure that the property is safe. So banks were incentivized to create more and bigger home loans wherever they could, with no risk to themselves; all they needed to do was to get people's butts into houses.
Homebuyers are relevant because they're at the bottom of the food chain; furthermore, many of the homebuyers in question are indeed not responsible for their own actions. Why? Not only because homes were sold on high-pressure tactics, but also through outright fraud (to the tune of $112 billion
in direct fraudulent loans). According to...I believe it was Charles Ferguson, author of The Inside Job and Predator Nation, but I could be getting my sources mixed up...a lot of the homes sold to new immigrants were sold to people who couldn't read the English on the contract and trusted the person who read the contract to them - whether or not you should sign something you can't read is immaterial, because intentionally mistranslating the contract is fraud. Some homebuyers were just poor money managers, of course, and bought more house than they could afford on the assumption that prices were going to rise forever - but even then, it takes two people to make a contract, and the banks made the loan contracts with these poor money managers in the full knowledge that the loans were going to go bust, and it's the banks that stuck the pension funds with the bill when the bubble burst.
EDIT: Leaving this up despite the disappearance of my interlocutor, since it's information on the subject.
I will say this: By definition, it takes a creditor to make a loan and a debtor to accept it. There is literally equal responsibility there.
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edited 15th Feb '16 10:42:29 AM by Ramidel
A nice sounding adjective before sarcasm makes it more better-goodier than the raw sarcasm.
You (amiable) silly goofy doody head.
It has always been the prerogative of children and half-wits to point out that the emperor has no clothes![]()
The 300 AQ kills line is a reference to a navy seal meme
-raises hand-
edited 15th Feb '16 10:46:52 AM by Aszur
It has always been the prerogative of children and half-wits to point out that the emperor has no clothesThis guy was not debating in good faith. There was no attempt to engage with other posters' arguments or acknowledge different points of view. He was operating straight out of the concern troll's playbook. We can only tolerate that for so long.
edited 15th Feb '16 10:47:07 AM by Fighteer
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

The assertion that everything is the fault of the people who failed to stop the crisis, rather than the ones that caused the crisis ("the banks should have known people were lying to them and acted on it, but the people who lied did nothing wrong"), continues to be utterly ridiculous on its face.