On Demand
Bailout Plan Before The House
Lawmakers spent most of the weekend finalizing the details of the emergency bailout plan. The compromised proposal is now before the House, and looks to face a tough road to approval. Diane Brady, senior editor at Business Week, discusses the current state of the bailout deal with Adam Davidson, NPR correspondent for International Business and Economics, and stocks editor for Barron's Online, Bob O'Brien.
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Why do we need that bank if the Federal Bank can lend the money directly tothe consumer?
The solution to the current Financial and the Mortgage crisis is having the Federal Bank lend directly to the borrower. Primarily by letting people refinance their loan with the Federal Bank. By refinancing the loans, the banks will get their money back, and the borrower will be out of the risk of foreclosure.
1. There is not bailout; neither for the borrower, nor for the banks.
2. There is no cost for anyone (The Federal Bank by lending directly gets a good spread of at least 2%. The Federal Reserve can borrow for less than 4% and can lend at a flat 6%. The Revenues can be used to generate more loans like any other bank).
4. It is simple
5. It is transparent
6. The Government will help the borrower directly.
7. The Government will help the banks indirectly.
8. It can also be extended to student loans (a loan to every American Citizen that has been accepted to any accredited college. Similar to what is done now but without the big payouts for the intermediaries, aka Salliemae, Nelnet, etc).
9. It can also be extended to small business loans (loan will need to be viable).
10. It can also be extended to car loans (cars with 30 mpg EPA minimum).
http://www.PlanNewAmerica.org
Brian: Please ask Ms. Brady to comment on the effect that the Consumer Credit card debt that has been into consumer debt obligations (CDO's) and sold THE Exact same way that the sub-prime mortgage bonds were
will have on our economy, when it is REALLY announced and publicized that this consumer Credit card debt is ALSO essentially WORTHLESS (or more accurately, VALUELESS)
thank you
See my blog
sos-newdeal.blogspot.com
Mr, Paulson: I knew Adam Smith and you're no Adam SMith!
The sad part is that Congress is supposed to be a deliberative body. This bailout should have been given more time to discuss. The insurance arrangement that is now an option only and just a sop to the House Republicans would have been a less invasive, less risky proposal and the reasons Paulson claimed it wouldn't work were the same ones that one could assert against the bailout. Why weren't our leading economists, pro and con, and other legitimate points of view brought before Congress to make their cases instead of this legislation being rammed down the taxpayers' throat?
Deregulation was the invasion...
The creation, positive rating and circulation of CDOs and MBSs were the failed strategy...
The $700 billion is the surge.
Avoiding a total collapse of our economy would be the end of sectarian violence and a return to taxpayers on this massive investment in instruments of unknown value would be the "victory"
gives liquor to the drunk!
Thank God they got that Acorn / LaRaza pork out of the bill!!
Dodd had an earmark in the original draft that would have given any "profits" to those same groups that contributed to the mess.
Until the values of those assets are deflated by 60% or more this bail out has no value to the country.
People have to be willing to accept the fact that their house is not really the value they claim it is to be or they have been sold at a inflated price.
The Banks need to have to reprice the mortgages and thereby all the products that are based off these assets needs to be revalued to have any real impact.
NO BAIL OUT.
Why trust the people with $1 Trillion who screwed this whole thing up to begin with.
NO DEAL.
OK, so we're a free market again after this though, right?
NO! NO! NO! NO! NO!!!!
Bailout, Buy-in (lol in your face Nancy Pelosi) it's a nothing but a screw us plan. NO!!!
Here's my question: I'm having a hard time understanding what "predatory lending" is. Did anybody force anyone to take out a loan that they couldn't afford? Isn't this what caused this problem, that people defaulted and the banks couldn't get their money back? Please explain if I'm wrong!
Lets get this straight. We say we are bailing out the banks and Bush is on the side of the American People in this. WRONG! We are bailing out BUSH, and he is on the side opposite the American People. He screwed up royally, regally (as in the regal presidency), and now he is turning to us to save him. Does he want to go down in history as the president who destroyed the United States?
And Cheney's fine finger is also in all this.
This plan puts the wolves in charge of the chicken coop.
These "regulators" are the same ones who said as recently as July that there is no crisis. It's a giant giveaway to the banks and their executives. If this is such a good deal why aren't private investors showing up. Forbes just published its list of 400 billionaires. How come they're not taking advantage of this "fire sale"? It does nothing to cap executives' pay. And it just saddles the taxpayers - this generation and the next and the one after that - with the bill and produces nothing in return.
This problem started long before President George W. Bush was elected to office.
@12 Shelley
You can blame gravity on Cheney too! Don't you think that blaming everything you don't like on Bush / Cheney becomes preposterous at some point?!
WHY IS THE MEDIA NOT INTERESTED IN THE OBAMA, DODD, FRANK, FANNIE, FREDDIE, ACORN, LARAZA CONNECTION?
Hey...
I propose TAX reform too.
A new MMT. Minimum Millionaire Tax
ANyone making OVER 5 million per year
has A MINIMUM of 1% of their GROSS INCOME,
as a ALTERNATIVE minimum tax...
As opposed to having to these millionaires pay NOTHING...
See the blog at sos-newdeal.blogspot.com/2008/08/
topic-of-week-this-week-tax-reform-tax.html
Sad how we debate this issue on the air and online. This is the biggest broad daylight robbery being carried out and wow We are not even aware of it. all the solutions are anger filled, ideological and based on personal agendas. Understanding that the true values of an asset is not being discussed to begin with.
David Cay Johnston is the only one who seems to think similarly.
Brian, arent these wall street ceo's the same top (one) percent the bush administration gave a large tax break too, and Mccain wants to keep implementing?
BRIAN, READERS:
Please explain to me why the primary solution could not be directed right at the bad morgages.
Why would it not address the fundamental problem by requiring all baloon morgages for primary places of residence to be rewritten at a fixed rate? It would continue the existing income from those morgagees to the lenders, and the baloon rates never could have been recovered, and neither the lenders or borrowers ever expected the baloon rates to ever be paid.
If the real issue is toxic funds from selling stock on bundled morgages as if they were highly rated securities, how can there be any expectation that the government can recoup any future income on those baloon rates under any circumstances? If as the additional fallback you would then provide that the government would buy THOSE toxic assets, just to liquify the market, isn't it true in this plan or the government plans that those assets could never perform??
I don't understand why solving the morgage problem was not the first step. Please help, one of you brilliant financial person !
Hey Richard From Texas Who then is responsible?
Do your think the Bush the Moron should be in charge of the solution.
There is a village missing its idiot.
It's especially worrying that they are using the same language that they used when Iraq went bad - ie. we know that mistakes were made, but right now we need to move forward.
The idea that you can fix a problem without looking at the causes of that problem is a complete invention of Bush spin in Iraq. If crimes were committed, they need to be prosecuted, or else people just keep committing crimes. If mistakes were made, they need to be corrected. You can't just keep sticking your finger in the dyke and hoping all those mistakes you made will go away.
And people still don't want to listen to Ron Paul.
These republicrats are all alike. Good luck voting for McCain or Obama- big difference. They just sold the people down the river. How disillusioned is everybody.
It seems to me that the whole idea of a company's primary purpose being to benefit its shareholders -- as opposed to its workers or its own long term health -- has gone completely haywire. I realize this is a central tenant of capitalism -- raising money from a group of individuals who then hold a small stake in the company so that it can grow and prosper and then reaping a benefit as it succeeds. But what has happened is that all decisions are to benefit the shareholder even if it means laying off workers and gutting the company. So the short term gain for a few people is trumping the long term gain for the benefit of many. And the head of the company is then compensated beyond anything remotely realistic -- whether there is success of failure. This needs to be reformed as well.
the words punish and reward and guilt are often misused in the debate about the so called bale-out
Stock holders, bond holders and investers in general when they purchase securities of what ever kind take responsibility for the possibility of gain or loss that differ depending on the security. They should not invest in securities that they do not understand the risk. You cannot punish someone if a stock goes down unless there was an illigal act. Enron and there accountents are an example. Some people who invest conservatively saw the problem in housing, anticipated the problem for the market in general and got out investing and in secure treasuries and cash. Risk and greed are the same for both rich and poor.
2 questions:
1. what's the role of the NO-DOC documents found at GoldmanSachs [others as well?] in this bill regarding restitution, which is hopefully the idea of this bailout bill? or is that only going to be considered as part of the criminal investigation of the FBI?
2. the "starve the beast" comment that Grover Norquist is so fond of - how much of that played a part in this problem, and what's happening politically with those players, are they part of the FBI investigation because of they're connections.
Wouldn't a moratorium on foreclosures, and a renegotiation of the terms of all those predatory loans, help solve the problem with all these mortgages that are bundled into securities and then sold? If the securities have lost their value because so many of the mortgages are defaulting, using the federal money to prop up those mortgages would make them have value again. What the feds want to do instead is let those mortgages fail and give the money to the securities companies to cover their losses?
I was simply pointing out, the same as Insolvent USA, that not everything can be blamed on the current administration. This problem started back in the 1980's.
your right richard from texas
not enough people read The Zero Sum Society and the possibilities for ecconomic change by Lester C. Thurow
A Question:
How much difference would it make in the position of companies in marginal financial condition if assets were valued using a discounted cash flow model instead of the current "mark to market" method?
Would a simple change of accounting practices change the complexion of and outlook for the United States' economy?
As I understand, if the commercial paper and various debt markets freeze up we are at risk of our whole capitalist economy going down the tubes, as it did in the 1930's.
At the debate neither candidate stood up to fill a leadership vacuum and explain to the American people why it is necessary, for the for the functioning of our capitalist economy, for the government to intervene. This allows the the House Republicans (and some Democrats) to demagogue the issue, claiming it as a $700 billion bailout for Wall St. fatcats. The first guest is right: there is no fireside chat explanation. Instead we have two candidates more interested in pandering and evading.
speaking of "liberal housing lobbyists"...
Inside Obama’s Acorn
By their fruits ye shall know them.
By Stanley Kurtz
http://article.nationalreview.com/?q=NDZiMjkwMDczZWI5ODdjOWYxZTIzZGIyNzEyMjE0ODI=#more
Obama worked for Acorn and was atop recipient of Fannie/Freddie lobby money.
opensecrets.org
I am a lawyer, not a financial professional, but I'm going to print out and read the bill. From what I've heard, however, the decision to take equity in the failed banks will be a discretionary one made by Treasury. If such is the case then, other than for the tranches and oversight provisions, how is this bill different from the one originally proposed?
Could someone address the effect on the falling dollar?
Seems to me that pumping all this money in will have a detrimental effect.
Let's stop putting off dealing with our problems. The sky is thick with chickens coming home to roost. If a depression occurs, so be it. Those of us who suffer are responsible. We've saddled future generations with enough of the ramifications of our behavior.
DO WE HAVE REAL NUMBERS ON HOW MANY INDIVIDUALS HAVE BEEN DENIED LOANS FOR BUYING CARS OR ANY OTHER LOAN WHEN THEY HAVE A GOOD CREDIT RATING AND HAVE A WAY TO PAY BACK THE LOAN.
JUST KEEP TALKING AND HYPING THIS IS NOT FAIR AND REMINDS ME OF HOW THE MEDIA HYPED THE IRAQ WAR CAMPAIGN
Why the haste? Shouldn't Congress wait untill everybody has at least read the darn thing? The Bush Admin. has used this tactic again and again (the Patriot Act, Social Security, etc) where they cry "crisis, crisis, you must give us everything we want RIGHT NOW or the sky will fall." Then it turns out that on page 207 we have turned the FBI over to Blackwater Security or some such villainy. How many times will we fall for this?
As far as Paulson and Vernanke go, the only two words which either of them could utter right now that would inspire any confidence for me would be "I resign."
richard it's on your texas governor's watch. he is judged by how he leaves the office and the country's economic state (as well as the nation's moral position on debt and gambling) -- not how he found it in 2000.
Why isn't anyone using he "C" word?
Crimminality? Why is this a "problem"? A "situation" we find ourselves in? A "fiscal crisis"?
If a doctor takes out the wrong kidney like 600 tmesand sells them for profit, how is that a "situation". A medical crisis?
These bankers and financial types knew exactly that they were flying a plane into the ground.
Where is the FBI and the cops on this? Who are "we" going to arrest and charge for fraud....etc.
This is a gigantic white collar crime!
dr dave in NYC
this plan seems to give a lot os spending authority to the executive branch. what are the implications in terms of constitutional checks and balances, balance of paower between branches of govenment, etc?
could the whole plan be challenged later on constitutional grounds?
I can't believe the ignorance of the people posting on this board and calling in.
1) How is renegotiating existing mortgages going to help the credit crisis? It would have the opposite effect.
2)If credit is not available, real estate values will plummet even further, making people teetering on the verge finally default.
3)How is a depression going to help poor people, except by making more of them?
4) Why is bailing out people unable to pay their mortgages any more morally palatable than bailing out a bank? I don't have a mortgage, but I have my money in the bank.
Ultimately you're using this as an excuse to exercise your anger at the "fat cats". Grow up already.
700 Billion was chosen because it's as close to a Trillion as you can get without it sounding like a Trillion.
This bill dose not address the Mortgage foreclosure issue. More homeowners will walk away from their mortgages and homes. The
consequence will probably be more of the same. Bank failures and the continued choking of the credit markets. This bill will fail since the source of the problem is not dealt with. Namely Mortgage foreclosures.
Here's my question: how can any of the emergency measures under consideration work if they don't address the root of the crisis: that Wall Street has been operating for 10 years on the assumption that the housing bubble will be permanent? There has been massive lending and speculation based upon this misguided assumption. Now all of that must inevitably lead to massive losses as the bubble bursts.
Housing prices have been vastly inflated as the result of intemperate Fed money policies. There's simply been too much money with no place to go. The result has been housing market speculation and a Wall Street bubble. Now both are in the process of correcting. That will result in real pain for many average citizens, most of whom don't consider themselves "speculators" or even investors. Their losses will be painful and there is nothing that can be done to change that. (By the way: name one politician who's willing to say that.)
YOUR ANSWER to my above question on morgage solutions does not make sense. Your guest said: "hopefully they (morgages of at-risk home owners with baloon morgages) will work out on their own" (?) and, you imply, is NOT (?) an issue in the situation? It is simply not true that the baloon rates are not an issue. These people were encouraged to believe they could refinance, but cannot in today's market. Isn't THAT the issue, not, as your guest says, that morgages are not performing for "OTHER" (?)reasons?? What other reasons?
Your business week guest seems to assume the only issue is bailing out banks, and the market will adjust to home failures, meaning that the home owners WILL lose their houses, the houses WILL be resold at lower rates (prices being pushed down until someone can afford to buy)> These seems like an unnecessary waste.
Why not let these existing morgages continue to perform??
Is this a bailout or a rip-off?
If the US Treasury(?) takes an equity stake, It would stand to lose ALL if the entity with which it has exercised warrants, goes under at some point.
My Wife and I feel that we were suckered into buying into a market that was artificially inflated by 30%. Our 40k down payment plus much of the money we have put into out mortgage home improvements over the past 3 years has simply evaporated.
We think this bailout should be as punitive as possible.
I personally think the government should stabilize the market on an adhoc basis until a truly optimized solution can be modeled proposed and debated by qualified experts.
Bill and Sylvia
Hempstead
Why aren't all of the banks and brokerage houses mandated to report what is on their books? Why is there no accounting of all the mortgages and bad debt? Even if the mortgage is sold, isn’t there a record of to whom it was sold? Then the next institution should have the same and all of this should be able to be tracked? Who is keeping the records? If there are no proper records of all of these transactions, isn’t that criminal in and of itself?? Why should the value of all this be unknown?
How does the "insurance" component work -
1. Who is insuring whom against what? Who holds the risk? (In the private sector, "insurance" models don't work to cover a risk that is already mature - the insured and insurer can't come to an agreement on price)
2. Who's paying the premium? Is it coming out of the very liquidity that the program is intended to create?
3. What's being done to reduce moral hazard? We got into this mess because of the moral hazard created by FannieMae/FreddieMac insurance, so that all of the downside risk was held by Fannie/Freddie, and all the upside held by the lender, and the moral hazard regulations (that is, Fannie/Freddie's debt guideline limits) were lifted, so that lenders took irrational risks. What is being done to make sure that an "insurance" model doesn't create new incentives to take irrational risks?
In 40 days every member of the House is up for re-election, let them ALL know that a vote for this plan will be the END of their service......
Call, email, write to these charlatans.....
A Treasury spokeswoman told Forbes.com the following:
"It's not based on any particular data point. We just wanted to choose a really large number."
http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html
@41 Mike
What you are observing is intuitive dislike of the bailout. Often, intuition is rational.
A RATIONAL fear is that we are merely postponing a DISASTER.
That is, foreigners stop buying our debt and we get a crash. We aren't fixing anything.
In continuing to call this a "$700 billion" plan, you are grossly oversimplifying matters.
Please explain what the distribution parameters actually are:
First $250 million immediately available.
Need for next $100 billion to be certified by Treasury secretary.
Final $350 billion subject to joint Congressional resolution of disapproval.
@50 Gary
Yes! We need change not only in the White House, but also in the Congress.
Should Dodd and Frank be allowed to head the finance committees?
Should Pelosi and Reid lead the House and Senate?
people should be outraged.
Are there any restrictions in the bail out bill of zero money down home mortages that got us in this mess in first place? Why does no one talk about the 10 TRILLION DOLLAR FEDERAL DEBT? The world is going to cut up our national credit card as we print money and we will be going into hyper inflation.
@ Adam #44
The reasoning is that this rescue/bailout will buy time for the housing market to sort itself out and recover some of it's value. When the time comes that people have an appetite for investing in real estate again, the federal gov't can resell most of these securities back into the market. The us federal gov't is the only entity with enough capital to wait that long for these things to come good. In the meantime banks will still have the money to keep normal functioning of the economy going.
@56 Mike
Home prices are never coming back. They are "reverting to the mean" -- which is a LOT lower than even today.
Next leg down is the continuing impact of commodity price inflation -- read, high energy and food prices -- and the fact that we have even more public and private DEBT to pay back.
Sorry, but it is hard to be optimistic about it!
Didn't they just raise the debt "ceiling" to TWELVE TRILLION!?!
@41: mike
I never said I WANTED a depression:
I just PREDICTED one over TWO years ago (go see my blog and READ it....
I predicted it, and predicted 11 points that will help get the ENTIRE country OUT of the depression.
sos-newdeal.blogspot.com
the concept is that just like the 'original' new deal (think 'new coke') the New new deal
will bring jobs, education, infrastructure, new minimum wages, and other stuff for the PEOPLE of our country.
I foresaw that the ECONOMY was going to tank (TWO YEARS AGO!) and as a layman, figured out some important programs to rebuild the country...
All I have to say is "Wiemar Republic." Lets hope that doesn't become the case.
If the US Treasury(?) takes an equity stake, It would stand to lose ALL if the entity with which it has exercised warrants, goes under at some point.
My Wife and I feel that we were suckered into buying into a market that was artificially inflated by 30%. Our 40k down payment plus much of the money we have put into out mortgage home improvements over the past 3 years has simply evaporated.
We think this bailout should be as punitive as possible.
I personally think the government should stabilize the market on an adhoc basis until a truly optimized solution can be modeled proposed and debated by qualified experts.
Bill and Sylvia
Hempstead
it is obvious they are going to do this bailout.
we needs total transparency, everything the default4d companies are doing need to be posted in line. for now on no hiding of anything, they are receiving gov monies, is everything in the past should be able to be foil'd.
everything in their structure now including all bonuses and salaries, spending, expense reports, vacation real estate owner should be all available on the web to be audited by the public.
they dont want the public scrutiny of their operations, pay back the money to the govt.
no first class airlines seats, sell off the property that have value to repay the taxpayers. no Caribbean real estate to send their employees for a conference.
we the taxpayers are going to get bobbed unless we have total transparency of their operations , with the govt having the ability of kicking a non complying corporation out of the bail ou.
punish the jerks that caused this, i knew there was a big scam going on from top to bottom when a non us born friend that didn't have a pot to piss in was talked into buying a property in las vegas to use as a rental property, 100 percent financing, she didnt even own the place she lived in in Brooklyn. i found out to late to stop her from doing it. total scam, from real estate agents, appraisers , all the way up the line.
What always makes me so angry is that the government (usually pushed by Republicans, but some Democratic supports) has no problem bailing out corporate America, but not the people. They preach the moral superiority of the free market, but have no problem bailing out their rich pal. Look at the airlines, the S&L debacle. Someone here the other day, who supported the bailout, said let the free markets decide. well moron, this is the free market right here. its the deregulation and legal business transactions. If you really were a student of Adam Smith, you'd let the companies die. If people got mortgage help back in the beginning, and a freeze was placed on foreclosures, much of this would not have happened. I have a degree in political economy, and have run simulations like this. The Republicans for years have made it harder for citizens to declare bankruptcy. But they do this without a blink of an eye. This bailout protects white collar jobs, not middle (and lower class) taxpayers. It is nothing more then corporate welfare. Most corporations don't even pay taxes at all. Look it up. If they don't even pay taxes for their own failures why should we? I work for the City and see how this screws up the population we're trying to help.
I agree with Suzanne, #23, and, separately, with David Cay Johnston's letter to poynter that they are rushing us without having proved an actual emergency.
I think the Dem support for this bailout proves that Pelosi is not fit for her position. Dodd has entirely disappointed. Barney Frank should be asking tougher questions.
I can't believe I actually agree with the GOP on anything, but there are many GOP'ers who are livid about this bailout.
Far too much of the burden is placed on teachers and not enough on the parents who need to instill in their kids the basic tools that they will need, as well as participate in overseeing their homework, having conversations that show their children that they too are interested in what's going on in school, and going to PTA conferences.
With all of these banks buying each other (ie Citigroup taking in Wachovia), how will monopolies be avoided?
What does Paulson consider excessive executive pay? $37 million, $1 million, $500,000, $200,000??
He earned $37 million in 2005, his net worth is over $700 million. His view of income is very skewed. There is no specific language in the bill.
I can't remember which representative said in a clip that dealing w/the bailout bill was like going to the dentist & having to have painful things done so the problems won't get even worse later. Hmm. Is there any way they could require the equivalent of 6-month checkups in the bailout plan? Or is the bailout itself the equivalent of a dose of Novocain for Wall St.?
TO "Mike from NYC":
Thanks for your kind response to my comment.
Are you saying that, if the measures under consideration are approved by Congress, the housing bubble won't burst? I continue to look back to the root of the credit crisis. Even if (for the sake of argument) what you say about restoring confidence in the credit market is true, how does this restore confidence in the housing market or in the stock market, both of which are grossly overpriced because of the Fed's loose money policy over the past decade? The real problem lies with the fact that major financial institutions have essentially been "borrowing" (figuratively speaking) against non-existent assets, i.e. real estate with inflated prices. Now that the real estate bubble is bursting, all the complex derivatives and credit deals based on the fictitious future real estate values are worthless. I don't see any way to correct that without profound losses. My best case scenario is that these losses are spread out over a long enough time that our currency and healthier financial institutions will be spared. But even that unpleasant prospect is far from certain.
One more thing:
I'd like to add one more comment on our national debt which will be the next huge domino to come crashing down as the dollar tanks and our creditors flee. Much of the national debt, which was created in the name of improving our economy, had very little real positive effect -- it was squandered on the war, pork and crony capitalism. I would feel much better about our future if the borrowing had been done to improve the future through investment in infrastructure and education. Paying what we now owe will be much more painful considering how little we got in return.
Katrina Bush. Iraq Bush. Wall Street Bush
Where is Osama Bush.
Fire Bush. Immediately.
Markets will go up. Naturally.
Bush family is not immoral. It's a-moral. No moral...
why have i not heard any of our illustrious leadership discuss the very existance of no doc mortgages? The idea of the bailout in any form is repugnant to me on its own merits. To do nothing to regulate (and criminalize)fraud committed when filing Stated Income and Stated Assets information on mortgage applications is adding insult to injury. I am not naive enough to address the honesty of our political leadership but why not limit the availabilty of credit to those that can afford it? or else let the elected officials pony up $700,000,000,000.00. This number is only 1% of the $65,000,000,000,000.00 of the total insured mortgage debt as i understand it.
To Hannah, #11, re what is predatory lending. Lenders used to have rules (those nasty old regulations) which only allowed them to loan 80% of the value of the home, with a maximum loan of 3 times gross income. A couple earning $60,000 could only borrow $180,000, regardless of how valuable the home was.
With the Republican gift of deregulation, the lenders and financial institutions began loaning the full value of the home without regard to whether the borrowers were even employed. Greenspan held down the interest rates, and the cost of housing radically inflated by as much as 300%, so people had to spend a lot of money to buy or rent. (Lower interest means lower monthly payments so people can pay more for a home). The lenders paid Congress bribes (they call it contributions) to eliminate the prior restrictions.
The lenders immediately "bundled" the loans into packages and sold them off to somebody who was conned by Wall Street into believing the bundle was worth the face value of the loans. That was untrue because it was inevitable that the borrowers would default. And the property had been artificially inflated by Greenspan holding down interest rates, so it sold for as much as 300% of its actual fair value. The borrowers did not qualify for the loan but the lender ignored that.
The borrowers also could not afford the home -- but nobody in Bush's world except the rich people can afford housing anymore, because the people running this con have manipulate prices so that many people have to pay 50% or more of their take-home just for shelter. The consumers were stupid and were manipulated into believing that the value of the home would go up dramatically, and they could "flip" it in a year and walk away with $100,000 in their pocket.
Lenders used to have all their loans handled by employees -- loan officers. But as part of the scam to avoid liability for the deliberate con of making bad loans and then selling them to equally greedy and corrupt investors, the lenders got rid of much of their loan officer staff, and many loans are now arranged by private, self-employed loan brokers. Those brokers receive a higher commission when they make a hard money (undesirable to the borrower) loan. If they can convince the borrowers that 18% is a good interest rate, with a balloon in two years, and 10% in other loan origination fees -- the broker gets lots more money than they would if they just tried to get the borrowers the best available loan. The lenders pay more to the brokers to sell hard money loans -- the high interest high fee loans.
It's like the insurance companies that pay bonuses to their claims adjusters who keep the cancer or heart patients on hold so long that the patient dies before treatment. Which some of them actually have done.
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