wrote in message
...
"jlrogers±³©" wrote:
Many investment banks bought huge amounts of the mortgages and packaged
them
into "Collateralized Mortgage Obligations" ("CMO"), slicing and dicing the
packages into multiple tranches and then selling the various tranches to
investors, including banks, private investors, and hedge funds. The MBA's
on Wall Street kept getting wilder and wilder until no one knew what they
were buying anymore, or what the CMOs were worth. When rates went up and
mortgage holders with adjustable rate mortgages started defaulting some of
the higher yielding tranches (riskier tranches) cash flow became impaired
and investors started asking hard questions. The answers scared them and
they quit buying. Market values fell, mark to market rules required write
downs, and now we are in free fall.


Yep, looks right on the mark to me... but how is it the CRA's fault?
Just because everything from gas prices to warm beer is always blamed
on the nearest handy Democrat?

Looks to me like the crash was caused by greed & stupidity, helped
along by some concurrent bubbles popping.

As a private individual, if I buy an investment without carefully
researching it's true risk, then it's my fault if it goes south. I
take the hit. If dozens of investment banks do the same thing, to the
tune of squajillions of dollars, then it drags the rest of us down...
a bail-out to avoid massive bank failure may be in the best public
interest (although my vote would be to take the first round of bail-
out money from the pockets of those CEOs)... it's sure not the fault
of some muddle-headed doo-gooders who decades ago said, "hey wouldn't
it be nice if banks offered nice mortgages to poor people?"

The proble is that we Americans have a whole slew of unhealthy
addictions. Addiction to oil and addiction to credit are the two
biggies. Our borrow-and-spend government is merely a reflection of the
fact that the U.S. has a negative savings rate. The "average" US
household carries about $10K in credit card debt and our total average
indebtedness is over $150K per person. I've pointed this out as a
problem many times (even though it's not the way I manage my own
finances) long before the current banking/mortgage/credit crisis hit
the headlines.

We are addicted to oil and credit. Both are very destructive habits
that we *will* break in the near future... one problem we have is that
oil companies and financial companies are both profiting heavily from
these bad habits, just like cigarette companies profit from addiction
to nicotine. It's going to be either a fight break free or a complete
wreckage of the nation when we hit bottom.

Fresh Breezes- Doug King

CRA was the catalyst. In the old days mortgages to be sold to Freddie and
Fannie had to meet rigorous criteria with respect to specific financial
ratios (e.g., loan to value, income to loan amount), verifications with
respect to employment, income, and net worth. Rates were fixed, so the
borrower could depend on a fixed payment. The requirements were so strict
it took "forever" to close a loan.

CRA was the beginning of removing the standards. Adjustable rates was the
killer.

CRA