July 28, 2008

Oh, Paul... notes on the Housing Bill...

Usually, I find myself agreeing with Krugman 90% of the time. This piece is absolutely spot on. As he astutely points out, financial regulations and statutes from the 1930's need to be updated for a 21st century global financial reality that includes 30 to 1 leverage and derivatives with notational values in the trillions.

Basically, one firm going belly up can freeze the entire system. Thus, the need for the Fed and Treasury to step in because private firms went a little too wild and larded on too much risk. So much, in fact, that it stands to effect the 300 million of us who aren't investors in these firms. With that kind of reach, it's absolutely necessary that there be enhanced regulation. And Phil Gramm can go fuck himself.

HOWEVER, I'm sick of the talking point, when referring the housing crisis, that this was all the fault of brokers.

Mortgage originators didn’t worry about the solvency of borrowers, because they quickly sold off the loans they made, generally to investors who had no idea what they were buying.

Uhm, Paul, originators can't originate a loan for which there aren't guidelines and a sales channel. In other words, for a loan to be originated there has to be someone willing to buy it and they set the rules. The people who bought and securitized these loans (like Bear Stearns and Lehman) knew exactly what they were getting.

Think I'm wrong? Call an originator in the phone book, any originator, and ask for a 95% NoDoc loan with no MI for the purchase of a non-owner occupied property. They'll calmly explain that the product doesn't exist.

Because the people who wanted them are either dead, dying or on life support. And that's not the fault of the originator. It's the fault of the moron bankers in the mortgage practice who thought these were such awesome credits that they should receive a premium price.

Posted by mcblogger at July 28, 2008 03:34 PM

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