Obama blasts banks for opposing financial overhaul

“Americans don’t choose to be victimized by mysterious fees, changing terms and pages and pages of fine print. And while innovation should be encouraged, risky schemes that threaten our entire economy should not,” he said. “We can’t afford to let the same phony arguments and bad habits of Washington kill financial reform and leave American consumers and our economy vulnerable to another meltdown.”

no choice, it's all legislated!

I guess in al his "lawyer-ness" he never read US tax law... or any of the legislation his House and Congress have passed or proposed...

Obama singled out financial institutions for causing much of the economic tailspin

A partly true blame shifting statement. It takes two to tango.This is simply the nature of debt driven turbo capitalism and an inflationary fiat monetary system controlled by the Fed. The bankers are just like the marketers of soft drinks loaded with high fructose corn syrup and canine. If we all get diabetes, what the hell do they care? Stupid is a stupid does. The real enemy is the Fed.

If he doesn't know the difference between a bank and an investment bank and lump them all together, then he should just shut up.

The banking industry in the U.S. is one of the most heavily regulated industry. I know because I have been in banking for 24 years, half the time as a federal bank regulator and half as a banker.

This whole mess we are in now is directly and indirectly caused by the government and it goes a long way back, but of course politicians will always try to blame someone else. BTW, I am neither pro or against President Obama, but I found these rescue plans that the government is coming up with are poorly thought out and create new messes of their own.

When people are still talking about fixing the hole in the roof after the house has already fallen down, that means there is some pretty serious denial going on. The debt-based, speculative, fraudulent neo-liberal economic model has collapsed, it is as simple as that. If you can't even identify the problem, then you sure aren't going to fix it.

"Wall Street institutions that gambled on risky loans"

How about the Democrats who passed legislation forcing banks to make loans to people who were in no position to pay them back? Sheesh.

How about the Democrats who passed legislation forcing banks to make loans to people who were in no position to pay them back?

No bank was ever forced to make a loan to someone who wasn't qualified by the bank's own guidelines. The fact is that many -- by no means all -- banks threw away their own guidelines.

It is understandable the motivation to lie to attempt to somehow foist the blame on Democrats when nothing could essentially pass the Republican Congress from 1994 onward to 2006. (And anything that was passed before that could have easily been overturned by new law.) Combined with the fact that nearly all of the legislation passed to remove the regulatory controls on banking was initiated by the Republicans.

No bank was ever forced to make a loan to someone who wasn't qualified by the bank's own guidelines. The fact is that many -- by no means all -- banks threw away their own guidelines.

Thats correct, no bank was forced to make a loan to anyone. They were merely forced to change their rules on how people are qualified for loans. Surprisingly enough, when Republicans tried to change the law to make it more reasonable, they were shouted down. Come on, you know the chorus, the EVIL republicans don't want the poor to own houses. The EVIL republicans hate the poor. You know the refrain, sing it with me. Of course had the EVIL republicans been listened to, over Barney Frank, we wouldn't be in a recession right now.

banks have tough guidelines to grant loans. But those tough guidelines are thrown overboard when it comes to powerful politicians, Big fat cats of Industry or even mafia from sicily

Sarge: in the pre-W era, it was going fine with a small bubble relatively under control. Then W and new motto "the market will fix itself, we should not touch it". The Wall-street boy is 4 years old with an open jerrycan, W and you gave him the matches. Sheesh.

As always, the people commenting seem to have a delusional idea that it matters if the Democrats are in power or the Republicans are. The banks own them both, they should really try to get their heads around that.

GJDailleult: you are right but I still believe some limits should be imposed to banks.

As always, the people commenting seem to have a delusional idea that it matters if the Democrats are in power or the Republicans are. The banks own them both, they should really try to get their heads around that.

You are correct. This problem first started under a Democratic President, but it was passed by a Republican congress. Years later, under a Republican President and congress, the Republicans couldn't find the will to successfully repeal it. They were so afraid of the pushbank, that the fix never got out of committee though it was also in large measure to Barney Franks. (The one congressman on record as opposing a fix, back when it would have made a difference.)

The point being though, that no party deserves either sole credit, or sole blame for the recession. However the banks don't deserve it either. This was a failure of government, not the free market.

Obama and the Democrats STILL don't get it. The only way for the economy to recover is not by having government take over more and more of it, but by cutting taxes and getting the hell out of the way of private business.

They [banks] were merely forced to change their rules on how people are qualified for loans. Surprisingly enough, when Republicans tried to change the law to make it more reasonable, they were shouted down.

Again, this is not true. Conservatives like to point to the 1977 Community Reinvestment Act (CRA) as the culprit that forced banks to make loans to unqualified people. The CATO Institute, New York Post, and National Review all had articles on it which were picked up by Limbaugh and FOX News. (C'mon, do they really believe that this was a problem that was festering for over 25 years!!)

What the CRA law actually did was to establish guidelines to ensure that banks were lending to their depositors. Back in 1977, banks were largely entities of local communities, and the practice of "redlining" was rampant. Nevertheless, guidelines on credit worthiness still applied. (In the conservative mindset, there is apparently no such animal as predatory lending.)

The real question is this: Did banks make bad loans because they had to comply with CRA, or did they make bad loans in order to make money? The clear facts indicate the latter.

First of all, between 70 to 80 percent of bad subprime loans came from independent lending institutions that were not subject to CRA. Independent mortgage companies were free to lend without being burdened by any federal regulation. And lend they did.

The mentality of the people following the free market was such that you could move people into homes and collect interest money from them for awhile until the balloon payments kicked in -- then kick the people out and turn the home over again without owing any equity to the former inhabitants. The only fly in the ointment was when the underlying value of the properties started to decline.

The banks own them both, they should really try to get their heads around that.

If they think they own the American people -- and some of the people running banks are as delusional to believe that as they were to believe that property values would never decline -- they are in for a very rude awakening.

yabits:

" No bank was ever forced to make a loan to someone who wasn't qualified by the bank's own guidelines. The fact is that many -- by no means all -- banks threw away their own guidelines. "

Oh yes, they were. Read up on "redlining" and the "community reinvestment act".

The government caused the irresponsible behaviour, out of ideological naivitee and insider profit schemes, and now the government rides to the rescue with even more regulation.

Just brilliant.

The government caused the irresponsible behaviour, out of ideological naivitee and insider profit schemes, and now the government rides to the rescue with even more regulation.

The smaller banks that were most subject to CRA, and who had successfully co-existed with its provisions for over 25 years, have fared much better through the housing meltdown than the independent mortgage companies not subject to the regulation.

Keep in mind that borrowers would be more likely to turn to an independent lender when their local bank found them unqualified for a loan. Again, independent mortgage companies -- the source for the vast majority of bad loans -- were not subject to CRA regulations.

What further compounded the problem was that all these unregulated bad loans formed the basis for leveraging all kinds of other unregulated financial instruments. I understand the conservative tendency to want to blame things on the poorest and least powerful members of our society, but the facts clearly show otherwise.

What further compounded the problem was that all these unregulated bad loans formed the basis for leveraging all kinds of other unregulated financial instruments. I understand the conservative tendency to want to blame things on the poorest and least powerful members of our society, but the facts clearly show otherwise.

What are you talking about? No one is blaming poor people. I mean sure you can say, if they had paid their loans, then there would have been no problem. But with groups like Acorn pushing loans for these people, with government regulation clearly favoring loans to these people, the people themselves are not the problem. The problem was with the government, which rewarded banks for loaning to people that could not afford to repay the loans, and penalized banks that didn't. Had the banks followed normal lending practices, these individuals would have never qualified for loans.

The problem was with the government, which rewarded banks for loaning to people that could not afford to repay the loans, and penalized banks that didn't.

How could the government be the problem when over 70% of the bad subprime loans were made by unregulated, independent mortgage lenders who were not subject to the "rewards" (not sure what you mean there) and penalties you describe?

Can you explain that?

The problem was with the government...

Second question: How was the government responsible for the mountain of additional leveraging that came about via unregulated derivative and hedge trading that was propped up by the largely unregulated bad loans AND, more importantly, the over-inflated value of property underlying them?

If anything, the government was responsible for not applying proper oversight and regulation. The "free market" as typified by Wall Street coult try to sell any financial snake oil that they wanted to. Was it Acorn who rated the financial instruments based on subprime loans as AAA? Was it the government?

The sad truth we see on this board is that there are actually people who want to see groups like ACORN as more powerful and influential than the elites who were truly behind this mess. The trend over the past 30+ years, especially with regards to banking and finance, has been deregulation and the removal of government oversight. And people with eyes to see know what this has led to. Those who choose to blind themselves to the truth are going to have a difficult time convincing others that blindness is better.

This all starts with the Federal Reserve Cartel and a Fiat type currency. -all else is secondary and you must understand how these two operate/work and who/what they are. If you do not -expect bankruptcy/poverty in your future.

A quick start: -Who owns the Federal Reserve (who are the owners? Of this cartel) -And what do they own -what interests do they represent. What are there assets.

This all starts with the Federal Reserve Cartel and a Fiat type currency

Spot on!

Sarge said:

Obama and the Democrats STILL don't get it. The only way for the economy to recover is not by having government take over more and more of it, but by cutting taxes and getting the hell out of the way of private business.

I guess if everything were that simple then you would be a genius. But it is not that simple or the Bush tax cuts would have resulted in our economy rising to the level of the Clinton economy and beyond. It did not even come close. You cannot infinitely cut taxes and see a positive result. There is a time to cut taxes. But in reality there is an optimum tax rate for every economic tier at any given time but is constantly changing as time moves on (stability in the marketplace may mean that is remains constant for longer periods of time). It is a dynamic system that is complicated and not simple like you try to portray it. There are a myriad of other factors at play.

Furthermore, with your reasoning the rules applied to the financial markets and banks following the enormous crash of '29 would never have been put into place and we would have continued to see busts and booms of epic proportions that cannot compare to the relatively stable economic environment that we have had for many decades. We have occasional recessions but not the series of depressions we might have had without the banking and investment rules imposed in the 1930's. We need rules but we must use restraint on imposing new rules to allow our markets to flow freely. I have spoken out, long ago, on the need for regulation in the derivatives market emphasizing the need to regulate credit default swap markets. I also said we must not over regulate risk. I have never been against credit default swaps but I believe they need to be part of the regulated market and not completely unregulated as they have been. 700 trillion was a ridiculous figure of total credit default swaps and it far exceeded the alleged insured financial instruments. The chains of credit default swaps were especially disconcerting. Instead of trading a swap, individuals and institutions would make another swap creating a chain in which all those tied to the swap would fail if the original financial instrument failed. With stock options there are no such chains you buy and sell puts or calls exchanging them in a trade rather than compounding them. Just like with credit default swaps you may buy an option that you do not own. This could result in a huge monetary liability but it is limited in scope because it is not a chain of derivative holders as in a credit default swap.

Sarge, it is time you realized that in a dynamic financial environment new regulations must be made from time to time; just as old regulations need to be modified or retired from time to time. I am not saying tax cuts are never the best solution I am saying that "The only way for the economy to recover is ... by cutting taxes" is incredibly naive. Obviously, by "getting the hell out of the way of private business" was a failure in the late 1920's and a degree of regulation is needed. I would never claim to understand what would be the appropriate level of taxation or regulation at any given time but I do know that none is not the answer.

I guess if everything were that simple then you would be a genius. But it is not that simple or the Bush tax cuts would have resulted in our economy rising to the level of the Clinton economy and beyond. It did not even come close.

Wow, its hard to know how to classify the above statement. Ignorance, perhaps willful ignorance. Either that, or simply a person who overlooks some obvious factors. Hmm, don't know. Anyway, keep in mind several things about the Bush taxes cuts, as opposed to the Clinton economy. First, Bush inherited a recession, the same way Obama did. 2nd, and much more importantly, Bush had 9-11. Which was devastating for the financial sector. 3rd, he also had a war to fight. 3 Factors which you don't seem to be considering. The deficit spending really wasn't helpful for the economy either. Despite all this however, largely due to the tax cuts, the economy was doing great, until the governments failure lead to a near collapse of the economy.

How could the government be the problem when over 70% of the bad subprime loans were made by unregulated, independent mortgage lenders

Who are you talking about here? And please provide a link. I'd like to see what you're talking about. From my perspective, the root of all this, is due to the laws essentially mandating banks lend to those who couldn't afford it. There are other factors. When it comes down to it, people look and see the opportunity for profits.

And please provide a link. I'd like to see what you're talking about.

The following link comes from an article presented at the 2007 symposium of the Federal Reserve Bank of Kansas City.

http://www.kc.frb.org/PUBLICAT/ECONREV/PDF/4q07Gramlich.pdf

You will learn that, despite the 1977 CRA law, subprime loans did not exist to any great extent until the late 1990s, going from zero in 1993 to over $600 billion in 2005. At the bottom of page 108, you will find that, according to the data from the Home Mortgage Disclosure Act, only 20 percent of subprime loans were made by by banks and thrifts which undergo "arduous supervisory regimes."

Reading on, 30 percent of subprime loans were made by institutions in a "hybrid" status. They are affiliates of banks and thrifts, but not subject to the same federal regulations. And the final 50 percent of subprime loans were being made by independent mortgage companies not subject to CRA or any federal regulation. (Note the bottom line of page 106.)

From my perspective, the root of all this, is due to the laws essentially mandating banks lend to those who couldn't afford it.

I understand your perspective. There just isn't any truth to it. Over 70% of the subprime loans were made by institutions that weren't subject to the CRA guidelines.

The people who are telling you that the root of all this is laws mandating banks to make improper loans have their reasons to want to lead you astray from the truth.

Yabits, I hate to ask for this, since you so generously provided a link, but do you have one that links to a web page? I really prefer not to download files from unknown websites.

I obviously can't debate you on the subject, as I need to do a bit more research. I don't believe what you're saying at the moment, but I'll keep an open mind as I look into it. Maybe I'll have switched sides the next time this topic comes up. :)

Molenir: The website belongs to the Federal Reserve Bank of KC. The file is Adobe format (PDF). You can read it from your browser if you have Adobe reader installed.

The following link describes the article and source in more detail, to help alleviate some of the "unknown" factor.

http://ideas.repec.org/a/fip/fedker/y2007iqivp105-113nv.92no.4.html

And here is a link from a overtly liberal source, but which contains the same verifiable data.

http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis