Comments on: Wall Street & Main Street: It’s a Two Way Street http://blog.redfin.com/sfbay/2008/09/wall_street_main_street_its_a_two_way_street.html Redfin Bay Area Sweet Digs Fri, 20 Nov 2009 12:03:22 -0800 http://wordpress.org/?v=2.8.1 hourly 1 By: David http://blog.redfin.com/sfbay/2008/09/wall_street_main_street_its_a_two_way_street.html/comment-page-1#comment-7987 David Wed, 01 Oct 2008 21:04:17 +0000 http://blog.redfin.com/sfbay/2008/09/wall_street_main_street_its_a_two_way_street.html#comment-7987 I'd just like to point out, without being political, that there were significant, successful efforts by Democrats to relax regulations regarding Fannie/Freddie's loan book. Republicans, including both Bush and McCain have worked in the past to try to restrain Fannie/Freddie, only to be stymied by certain Democrats, including Dodd and Frank. In the name of "affordable" housing, the gov't encouraged the removal of down payment requirements, subprime lending and the like. The major failure of regulation in this instance actually wasn't loan regulations in my opinion (although just because you have a subprime credit score doesn't force you to lie on your application, nor does it force the bank to look the other way), but the SEC relaxation of leverage requirements for broker-dealers. This allowed Bear Stearns, Lehman, et al to leverage up to 30-1, instead of the previous 12-1 limit, making it almost certain the brokers would fail with just a miniscule loss of collateral value. The SEC should have also cracked down on bond raters. Additionally, failure of regulators to impose any kind of discipline on appraisals helped fuel the bubble. So there were failures of regulations, however, the rapidly developing conventional wisdom that it was the Republicans who allowed the looser lending standards (that caused Fannie/Freddie to collapse) is simply not accurate. I’d just like to point out, without being political, that there were significant, successful efforts by Democrats to relax regulations regarding Fannie/Freddie’s loan book. Republicans, including both Bush and McCain have worked in the past to try to restrain Fannie/Freddie, only to be stymied by certain Democrats, including Dodd and Frank.

In the name of “affordable” housing, the gov’t encouraged the removal of down payment requirements, subprime lending and the like.

The major failure of regulation in this instance actually wasn’t loan regulations in my opinion (although just because you have a subprime credit score doesn’t force you to lie on your application, nor does it force the bank to look the other way), but the SEC relaxation of leverage requirements for broker-dealers. This allowed Bear Stearns, Lehman, et al to leverage up to 30-1, instead of the previous 12-1 limit, making it almost certain the brokers would fail with just a miniscule loss of collateral value. The SEC should have also cracked down on bond raters.

Additionally, failure of regulators to impose any kind of discipline on appraisals helped fuel the bubble. So there were failures of regulations, however, the rapidly developing conventional wisdom that it was the Republicans who allowed the looser lending standards (that caused Fannie/Freddie to collapse) is simply not accurate.

]]> By: Susan Brady http://blog.redfin.com/sfbay/2008/09/wall_street_main_street_its_a_two_way_street.html/comment-page-1#comment-7985 Susan Brady Wed, 01 Oct 2008 19:36:50 +0000 http://blog.redfin.com/sfbay/2008/09/wall_street_main_street_its_a_two_way_street.html#comment-7985 I agree with much you say here Jenny. Flippers who took advantage of easy loans to buy properties they really couldn't afford (and were some of the first to lose out in this crisis), people who opened huge HELOCs and spent, spent, spent, people who bought homes with "no income verification" (the bane of naivete). They are all a part of the problem, along with financial institutions that did not keep themselves in check, and a government who didn't impose proper regulation (sometimes Republicans need to bend on less regulation issue). Those of us who have been good borrowers are the ones to pay the price, which is why there has been a revolt of sorts these past few weeks. However, do I want the bottom to completely fall out of the market? Do I want to go through what my grandparents went through (and I heard plenty of horror stories about the Great Depression)? I'm just not willing to gamble that big, not at my age. I do feel that there should be some government intervention and bailout, but with safeguards and equity in companies they rescue. I agree with much you say here Jenny. Flippers who took advantage of easy loans to buy properties they really couldn’t afford (and were some of the first to lose out in this crisis), people who opened huge HELOCs and spent, spent, spent, people who bought homes with “no income verification” (the bane of naivete). They are all a part of the problem, along with financial institutions that did not keep themselves in check, and a government who didn’t impose proper regulation (sometimes Republicans need to bend on less regulation issue). Those of us who have been good borrowers are the ones to pay the price, which is why there has been a revolt of sorts these past few weeks. However, do I want the bottom to completely fall out of the market? Do I want to go through what my grandparents went through (and I heard plenty of horror stories about the Great Depression)? I’m just not willing to gamble that big, not at my age. I do feel that there should be some government intervention and bailout, but with safeguards and equity in companies they rescue.

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