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Shouldn't this page be named 2008 financial crisis? As this crisis unfolds, it seems that the sub-prime mortgage meltdown is only a part of the problem. Securitization and other derivatives seem to be as big a part of the story, and contagion is spreading distress throughout the financial system. BTW, you all seem to have covered all the bases. Nice job. LK ( talk) 04:25, 10 October 2008 (UTC)
I agree. The topic is a misnomer. Some information shows the mortgage part of the crisis to be specifically one of ARM loans, not sub-prime loans. The topic as it exists is not neutral. RK June 2010
We/the article need a global world map, with the countries which has been get the financial crisis. (Green color to the countries with big crisis like USA. -- CikkBővítő ( talk) 17:38, 10 October 2008 (UTC)
I agree. The topic is a misnomer. Some information shows the mortgage part of the crisis to be specifically one of ARM loans, not sub-prime loans. The topic as it exists is not neutral. RK
I was reading the wikipedia article on municipal bonds which has a section that linked to Subprime mortgage crisis#Effect on municipal bond "monoline" insurers. This section which used to be part of either the Municipal Bonds or Subprime mortgage crisis articles is now deleted from both articles. I would like to know more about this subject. Thank you. 71.171.118.196 ( talk) 00:29, 11 October 2008 (UTC)
I moved it to Subprime mortgage crisis - other economic effects some time ago when that issue faded from the headlines. It's still there along with some headlines. You might also check out credit default swap. Lots going on with that related to the Lehman Bankruptcy. Farcaster ( talk) 04:28, 11 October 2008 (UTC)
seems like several spin-off referring and generalizing the same current events covered many times, and using various arbitrary names and dates such Economic_crisis_of_2008 or Financial crisis of 2007–2008..... Rodrigue ( talk) 13:15, 12 October 2008 (UTC)
Yes, lots of spinoffs. I guess imitation is the sincerest form of flattery. But serious, this main article is about the causes, impacts, and responses. It should be more thematic and summarized, with just enough examples to illustrate the particular element or point. Daily type events and daily he said/she said should be put into subordinate articles. My thought is that this article is the umbrella with other articles for deep-dives on particular issues. Farcaster ( talk) 17:05, 12 October 2008 (UTC)
Since 98% or so of the article is about the United States, and it is the United States that made all these subprime loans, why shouldn't the name of of the article include 'United States'? Hmains ( talk) 00:06, 13 October 2008 (UTC)
It seems like this might belong to document the opinion of an expert on fannie and freddie, since much talk has come from this:
http://www.nytimes.com/2008/07/14/opinion/14krugman.html
Brusegadi ( talk) 07:56, 13 October 2008 (UTC)
I think this should be deleted as it isn't specific to subprime issues: Gerald P. O'Driscoll former vice president at the Federal Reserve Bank of Dallas stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism. Government backing let Fannie and Freddie dominate the mortgage-underwriting. "The politicians created the mortgage giants, which then returned some of the profits to the pols - sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents." [1]
On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac. [1]
This may be worth putting in somewhere - Mervyn King June 2007 - "The development of complex financial instruments and the spate of loan arrangements without traditional covenants suggest another maxim: be cautious about how much you lend, especially when you know rather little about the activities of the borrower.
It may say champagne - AAA - on the label of an increasing number of structured credit instruments.
But by the time investors get to what's left in the bottle, it could taste rather flat. Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight."
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/03/ccom103.xml
If someone could summarize what happened in like, a paragraph, it'd be awesome. thx —Preceding unsigned comment added by 74.213.214.208 ( talk) 12:51, 13 October 2008 (UTC)
George Bush's speech to the nation has a good plain-language summary. See the background information article. Farcaster ( talk) 01:32, 8 November 2008 (UTC)
I literally just saw this article, scrolled to the bottom, the first thing I thought was tl;dr and hopped over here to write tl;dr. Little did I know someone beat me to it. 19:39, 27 July 2009 (UTC) —Preceding unsigned comment added by 65.113.71.3 ( talk)
Farcaster keeps on undoing my edits to this paragraph. A fundamental modification is necessary as there is no mention of any loan defaults which is actually the bulk of the crisis. Those of us that have actually studied economics, know that in economics there are causes and effects. Lack of liquidity is an effect not a cause of the crisis. Therefore stating that the crisis "is characterized by lack of liquidity" is essentially incorrect. The real cause are huge amounts of defaulted loans. Please, discuss or understand the edits before undoing them. VShaka ( talk) 20:34, 2 October 2008 (UTC)
The tone of the two summary paragraphs is not appropriate to an encyclopedia article; while any writing will have some element of opinion, this is too political in tone. I urge others to clean this up.
While I can't argue whether 80% of sub-prime loans were ARMs, as they may have been, there is a critical difference between what is more generally understood to be an ARM and typical practice in sub-prime mortgage lending. An ARM, after some initial period, has provisions that reset the interest rate in relation to an index. It is my understanding (no, I don't have references; I simply don't have the time) that a great many, perhaps most, "sub-prime" mortgages were written such that even if there were no movement in any index, the interest rate and payments would increase. So, yes, mortgages "began to reset at higher rates," but it wasn't a movement of an index that raised the rate, it was automatic provisions in the original mortgage loans. Then, tighter lending standards and falling home prices prevented the refinancing of the original, unsustainable mortgages.
Finally, I urge someone to research this question: How much of the loss in value of securities backed with sub-prime mortgages was caused by actual default losses? The fear of default losses, and the inability to value those securities may have had just as much, or more, effect on the financial system as actual mortgage default losses.
Madison Max ( talk) 14:14, 6 July 2009 (UTC)
Can the "Excessive housing speculation" and "The role of speculative borrowing practices" be combined under "Speculation"? Also, the statement: “The role of speculative borrowing has been cited as a contributing factor to the subprime mortgage crisis”; is supported by an article written in 1996. Something is wrong with that. Halgin ( talk) 23:32, 2 October 2008 (UTC)
The most interesting graphics on financial institutions reserves and borrowings from the fed are these: http://research.stlouisfed.org/fred2/series/BORROW and http://research.stlouisfed.org/fred2/series/BOGNONBR. The first is monthly data from 1919 (not a typo) to date on average financial institution borrowings from the Fed. The second is monthly data from 1959 to date, on financial institutions' non-borrowed reserves. Both clearly show that something broke. DOR (HK) ( talk) 06:11, 3 October 2008 (UTC)
EconomistBR 15:28, 3 October 2008 (UTC)
Please discuss here removal of the following cause: "requirement of commercial and mortgage banks to lend to high-risk borrowers [2] [3] ". Gogino ( talk) 14:08, 15 October 2008 (UTC)
Here are some credible sources explaining the role of CRA: How Government Stoked the Mania, The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities. Gogino ( talk) 17:32, 15 October 2008 (UTC)
In the first sentence of the primary causes, you have this specific element. There is an element related to regulation later in the paragraph. CRA does not merit the level of attention you give it there in the summary. For instance, CRA was from 1995 I believe. The primary issuance of subprime debt that is causing the crisis was in 2004, 2005, and 2006. See the Miliken presentation at the bottom for the specifics. The crisis is really the debt issuance in those 3 years. More proximate to this was the decision by the SEC (in 2004) to enable investment banks to dramatically expand leverage. Even the articles you cite do not give CRA primary position, and they are from the WSJ (a very conservative leaning paper). So I ask (again) that you leave that intro part alone and expand the CRA portion lower (or even better, the separate CRA article, as this article is already too large and should be an umbrella rather than a detailed discussion of every part. I don't want an edit war with you and I want the CRA part in there; I don't want it to appear a primary cause anywhere. Farcaster ( talk) 21:46, 15 October 2008 (UTC)
I've added a section to highlight some of the predictions as EVERYONE BECOMES AND EXPERT AFTER THE FACT (and add their own spin) but some of those with the initial insight had the clearest understanding of what the causes and rising risks were (of course some predict crisis using flawed reasoning and just get lucky). Additionally, experts tried to dispel and mislead on Buffett's warning about derivatives as weapons of mass destruction but failed to discuss his daisy chain / counter party risk warning - yet that - more so than the products themselves were at the heart of his discussion. —Preceding unsigned comment added by AlbertaSunwapta ( talk • contribs) 04:02, 16 October 2008 (UTC)
Clearly there are two major causes of the crisis:
Out of the causes listed the following are related to its acceleration only and assume the existence of the problem already: (1) the inability of homeowners to make their mortgage payments, (2) speculation and overbuilding during the boom period, (3) risky mortgage products, (4) high personal and corporate debt levels, (5) financial innovation that distributed and perhaps concealed default risks, and (6) central bank policies.
The remaining causes (7) poor judgment by the borrower and/or the lender and (8) regulation (or lack thereof) could be related to both the existence and the acceleration.
Ad (7): Many borrowers cannot balance their checkbook. Naturally they will have poor judgment about more complicated things. But this is not special for this crisis. It long has been that way and I don't see any evidence of increase in poor judgment other than by the sheer existence of the judgment opportunities.
Increase in poor judgment of lenders should have its cause. Why would they have poor judgment just in subprime lending and not in anything else? Why would they employ people with poor judgment? There must be some external force like a possibility of a punishment (for example, requirement of commercial and mortgage banks to lend to high-risk borrowers) or a possibility of making a profit (for example, possibility to liquidate the bad loans).
The bottom line is that (7) is a part of (8) regulation.
Ad (8): This is the only cause of the existence of the problem but it doesn't give enough useful information.
The causes that belong here should be listed.
--
Gogino (
talk) 00:58, 16 October 2008 (UTC)
This subsection is titled "Causes in general" and I would like to start with their listing. I don't think we can go any further if we don't clarify this. I plan to split the causes depending on if they caused the existence of the subprime mortgage problem or if the caused its acceleration. --
Gogino (
talk) 06:08, 17 October 2008 (UTC)
The following was recently removed: "Another source of the crisis is arguably the evidence of insider trading in credit derivatives". Gogino ( talk) 14:20, 15 October 2008 (UTC)
I attended this Financial Planning Association (FPA) conference in the Summer of 2008 in Charlotte North Carolina and one of its guest speakers, an analyst from Lazard, commented with well over 200 people in attendance, that immigrants are the root cause of the subprime crisis in the U.S. Since this guy has a master's degree in urban planning from Harvard and an undergraduate degree from Duke University, presumeably, he must be the expert on the subject. Does anyone have any real data to back up his claim? If there is, we should note the findings here in this article. Ronewirl ( talk) 01:38, 18 January 2009 (UTC)
The article does not discuss one of the most significant causes of the subprime crisis. This is the leverage of the investment banks.
Traditionally, the investment banks were limited to borrowing $12 for every dollar of capital. In 2006, the Bush administration eliminated this rule. As a result, the investment banks took their leverage to 30 to 1, and in some cases 35 to 1. In other words, the banks were borrowing $35 for every $1 of capital on their books.
If the melt-down in the stock market looks like 1929, it is because we are following the same policies as in 1929. In both instances, the stock market became overheated because of excessive borrowing to buy securities.
Professor John C. Coffee at Columbia Law School, one of the authors of the Sarbanes-Oxley Act, has complete details on the regulatory changes. It is important that this reason be added to the historical record. —Preceding unsigned comment added by Elliott101 ( talk • contribs) 11:46, 16 October 2008 (UTC)
Also, when discussing the problem of investment bank leverage, you might want to include a short discussion of the failure of the hedge fund, Long Term Capital Management (LTCM). In many ways, LTCM was a harbinger of the current financial crisis. In 1997, LTCM borrowed 50 to 1 on its money. While the market was going up, LTCM was getting 50% annual returns. When it failed in 1998, LTCM had borrowed over $1 trillion, and nearly brought down all of Wall Street with it. Federal involvement was necessary to avoid a much larger banking crisis at that time. The lessons of LTCM were recent, but apparently not learned by either the banks or the regulators. Complete details are available in a book on LTCM by Roger Lowenstein. Lowenstein is a former reporter for the Wall Street Journal, and the son of another professor at Columbia Law School, Louis Lowenstein.
See the diagram on financial leverage in the economic background section and again the effect on financial institutions section. We could amplify with a paragraph in the causes section. The SEC change was in 2004, also cited. Farcaster ( talk) 13:19, 16 October 2008 (UTC)
Farcaster, why did you remove this sentence: "However, there are opposing views on causes of this crisis especially those related to regulation and the reader should not rely on the list written here." from "Causes of the crisis"? Do not remove before finishing discussion. It is clear that there are opposing views. -- Gogino ( talk) 06:23, 17 October 2008 (UTC)
Business week has a cover article that lists the causes at Business Week - The Financial Crisis Blame Game. They list in order:
Please read this article Gogino and Carol. Farcaster ( talk) 09:04, 18 October 2008 (UTC)
The article is a good sum-up of the conventional wisdom, but I don't think that it needs to be given more weight than any other good source of information. Better to give weight to whatever official government reports are available.-- JohnnyB256 ( talk) 13:17, 18 October 2008 (UTC)
The section titled "Understanding the risks of default" is unreferenced. Also, almost all the points made in this section are made elsewhere in the article. I suggest deleting the section, in part because we should probably all be looking for ways to make the article shorter (without sacrificing content, of course).
Also, the graphic titled "Financial Leverage Profit Engine" is too textual. If that much text is needed to explain the graphic, the text should be included in the article. Moreover, many of the referencs on the [ page] for the graphic do not seem to support the points made in the graphic's text. I suggest deleting the graphic. Again, all else being equal, shorter=better. Bond Head ( talk) 03:22, 19 October 2008 (UTC)
I've added the text to the editable part of the page. If there are any changes that can improve it, please edit there and I will update the text in the diagram. Farcaster ( talk) 17:01, 19 October 2008 (UTC)
This diagram suggests that the causal direction is: Housing Market influenced Financial Market and that influenced Government and Industry. There are many articles suggesting that these influences are more complex and go also in opposite directions.
I suggest that the
diagram should reflect this or be removed. If you agree please respond below. --
Gogino (
talk) 07:51, 19 October 2008 (UTC)
Farcaster, it is 3:1, are you going to do anything with the diagram? For example, you can start with erasing the controversial arrows. -- Gogino ( talk) 21:03, 19 October 2008 (UTC)
This diagram is accurate with the scope described. More could be added. Removing arrows from a flowchart doesn't make sense. What POV am I supposedly pushing here? That the housing market bubble burst and had a ripple effect through the financial markets and that the government has responded to that ripple? That is widely agreed upon and is all I'm really saying with the diagram. Yes, the government had a role in building the housing bubble, with low interest rates and the GSE's. If somebody wants to add a housing bubble diagram, that is fine. I've proposed an supplemental diagram here at right, where we start with the main causes (bad lending decisions and bad borrowing decisions by individuals--this is capitalism, after all) and then list the influences. Do you like this concept any better? I think together they tell the story. Farcaster ( talk) 23:31, 19 October 2008 (UTC)
The diagram have not been changed yet so I added "may not represent a worldwide view" flag to extend this discussion before removing or changing it. --
Gogino (
talk) 03:52, 20 October 2008 (UTC)
I like the style of the diagram at right since it doesn't emphasize some particular theory about the causes. How about if that diagram (at right) goes before the "Subprime Crisis Diagram - X1.png" diagram and the later is changed in the following way: The circle containing "Start" is replaced with a circle "Causes of the Housing Bubble, see another diagram" and all bullets under the square with "Excess Housing Inventory" would be erased (Overbuilding, speculation, easy credit...). This way the context for each diagram is much more clear. After that we can still think about their content. Please let me know what you think. -- Gogino ( talk) 15:48, 20 October 2008 (UTC)
Seems reasonable. I'll fix the diagrams tonight and post them. I'll see if I can come up with some way of pointing the documents to each other. Farcaster ( talk) 20:06, 20 October 2008 (UTC)
All, please check the top two diagrams on the article page (right next to the content) and if you find missing possible causes or items in domino effect or something else then write about them below. --
Gogino (
talk) 14:54, 22 October 2008 (UTC)
The conflict of interest section is weak, beginning with an oped piece in the New York Post and continuing through campaign contributions. I fail to see how campaign contributions caused this crisis, or to whom that caused the conflict of interest. It seems out of whack.-- JohnnyB256 ( talk) 14:51, 19 October 2008 (UTC)
Agree. I support removing this section as written. I recommend replacing it with more thoughtful analysis of how Fannie & Freddie contributed to the crisis. This is a complex and contentious topic. They funded a lot of MBS and then in late 2007-2008 transitioned to a rescuer, by increasing purchases of toxic MBS from banks. The latter action was a deliberate rescue step and was done with widespread knowledge of the risk to the GSE's. The testimony of its regulator at [2] is a definitive starting point for this. Overall defaults were 1.36% and is frankly immaterial to this crisis. About 90% of what they did was fixed rate, which has much lower defaults than ARM's. However, they guarantee trillions in MBS held by others through credit default swaps and other mechanisms. There is an estimate of their guarantee liability on their books for this (Fanny had reserved about $8.9 billion on its balance sheet as of June 2008 for credit losses and had recognized losses of $8.5 billion through its income statement). These amounts were material for the company but not to the crisis overall. Fannie said its financial condition was fine in its August 2008 conference call. So help me out here... Farcaster ( talk) 17:47, 19 October 2008 (UTC)
I've moved it out of the "causes" section, where it didn't belong, and put on a different section head. I still have a problem with what is in it but at least it is better situated.-- JohnnyB256 ( talk) 01:54, 25 October 2008 (UTC)
MBS are portrayed negatively in this article. Were they created to improve liquidity and diversify risk? If yes then that is positive. If anything went wrong then why? To say MBS are in fault is cheap and might be wrong. -- Gogino ( talk) 20:59, 19 October 2008 (UTC)
MBS are like guns. It's how they are used that matters. It's not so much the MBS, but the enormous leverage that was used to purchase them. According to the Economist, banks also retained too much rather than sell them to investors. Farcaster ( talk) 23:33, 19 October 2008 (UTC)
I think we agree that MBS were created to improve liquidity and diversify risk. That appears in the economic background and in the securitization section and leverage section. But it is true that huge losses were incurred by banks on these investments and that this investment vehicle was probably overused fueling the crisis. Farcaster ( talk) 04:10, 20 October 2008 (UTC)
Taxpayers cash being used to buy non voting shares ie A No Strings Attachted Gift! Please could this be interegrated:
Chendy ( talk) 16:20, 22 October 2008 (UTC)
Preferred shares pay dividends or interest to the government. Someday, the banks pay the principal value. So taxpayers may do just fine. Here is a quote from the first source you cited: "Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights." Farcaster ( talk) 18:40, 22 October 2008 (UTC)
other than the first sentence in this article, is their anything in this article that is about any other country than the United States? If not, the article is misnamed--no expanded, it is already too long. The name then needs to include 'in the United States'. Hmains ( talk) 22:48, 7 November 2008 (UTC)
This section is getting ripe for an overhaul (summary, with detail to supporting page). I know a couple of folks that would like that job. You know who you are. Farcaster ( talk) 02:51, 21 October 2008 (UTC)
Please add all new information for this section first to the subarticle Government policies and the subprime mortgage crisis. -- Gogino ( talk) 15:38, 22 October 2008 (UTC)
I am proposing the following shortened version of the text to replace the current government section, minus the citations. Let me know what you all think, as we have a supporting article for this and this section is now quite long. Farcaster ( talk) 02:49, 10 November 2008 (UTC)
Both government action and inaction have contributed to the crisis. Several critics have commented that the current regulatory framework is outdated. President George W. Bush stated in September 2008: "Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st century global economy remains regulated largely by outdated 20th century laws." The Securities and Exchange Commission (SEC) has conceded that self-regulation of investment banks contributed to the crisis.
Increasing home ownership was a goal of both Clinton and Bush administrations. There is evidence that the government influenced participants in the mortgage industry, including Fannie Mae and Freddie Mac (the GSE), to lower lending standards. In 1995, the GSE began receiving government incentive payments for purchasing mortgage backed securities which included loans to low income borrowers. This resulted in the agencies purchasing additional subprime securities. Subprime mortgage loan originations surged by 25% per year between 1994 and 2003, resulting in a nearly ten-fold increase in the volume of these loans in just nine years. These securities were very attractive to Wall Street, and while Fannie and Freddie targeted the lowest-risk loans, they still fueled the subprime market as a result. In 1996 the Housing and Urban Development (HUD) agency directed the GSE to provide at least 42% of their mortgage financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.
By 2008, the GSE owned or guaranteed nearly $5 trillion in mortgages and mortgage-backed securities, close to half the outstanding balance of U.S. mortgages. The GSE were highly leveraged, having borrowed large sums to purchase mortgages. When concerns arose regarding the ability of the GSE to make good on their guarantee obligations in September 2008, the U.S. government was forced to place the companies into a conservatorship, effectively nationalizing them at the taxpayers expense.
Liberal economist Robert Kuttner has criticized the repeal of the Glass-Steagall Act by the Gramm-Leach-Bliley Act of 1999 as possibly contributing to the subprime meltdown, although other economists disagree. A taxpayer-funded government bailout related to mortgages during the savings and loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans.
I still argue, as I have from the beginning, that this article gives insufficient weight to government laws and regulations in causing the crisis and that they should be the first listed cause. (I've got lots of WP:RS opines on that won't share at this moment.) One of the reasons I worked first on Subprime_crisis_impact_timeline was just to find out what all the relevant laws and regulations were, in chronological order. (Refs from below at that article.) Do so just confirmed that government policies artificially promoted housing ownership and created a housing bubble through lose monetary policy and through various laws, regulations and subsidies. The following are most to blame and should be explicitly mentioned in this article. The whole causes section should be in chronological order with current sub-sections directly tied to government policies that largely caused them. Right now the article remains a hodge podge of POV viewpoints. I haven't even looked at the sources for the lead section to see if they are WP:RS and relevant and if text reflects what they say. Anyway, for the edification of those who may want the cause section to reflect reality, here's a list of biggest government influences on the problem:
I fully agree with Carol Moore on the importance, in principle, of statutes and regulations bearing on the USA mortgage industry. My comments, in italics, on the specific actions she lays out follow.
My bottom line: until mid-2008, the fundamental principle of the mortgage industry was: "If Fannie and Freddie do it, it's kosher."
Around 1980, the Chicago Tribune ran an article describing the gradual decline in downpayments over the 1970s, blaming that on competitive pressures. It went on to warn readers that that decline would inevitably lead to a dramatic rise in defaults and foreclosures. Low downpayments contributed to the S&L crisis of 20 years ago. Downpayments continued to decline because issuers of MBS, first Fannie and Freddie then Wall Street, began to buy mortgages with downpayments under 20%, then under 10%, then zero or near it. 132.181.160.42 ( talk) 02:38, 27 February 2009 (UTC)
Adjustable rate mortgages were not new in 1982, per two reputable sources. Since I apparently cannot remove the contention that they were new, I am in the absurd position of having to put both things down at the same time. -- Dlawbailey ( talk) 02:15, 25 April 2009 (UTC)
Adjustable rate mortgages were not new in 1982, now per three reputable sources. Neither were option ARMs new in 1982. The 1982 act is about preemption which is an extremely interesting and germane question, but it is not handled appropriately or truthfully here, inappropriately citing an opinion-of-opinion piece which misrepresents the legislation. As for the 1995 change in GSEs and subprime loans, I am only getting started. There was no change to the tax code. There was no tax consequence specifically linked to the GSEs taking on the loans and none is cited.-- Dlawbailey ( talk) 07:09, 25 April 2009 (UTC)
the basic problem or most important one that triggered subprime crisis is declining house prices.
Why has no one yet explained anywhere on the internet how did the real estate market in US work and what made it collapse and exactly how did it collapse(illustrate)
Creation of bubble!. ok but how did market fail to overcome this bubble and how this bubble was inflated in in first place
explaining all that above using simple microeconomics and some macroeconomics will help millions.
-- Asadlarik3 2008-11-12T06:37:18
the question is still open to be answered, no really be answered but more of teaching. —Preceding unsigned comment added by 116.71.66.94 ( talk) 11:12, 13 November 2008 (UTC)
I'm new to this and i was told by an editor on this site that adding the link of a non profit org news site http://www.usbailout.org was a spam link.
I don't understand this? Can anyone comment.
Thanks, Phoenixauthor
Phoenixauthor ( talk) 21:08, 12 November 2008 (UTC)
all the editors of this article who make major or minor edits or additions please list your qualification so that the credibility of this information can be judged.
Since anyone can edit Wikipedia, you should consider the sources cited and look to those for any point you consider contentious or unclear. There are a variety of high-quality sources cited in this article. If there is a particular topic of interest to you, indicate it here and I'll point you to some helpful sources on it, if not already apparent in the article. I recommend the New York Times "The Reckoning" series on the crisis and the article "The Subprime Mortgage Crisis" in the external links by Robin Blackburn for starters. Read those and you'll know a lot about this topic. Farcaster ( talk) 04:24, 14 November 2008 (UTC)
How does that look? I tend to err toward repetition but that doesn't look excessive to me. Issues with actually measuring the size of the bubble and specific effects should follow the first paragraph. Personally I think we should even avoid the term mortgage—doesn't credit card debt play a major role too? (I wouldn't know how to start comparing its relative contribution.)For many years prior, lenders chose to make loans with low, yet uncertain, chances of repayment. It gradually became clear how many loans would not ever be repaid, with the money lost to the lender. This "disappearance of money" characterizes an economic bubble. The rise and fall of any bubble is defined by a delusion causing a resource to be overvalued. The subprime mortgage bubble is characterized by mortgages made by, and traded among, various banks. During prosperous times, it was assumed that homeowners could gradually repay their debts with future wealth, causing a bubble to form: the loans were overvalued, worth even less than the initial investment given to the homeowner. Overvaluation was (and is) perpetuated as banks trade loans between each other, trading "known evils" for "unknown evils," and often adjust the terms of the loans themselves, slowing the process of measuring their total losses. Due to the nature of a mortgage, the collapse of the bubble directly causes evictions by home repossession, as well as the loss of capital from banks associated with all financial panics.
> I changed the entry to correct these objections, but Farcaster reverted my edits.
well this might have been done but i am sure if you had tried to discuss those problems in `discussion`. Farcaster would have himself made the changes. He manages this article regularly and
if you can provide your professional insights what else will this global article require. I also have to admire Farcaster for his commitment to article and consideration to contributors. —Preceding
unsigned comment added by
Asadlarik3 (
talk •
contribs) 19:38, 30 December 2008 (UTC)
Conventional wisdom seems to be the financial crisis is lessening with the recapitalization of the banks and now the broader economic effects are hitting outside the housing and financial markets as consumers are slowing spending and businesses are preparing for a downturn. For example, in the U.S. we lost a major retailer and the Big 3 auto companies are getting close to a bailout or bankruptcy. I'd propose limiting the scope of this article to the housing market and financial market pieces; any discussion of the other markets would be limited to quick blurbs and handoffs. What do you all think? Farcaster ( talk) 08:07, 16 November 2008 (UTC)
There are some interesting looking charts illustrating this article. They are, however, far too small to be useful unless you click on them. Is this standard practice?-- JohnnyB256 ( talk) 23:58, 17 November 2008 (UTC)
I am sorry, but if one of main reason of the ciris are MBSs and CDOs structures, and the whole credit risk has been hiden under MBSs and CDOs, the diference between MBS and CDOs needs to be explaind somehow.
- In the whole introduction CDOs are not even metions - In the section "Understanding Risk" CDOs suddenly appear, but merly as a synonimum for MBS - In section called "Securitization praticies" CDOs are not even metioned
What exactly are the differences between how the crisis materialized viac CDOs compared to MBSs securiities?
On the plus side, I really need to give credit to the authors of the paragraph on CDS, which are clearly and well explaind. Could we work something explaning seprately the role of MBSs and separately the role of CDOs?
Further, did CDOs of CDOs play any role here at all? If yes, I believe it would need pointed out somewhere, because the chain of CDO^n surely has different implications that na simple CDO.
Thank you, and compliments for the great job on this article so far. -- PBES ( talk) 03:09, 25 November 2008 (UTC)
Most statements in sections 3.2 and 3.3 are one or more of irrelevant, trivial, unsubstantiated, pointless, or downright false. These sections should also be combined and drastically pared down.
Here's all that need be said. The typical national stock market attained an all-time high sometime in 2007. It has since declined 40-70% (the tables on the last page of issues of the Economist document the decline since 31 December 2007). The declines since 15 September 2008 have been especially brutal. 2008 will see the largest decline in the USA stock market since 1931. This worldwide bear market is invariably blamed on the worldwide credit crisis stemming from the USA subprime mortgage crisis. Someone should research the performance since 2005 or 2006 of, say, the finance industry subindex of the S&P 500. 123.255.28.93 ( talk) 07:41, 29 November 2008 (UTC)
I'm updating the time line with some private company-related info and finding that what is alleged to be in some articles used as sources is not in there. I'm noting most of those I've found; might have missed a couple. So let's be careful :-) CarolMooreDC ( talk) 19:07, 6 December 2008 (UTC)
The main article does not seem to refer to interest-only mortgages. It does mention (to its credit) adjustable rate mortgages. It does not seem to mention balloon mortgages. I am not sure that it mentions low- or no-downpayment mortgages.
All of these are relevant to the current high rate of mortgage default.
Adjustable rate mortgages and balloon mortgages are ticking timebombs, except in special cases (e.g., qualified speculators). No one can predict the future. Monthly payments can rise significantly. Even homeowners who are employed (who have not lost their jobs) can find themselves unable to pay such mortgages, resulting in defaults. It's bad enough that in many states property taxes can rise dramatically (and have done so) and unexpectedly. It's bad enough that energy costs can and have risen dramatically and unexpectedly.
I am not sure the main article mentions the role of unscrupulous mortgage brokers, epitomized by Countrywide Financial and its CEO Angelo Mozilo. Mortgages were sold to borrowers on the basis of monthly payments, with brokers taking cash out of the mortgaged properties. This exploitative practice contributed to putting properties "under water," tendind to prevent them from being sold for fair prices and avoiding defaults. Jabeles ( talk) 22:07, 7 December 2008 (UTC)
Take a look at the "High-risk mortgage loans and lending /borrowing practices" section. That covers most of your points above. Mention what else you'd like added. Farcaster ( talk) 01:46, 8 December 2008 (UTC)
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![]() | This is an archive of past discussions. Do not edit the contents of this page. If you wish to start a new discussion or revive an old one, please do so on the current talk page. |
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Shouldn't this page be named 2008 financial crisis? As this crisis unfolds, it seems that the sub-prime mortgage meltdown is only a part of the problem. Securitization and other derivatives seem to be as big a part of the story, and contagion is spreading distress throughout the financial system. BTW, you all seem to have covered all the bases. Nice job. LK ( talk) 04:25, 10 October 2008 (UTC)
I agree. The topic is a misnomer. Some information shows the mortgage part of the crisis to be specifically one of ARM loans, not sub-prime loans. The topic as it exists is not neutral. RK June 2010
We/the article need a global world map, with the countries which has been get the financial crisis. (Green color to the countries with big crisis like USA. -- CikkBővítő ( talk) 17:38, 10 October 2008 (UTC)
I agree. The topic is a misnomer. Some information shows the mortgage part of the crisis to be specifically one of ARM loans, not sub-prime loans. The topic as it exists is not neutral. RK
I was reading the wikipedia article on municipal bonds which has a section that linked to Subprime mortgage crisis#Effect on municipal bond "monoline" insurers. This section which used to be part of either the Municipal Bonds or Subprime mortgage crisis articles is now deleted from both articles. I would like to know more about this subject. Thank you. 71.171.118.196 ( talk) 00:29, 11 October 2008 (UTC)
I moved it to Subprime mortgage crisis - other economic effects some time ago when that issue faded from the headlines. It's still there along with some headlines. You might also check out credit default swap. Lots going on with that related to the Lehman Bankruptcy. Farcaster ( talk) 04:28, 11 October 2008 (UTC)
seems like several spin-off referring and generalizing the same current events covered many times, and using various arbitrary names and dates such Economic_crisis_of_2008 or Financial crisis of 2007–2008..... Rodrigue ( talk) 13:15, 12 October 2008 (UTC)
Yes, lots of spinoffs. I guess imitation is the sincerest form of flattery. But serious, this main article is about the causes, impacts, and responses. It should be more thematic and summarized, with just enough examples to illustrate the particular element or point. Daily type events and daily he said/she said should be put into subordinate articles. My thought is that this article is the umbrella with other articles for deep-dives on particular issues. Farcaster ( talk) 17:05, 12 October 2008 (UTC)
Since 98% or so of the article is about the United States, and it is the United States that made all these subprime loans, why shouldn't the name of of the article include 'United States'? Hmains ( talk) 00:06, 13 October 2008 (UTC)
It seems like this might belong to document the opinion of an expert on fannie and freddie, since much talk has come from this:
http://www.nytimes.com/2008/07/14/opinion/14krugman.html
Brusegadi ( talk) 07:56, 13 October 2008 (UTC)
I think this should be deleted as it isn't specific to subprime issues: Gerald P. O'Driscoll former vice president at the Federal Reserve Bank of Dallas stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism. Government backing let Fannie and Freddie dominate the mortgage-underwriting. "The politicians created the mortgage giants, which then returned some of the profits to the pols - sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents." [1]
On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac. [1]
This may be worth putting in somewhere - Mervyn King June 2007 - "The development of complex financial instruments and the spate of loan arrangements without traditional covenants suggest another maxim: be cautious about how much you lend, especially when you know rather little about the activities of the borrower.
It may say champagne - AAA - on the label of an increasing number of structured credit instruments.
But by the time investors get to what's left in the bottle, it could taste rather flat. Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight."
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/03/ccom103.xml
If someone could summarize what happened in like, a paragraph, it'd be awesome. thx —Preceding unsigned comment added by 74.213.214.208 ( talk) 12:51, 13 October 2008 (UTC)
George Bush's speech to the nation has a good plain-language summary. See the background information article. Farcaster ( talk) 01:32, 8 November 2008 (UTC)
I literally just saw this article, scrolled to the bottom, the first thing I thought was tl;dr and hopped over here to write tl;dr. Little did I know someone beat me to it. 19:39, 27 July 2009 (UTC) —Preceding unsigned comment added by 65.113.71.3 ( talk)
Farcaster keeps on undoing my edits to this paragraph. A fundamental modification is necessary as there is no mention of any loan defaults which is actually the bulk of the crisis. Those of us that have actually studied economics, know that in economics there are causes and effects. Lack of liquidity is an effect not a cause of the crisis. Therefore stating that the crisis "is characterized by lack of liquidity" is essentially incorrect. The real cause are huge amounts of defaulted loans. Please, discuss or understand the edits before undoing them. VShaka ( talk) 20:34, 2 October 2008 (UTC)
The tone of the two summary paragraphs is not appropriate to an encyclopedia article; while any writing will have some element of opinion, this is too political in tone. I urge others to clean this up.
While I can't argue whether 80% of sub-prime loans were ARMs, as they may have been, there is a critical difference between what is more generally understood to be an ARM and typical practice in sub-prime mortgage lending. An ARM, after some initial period, has provisions that reset the interest rate in relation to an index. It is my understanding (no, I don't have references; I simply don't have the time) that a great many, perhaps most, "sub-prime" mortgages were written such that even if there were no movement in any index, the interest rate and payments would increase. So, yes, mortgages "began to reset at higher rates," but it wasn't a movement of an index that raised the rate, it was automatic provisions in the original mortgage loans. Then, tighter lending standards and falling home prices prevented the refinancing of the original, unsustainable mortgages.
Finally, I urge someone to research this question: How much of the loss in value of securities backed with sub-prime mortgages was caused by actual default losses? The fear of default losses, and the inability to value those securities may have had just as much, or more, effect on the financial system as actual mortgage default losses.
Madison Max ( talk) 14:14, 6 July 2009 (UTC)
Can the "Excessive housing speculation" and "The role of speculative borrowing practices" be combined under "Speculation"? Also, the statement: “The role of speculative borrowing has been cited as a contributing factor to the subprime mortgage crisis”; is supported by an article written in 1996. Something is wrong with that. Halgin ( talk) 23:32, 2 October 2008 (UTC)
The most interesting graphics on financial institutions reserves and borrowings from the fed are these: http://research.stlouisfed.org/fred2/series/BORROW and http://research.stlouisfed.org/fred2/series/BOGNONBR. The first is monthly data from 1919 (not a typo) to date on average financial institution borrowings from the Fed. The second is monthly data from 1959 to date, on financial institutions' non-borrowed reserves. Both clearly show that something broke. DOR (HK) ( talk) 06:11, 3 October 2008 (UTC)
EconomistBR 15:28, 3 October 2008 (UTC)
Please discuss here removal of the following cause: "requirement of commercial and mortgage banks to lend to high-risk borrowers [2] [3] ". Gogino ( talk) 14:08, 15 October 2008 (UTC)
Here are some credible sources explaining the role of CRA: How Government Stoked the Mania, The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities. Gogino ( talk) 17:32, 15 October 2008 (UTC)
In the first sentence of the primary causes, you have this specific element. There is an element related to regulation later in the paragraph. CRA does not merit the level of attention you give it there in the summary. For instance, CRA was from 1995 I believe. The primary issuance of subprime debt that is causing the crisis was in 2004, 2005, and 2006. See the Miliken presentation at the bottom for the specifics. The crisis is really the debt issuance in those 3 years. More proximate to this was the decision by the SEC (in 2004) to enable investment banks to dramatically expand leverage. Even the articles you cite do not give CRA primary position, and they are from the WSJ (a very conservative leaning paper). So I ask (again) that you leave that intro part alone and expand the CRA portion lower (or even better, the separate CRA article, as this article is already too large and should be an umbrella rather than a detailed discussion of every part. I don't want an edit war with you and I want the CRA part in there; I don't want it to appear a primary cause anywhere. Farcaster ( talk) 21:46, 15 October 2008 (UTC)
I've added a section to highlight some of the predictions as EVERYONE BECOMES AND EXPERT AFTER THE FACT (and add their own spin) but some of those with the initial insight had the clearest understanding of what the causes and rising risks were (of course some predict crisis using flawed reasoning and just get lucky). Additionally, experts tried to dispel and mislead on Buffett's warning about derivatives as weapons of mass destruction but failed to discuss his daisy chain / counter party risk warning - yet that - more so than the products themselves were at the heart of his discussion. —Preceding unsigned comment added by AlbertaSunwapta ( talk • contribs) 04:02, 16 October 2008 (UTC)
Clearly there are two major causes of the crisis:
Out of the causes listed the following are related to its acceleration only and assume the existence of the problem already: (1) the inability of homeowners to make their mortgage payments, (2) speculation and overbuilding during the boom period, (3) risky mortgage products, (4) high personal and corporate debt levels, (5) financial innovation that distributed and perhaps concealed default risks, and (6) central bank policies.
The remaining causes (7) poor judgment by the borrower and/or the lender and (8) regulation (or lack thereof) could be related to both the existence and the acceleration.
Ad (7): Many borrowers cannot balance their checkbook. Naturally they will have poor judgment about more complicated things. But this is not special for this crisis. It long has been that way and I don't see any evidence of increase in poor judgment other than by the sheer existence of the judgment opportunities.
Increase in poor judgment of lenders should have its cause. Why would they have poor judgment just in subprime lending and not in anything else? Why would they employ people with poor judgment? There must be some external force like a possibility of a punishment (for example, requirement of commercial and mortgage banks to lend to high-risk borrowers) or a possibility of making a profit (for example, possibility to liquidate the bad loans).
The bottom line is that (7) is a part of (8) regulation.
Ad (8): This is the only cause of the existence of the problem but it doesn't give enough useful information.
The causes that belong here should be listed.
--
Gogino (
talk) 00:58, 16 October 2008 (UTC)
This subsection is titled "Causes in general" and I would like to start with their listing. I don't think we can go any further if we don't clarify this. I plan to split the causes depending on if they caused the existence of the subprime mortgage problem or if the caused its acceleration. --
Gogino (
talk) 06:08, 17 October 2008 (UTC)
The following was recently removed: "Another source of the crisis is arguably the evidence of insider trading in credit derivatives". Gogino ( talk) 14:20, 15 October 2008 (UTC)
I attended this Financial Planning Association (FPA) conference in the Summer of 2008 in Charlotte North Carolina and one of its guest speakers, an analyst from Lazard, commented with well over 200 people in attendance, that immigrants are the root cause of the subprime crisis in the U.S. Since this guy has a master's degree in urban planning from Harvard and an undergraduate degree from Duke University, presumeably, he must be the expert on the subject. Does anyone have any real data to back up his claim? If there is, we should note the findings here in this article. Ronewirl ( talk) 01:38, 18 January 2009 (UTC)
The article does not discuss one of the most significant causes of the subprime crisis. This is the leverage of the investment banks.
Traditionally, the investment banks were limited to borrowing $12 for every dollar of capital. In 2006, the Bush administration eliminated this rule. As a result, the investment banks took their leverage to 30 to 1, and in some cases 35 to 1. In other words, the banks were borrowing $35 for every $1 of capital on their books.
If the melt-down in the stock market looks like 1929, it is because we are following the same policies as in 1929. In both instances, the stock market became overheated because of excessive borrowing to buy securities.
Professor John C. Coffee at Columbia Law School, one of the authors of the Sarbanes-Oxley Act, has complete details on the regulatory changes. It is important that this reason be added to the historical record. —Preceding unsigned comment added by Elliott101 ( talk • contribs) 11:46, 16 October 2008 (UTC)
Also, when discussing the problem of investment bank leverage, you might want to include a short discussion of the failure of the hedge fund, Long Term Capital Management (LTCM). In many ways, LTCM was a harbinger of the current financial crisis. In 1997, LTCM borrowed 50 to 1 on its money. While the market was going up, LTCM was getting 50% annual returns. When it failed in 1998, LTCM had borrowed over $1 trillion, and nearly brought down all of Wall Street with it. Federal involvement was necessary to avoid a much larger banking crisis at that time. The lessons of LTCM were recent, but apparently not learned by either the banks or the regulators. Complete details are available in a book on LTCM by Roger Lowenstein. Lowenstein is a former reporter for the Wall Street Journal, and the son of another professor at Columbia Law School, Louis Lowenstein.
See the diagram on financial leverage in the economic background section and again the effect on financial institutions section. We could amplify with a paragraph in the causes section. The SEC change was in 2004, also cited. Farcaster ( talk) 13:19, 16 October 2008 (UTC)
Farcaster, why did you remove this sentence: "However, there are opposing views on causes of this crisis especially those related to regulation and the reader should not rely on the list written here." from "Causes of the crisis"? Do not remove before finishing discussion. It is clear that there are opposing views. -- Gogino ( talk) 06:23, 17 October 2008 (UTC)
Business week has a cover article that lists the causes at Business Week - The Financial Crisis Blame Game. They list in order:
Please read this article Gogino and Carol. Farcaster ( talk) 09:04, 18 October 2008 (UTC)
The article is a good sum-up of the conventional wisdom, but I don't think that it needs to be given more weight than any other good source of information. Better to give weight to whatever official government reports are available.-- JohnnyB256 ( talk) 13:17, 18 October 2008 (UTC)
The section titled "Understanding the risks of default" is unreferenced. Also, almost all the points made in this section are made elsewhere in the article. I suggest deleting the section, in part because we should probably all be looking for ways to make the article shorter (without sacrificing content, of course).
Also, the graphic titled "Financial Leverage Profit Engine" is too textual. If that much text is needed to explain the graphic, the text should be included in the article. Moreover, many of the referencs on the [ page] for the graphic do not seem to support the points made in the graphic's text. I suggest deleting the graphic. Again, all else being equal, shorter=better. Bond Head ( talk) 03:22, 19 October 2008 (UTC)
I've added the text to the editable part of the page. If there are any changes that can improve it, please edit there and I will update the text in the diagram. Farcaster ( talk) 17:01, 19 October 2008 (UTC)
This diagram suggests that the causal direction is: Housing Market influenced Financial Market and that influenced Government and Industry. There are many articles suggesting that these influences are more complex and go also in opposite directions.
I suggest that the
diagram should reflect this or be removed. If you agree please respond below. --
Gogino (
talk) 07:51, 19 October 2008 (UTC)
Farcaster, it is 3:1, are you going to do anything with the diagram? For example, you can start with erasing the controversial arrows. -- Gogino ( talk) 21:03, 19 October 2008 (UTC)
This diagram is accurate with the scope described. More could be added. Removing arrows from a flowchart doesn't make sense. What POV am I supposedly pushing here? That the housing market bubble burst and had a ripple effect through the financial markets and that the government has responded to that ripple? That is widely agreed upon and is all I'm really saying with the diagram. Yes, the government had a role in building the housing bubble, with low interest rates and the GSE's. If somebody wants to add a housing bubble diagram, that is fine. I've proposed an supplemental diagram here at right, where we start with the main causes (bad lending decisions and bad borrowing decisions by individuals--this is capitalism, after all) and then list the influences. Do you like this concept any better? I think together they tell the story. Farcaster ( talk) 23:31, 19 October 2008 (UTC)
The diagram have not been changed yet so I added "may not represent a worldwide view" flag to extend this discussion before removing or changing it. --
Gogino (
talk) 03:52, 20 October 2008 (UTC)
I like the style of the diagram at right since it doesn't emphasize some particular theory about the causes. How about if that diagram (at right) goes before the "Subprime Crisis Diagram - X1.png" diagram and the later is changed in the following way: The circle containing "Start" is replaced with a circle "Causes of the Housing Bubble, see another diagram" and all bullets under the square with "Excess Housing Inventory" would be erased (Overbuilding, speculation, easy credit...). This way the context for each diagram is much more clear. After that we can still think about their content. Please let me know what you think. -- Gogino ( talk) 15:48, 20 October 2008 (UTC)
Seems reasonable. I'll fix the diagrams tonight and post them. I'll see if I can come up with some way of pointing the documents to each other. Farcaster ( talk) 20:06, 20 October 2008 (UTC)
All, please check the top two diagrams on the article page (right next to the content) and if you find missing possible causes or items in domino effect or something else then write about them below. --
Gogino (
talk) 14:54, 22 October 2008 (UTC)
The conflict of interest section is weak, beginning with an oped piece in the New York Post and continuing through campaign contributions. I fail to see how campaign contributions caused this crisis, or to whom that caused the conflict of interest. It seems out of whack.-- JohnnyB256 ( talk) 14:51, 19 October 2008 (UTC)
Agree. I support removing this section as written. I recommend replacing it with more thoughtful analysis of how Fannie & Freddie contributed to the crisis. This is a complex and contentious topic. They funded a lot of MBS and then in late 2007-2008 transitioned to a rescuer, by increasing purchases of toxic MBS from banks. The latter action was a deliberate rescue step and was done with widespread knowledge of the risk to the GSE's. The testimony of its regulator at [2] is a definitive starting point for this. Overall defaults were 1.36% and is frankly immaterial to this crisis. About 90% of what they did was fixed rate, which has much lower defaults than ARM's. However, they guarantee trillions in MBS held by others through credit default swaps and other mechanisms. There is an estimate of their guarantee liability on their books for this (Fanny had reserved about $8.9 billion on its balance sheet as of June 2008 for credit losses and had recognized losses of $8.5 billion through its income statement). These amounts were material for the company but not to the crisis overall. Fannie said its financial condition was fine in its August 2008 conference call. So help me out here... Farcaster ( talk) 17:47, 19 October 2008 (UTC)
I've moved it out of the "causes" section, where it didn't belong, and put on a different section head. I still have a problem with what is in it but at least it is better situated.-- JohnnyB256 ( talk) 01:54, 25 October 2008 (UTC)
MBS are portrayed negatively in this article. Were they created to improve liquidity and diversify risk? If yes then that is positive. If anything went wrong then why? To say MBS are in fault is cheap and might be wrong. -- Gogino ( talk) 20:59, 19 October 2008 (UTC)
MBS are like guns. It's how they are used that matters. It's not so much the MBS, but the enormous leverage that was used to purchase them. According to the Economist, banks also retained too much rather than sell them to investors. Farcaster ( talk) 23:33, 19 October 2008 (UTC)
I think we agree that MBS were created to improve liquidity and diversify risk. That appears in the economic background and in the securitization section and leverage section. But it is true that huge losses were incurred by banks on these investments and that this investment vehicle was probably overused fueling the crisis. Farcaster ( talk) 04:10, 20 October 2008 (UTC)
Taxpayers cash being used to buy non voting shares ie A No Strings Attachted Gift! Please could this be interegrated:
Chendy ( talk) 16:20, 22 October 2008 (UTC)
Preferred shares pay dividends or interest to the government. Someday, the banks pay the principal value. So taxpayers may do just fine. Here is a quote from the first source you cited: "Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights." Farcaster ( talk) 18:40, 22 October 2008 (UTC)
other than the first sentence in this article, is their anything in this article that is about any other country than the United States? If not, the article is misnamed--no expanded, it is already too long. The name then needs to include 'in the United States'. Hmains ( talk) 22:48, 7 November 2008 (UTC)
This section is getting ripe for an overhaul (summary, with detail to supporting page). I know a couple of folks that would like that job. You know who you are. Farcaster ( talk) 02:51, 21 October 2008 (UTC)
Please add all new information for this section first to the subarticle Government policies and the subprime mortgage crisis. -- Gogino ( talk) 15:38, 22 October 2008 (UTC)
I am proposing the following shortened version of the text to replace the current government section, minus the citations. Let me know what you all think, as we have a supporting article for this and this section is now quite long. Farcaster ( talk) 02:49, 10 November 2008 (UTC)
Both government action and inaction have contributed to the crisis. Several critics have commented that the current regulatory framework is outdated. President George W. Bush stated in September 2008: "Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st century global economy remains regulated largely by outdated 20th century laws." The Securities and Exchange Commission (SEC) has conceded that self-regulation of investment banks contributed to the crisis.
Increasing home ownership was a goal of both Clinton and Bush administrations. There is evidence that the government influenced participants in the mortgage industry, including Fannie Mae and Freddie Mac (the GSE), to lower lending standards. In 1995, the GSE began receiving government incentive payments for purchasing mortgage backed securities which included loans to low income borrowers. This resulted in the agencies purchasing additional subprime securities. Subprime mortgage loan originations surged by 25% per year between 1994 and 2003, resulting in a nearly ten-fold increase in the volume of these loans in just nine years. These securities were very attractive to Wall Street, and while Fannie and Freddie targeted the lowest-risk loans, they still fueled the subprime market as a result. In 1996 the Housing and Urban Development (HUD) agency directed the GSE to provide at least 42% of their mortgage financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.
By 2008, the GSE owned or guaranteed nearly $5 trillion in mortgages and mortgage-backed securities, close to half the outstanding balance of U.S. mortgages. The GSE were highly leveraged, having borrowed large sums to purchase mortgages. When concerns arose regarding the ability of the GSE to make good on their guarantee obligations in September 2008, the U.S. government was forced to place the companies into a conservatorship, effectively nationalizing them at the taxpayers expense.
Liberal economist Robert Kuttner has criticized the repeal of the Glass-Steagall Act by the Gramm-Leach-Bliley Act of 1999 as possibly contributing to the subprime meltdown, although other economists disagree. A taxpayer-funded government bailout related to mortgages during the savings and loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans.
I still argue, as I have from the beginning, that this article gives insufficient weight to government laws and regulations in causing the crisis and that they should be the first listed cause. (I've got lots of WP:RS opines on that won't share at this moment.) One of the reasons I worked first on Subprime_crisis_impact_timeline was just to find out what all the relevant laws and regulations were, in chronological order. (Refs from below at that article.) Do so just confirmed that government policies artificially promoted housing ownership and created a housing bubble through lose monetary policy and through various laws, regulations and subsidies. The following are most to blame and should be explicitly mentioned in this article. The whole causes section should be in chronological order with current sub-sections directly tied to government policies that largely caused them. Right now the article remains a hodge podge of POV viewpoints. I haven't even looked at the sources for the lead section to see if they are WP:RS and relevant and if text reflects what they say. Anyway, for the edification of those who may want the cause section to reflect reality, here's a list of biggest government influences on the problem:
I fully agree with Carol Moore on the importance, in principle, of statutes and regulations bearing on the USA mortgage industry. My comments, in italics, on the specific actions she lays out follow.
My bottom line: until mid-2008, the fundamental principle of the mortgage industry was: "If Fannie and Freddie do it, it's kosher."
Around 1980, the Chicago Tribune ran an article describing the gradual decline in downpayments over the 1970s, blaming that on competitive pressures. It went on to warn readers that that decline would inevitably lead to a dramatic rise in defaults and foreclosures. Low downpayments contributed to the S&L crisis of 20 years ago. Downpayments continued to decline because issuers of MBS, first Fannie and Freddie then Wall Street, began to buy mortgages with downpayments under 20%, then under 10%, then zero or near it. 132.181.160.42 ( talk) 02:38, 27 February 2009 (UTC)
Adjustable rate mortgages were not new in 1982, per two reputable sources. Since I apparently cannot remove the contention that they were new, I am in the absurd position of having to put both things down at the same time. -- Dlawbailey ( talk) 02:15, 25 April 2009 (UTC)
Adjustable rate mortgages were not new in 1982, now per three reputable sources. Neither were option ARMs new in 1982. The 1982 act is about preemption which is an extremely interesting and germane question, but it is not handled appropriately or truthfully here, inappropriately citing an opinion-of-opinion piece which misrepresents the legislation. As for the 1995 change in GSEs and subprime loans, I am only getting started. There was no change to the tax code. There was no tax consequence specifically linked to the GSEs taking on the loans and none is cited.-- Dlawbailey ( talk) 07:09, 25 April 2009 (UTC)
the basic problem or most important one that triggered subprime crisis is declining house prices.
Why has no one yet explained anywhere on the internet how did the real estate market in US work and what made it collapse and exactly how did it collapse(illustrate)
Creation of bubble!. ok but how did market fail to overcome this bubble and how this bubble was inflated in in first place
explaining all that above using simple microeconomics and some macroeconomics will help millions.
-- Asadlarik3 2008-11-12T06:37:18
the question is still open to be answered, no really be answered but more of teaching. —Preceding unsigned comment added by 116.71.66.94 ( talk) 11:12, 13 November 2008 (UTC)
I'm new to this and i was told by an editor on this site that adding the link of a non profit org news site http://www.usbailout.org was a spam link.
I don't understand this? Can anyone comment.
Thanks, Phoenixauthor
Phoenixauthor ( talk) 21:08, 12 November 2008 (UTC)
all the editors of this article who make major or minor edits or additions please list your qualification so that the credibility of this information can be judged.
Since anyone can edit Wikipedia, you should consider the sources cited and look to those for any point you consider contentious or unclear. There are a variety of high-quality sources cited in this article. If there is a particular topic of interest to you, indicate it here and I'll point you to some helpful sources on it, if not already apparent in the article. I recommend the New York Times "The Reckoning" series on the crisis and the article "The Subprime Mortgage Crisis" in the external links by Robin Blackburn for starters. Read those and you'll know a lot about this topic. Farcaster ( talk) 04:24, 14 November 2008 (UTC)
How does that look? I tend to err toward repetition but that doesn't look excessive to me. Issues with actually measuring the size of the bubble and specific effects should follow the first paragraph. Personally I think we should even avoid the term mortgage—doesn't credit card debt play a major role too? (I wouldn't know how to start comparing its relative contribution.)For many years prior, lenders chose to make loans with low, yet uncertain, chances of repayment. It gradually became clear how many loans would not ever be repaid, with the money lost to the lender. This "disappearance of money" characterizes an economic bubble. The rise and fall of any bubble is defined by a delusion causing a resource to be overvalued. The subprime mortgage bubble is characterized by mortgages made by, and traded among, various banks. During prosperous times, it was assumed that homeowners could gradually repay their debts with future wealth, causing a bubble to form: the loans were overvalued, worth even less than the initial investment given to the homeowner. Overvaluation was (and is) perpetuated as banks trade loans between each other, trading "known evils" for "unknown evils," and often adjust the terms of the loans themselves, slowing the process of measuring their total losses. Due to the nature of a mortgage, the collapse of the bubble directly causes evictions by home repossession, as well as the loss of capital from banks associated with all financial panics.
> I changed the entry to correct these objections, but Farcaster reverted my edits.
well this might have been done but i am sure if you had tried to discuss those problems in `discussion`. Farcaster would have himself made the changes. He manages this article regularly and
if you can provide your professional insights what else will this global article require. I also have to admire Farcaster for his commitment to article and consideration to contributors. —Preceding
unsigned comment added by
Asadlarik3 (
talk •
contribs) 19:38, 30 December 2008 (UTC)
Conventional wisdom seems to be the financial crisis is lessening with the recapitalization of the banks and now the broader economic effects are hitting outside the housing and financial markets as consumers are slowing spending and businesses are preparing for a downturn. For example, in the U.S. we lost a major retailer and the Big 3 auto companies are getting close to a bailout or bankruptcy. I'd propose limiting the scope of this article to the housing market and financial market pieces; any discussion of the other markets would be limited to quick blurbs and handoffs. What do you all think? Farcaster ( talk) 08:07, 16 November 2008 (UTC)
There are some interesting looking charts illustrating this article. They are, however, far too small to be useful unless you click on them. Is this standard practice?-- JohnnyB256 ( talk) 23:58, 17 November 2008 (UTC)
I am sorry, but if one of main reason of the ciris are MBSs and CDOs structures, and the whole credit risk has been hiden under MBSs and CDOs, the diference between MBS and CDOs needs to be explaind somehow.
- In the whole introduction CDOs are not even metions - In the section "Understanding Risk" CDOs suddenly appear, but merly as a synonimum for MBS - In section called "Securitization praticies" CDOs are not even metioned
What exactly are the differences between how the crisis materialized viac CDOs compared to MBSs securiities?
On the plus side, I really need to give credit to the authors of the paragraph on CDS, which are clearly and well explaind. Could we work something explaning seprately the role of MBSs and separately the role of CDOs?
Further, did CDOs of CDOs play any role here at all? If yes, I believe it would need pointed out somewhere, because the chain of CDO^n surely has different implications that na simple CDO.
Thank you, and compliments for the great job on this article so far. -- PBES ( talk) 03:09, 25 November 2008 (UTC)
Most statements in sections 3.2 and 3.3 are one or more of irrelevant, trivial, unsubstantiated, pointless, or downright false. These sections should also be combined and drastically pared down.
Here's all that need be said. The typical national stock market attained an all-time high sometime in 2007. It has since declined 40-70% (the tables on the last page of issues of the Economist document the decline since 31 December 2007). The declines since 15 September 2008 have been especially brutal. 2008 will see the largest decline in the USA stock market since 1931. This worldwide bear market is invariably blamed on the worldwide credit crisis stemming from the USA subprime mortgage crisis. Someone should research the performance since 2005 or 2006 of, say, the finance industry subindex of the S&P 500. 123.255.28.93 ( talk) 07:41, 29 November 2008 (UTC)
I'm updating the time line with some private company-related info and finding that what is alleged to be in some articles used as sources is not in there. I'm noting most of those I've found; might have missed a couple. So let's be careful :-) CarolMooreDC ( talk) 19:07, 6 December 2008 (UTC)
The main article does not seem to refer to interest-only mortgages. It does mention (to its credit) adjustable rate mortgages. It does not seem to mention balloon mortgages. I am not sure that it mentions low- or no-downpayment mortgages.
All of these are relevant to the current high rate of mortgage default.
Adjustable rate mortgages and balloon mortgages are ticking timebombs, except in special cases (e.g., qualified speculators). No one can predict the future. Monthly payments can rise significantly. Even homeowners who are employed (who have not lost their jobs) can find themselves unable to pay such mortgages, resulting in defaults. It's bad enough that in many states property taxes can rise dramatically (and have done so) and unexpectedly. It's bad enough that energy costs can and have risen dramatically and unexpectedly.
I am not sure the main article mentions the role of unscrupulous mortgage brokers, epitomized by Countrywide Financial and its CEO Angelo Mozilo. Mortgages were sold to borrowers on the basis of monthly payments, with brokers taking cash out of the mortgaged properties. This exploitative practice contributed to putting properties "under water," tendind to prevent them from being sold for fair prices and avoiding defaults. Jabeles ( talk) 22:07, 7 December 2008 (UTC)
Take a look at the "High-risk mortgage loans and lending /borrowing practices" section. That covers most of your points above. Mention what else you'd like added. Farcaster ( talk) 01:46, 8 December 2008 (UTC)
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