Ron Paul on Gramm-Leach-Bliley before it was passed

[myp]

A lot of people currently blame the financial crisis on the partial repeal of the Glass Steagal Act, which was done through the Gramm-Leach-Bliley act in 1999. This is the main supporting argument for those who believe that this crisis was caused by deregulation.

Congressman Ron Paul, a big free market supporter, said this about that legislation days before it was passed: http://www.house.gov/paul/congrec/congrec99/cr110899-glb.htm

Not only does this show that there were some who realized the destruction that was coming, but it also shows why the deregulation argument really doesn't hold water. Sure this bill played a part in the coming turmoil, but the only reason it did was because of existing government structures that created a moral hazard by entangling themselves with the banks. If you really want to get to the root of the problem, it is clearly not Gramm-Leach-Bliley that was the problem here- it was those moral hazards.

 

[Nemo]

No, the subprime loan debacle (and the economic crisis it precipitated) was due to a number of things that went unregulated by the Bush administration, some of them punishable for criminal fraud on all levels from the borrowers at the bottom to the top levels of the corporate boardroom.

For example: a man who works as a janitor for the school district, and never earned more than $30,000.00 per year in his life, managed to buy four homes in California by borrowing more than $2,000,000.00 in subprime motgages. On his loan applications (prepared by his loan broker) he stated under penalty of perjury that he owned a janitorial service business and earned over $300,000.00 a year. The homes were purchased as "owner occupied" with 100% financing on adjustable rate notes secured by the property whose value was overstated by inflated appraisals made by the partner of the loan broker; and the mortgages were packaged and sold by the banks as debt securities on the financial markets.

Then the shit hit the fan. The interest rate on the adjustable mortgages went up and the property values went down; and the hapless janitor was facing payments three to four times the amount he earned each month or could collect from renters of the properties; the note obligations secured by the mortgages are in default and the properties pending foreclosure, some by the lending banks that were obligated to buy back the paper pursuant to repurchase agreements, and others by assignees of the securities. The "millionaire" janitor, who has filed bankruptcy, is an uneducated immigrant from Mexico and claims that he did not understand the loan documents prepared for his purchase of the four properties; the loan broker claims that he prepared the applications based on what the borrower told him; and the banks now admit that there was no "due diligence" inquiry as to either the value of the collateral or the borrower?s financial ability to make the payments. One bank officer stated: "He looked pretty good on paper."

This is not an isolated case - it?s rampant. There are a record number of defaults recorded on subprime loans secured by overvalued property that will end up being foreclosed on credit bids by the holders of these bad mortgages. The government regulatory agencies did not exercise proper oversight of mortgage bankers and financial markets; and now we will all be paying for it.

 

[myp]

No, the subprime loan debacle (and the economic crisis it precipitated) was due to a number of things that went unregulated by the Bush administration, some of them punishable for criminal fraud on all levels from the borrowers at the bottom to the top levels of the corporate boardroom.

For example: a man who works as a janitor for the school district, and never earned more than $30,000.00 per year in his life, managed to buy four homes in California by borrowing more than $2,000,000.00 in subprime motgages. On his loan applications (prepared by his loan broker) he stated under penalty of perjury that he owned a janitorial service business and earned over $300,000.00 a year. The homes were purchased as "owner occupied" with 100% financing on adjustable rate notes secured by the property whose value was overstated by inflated appraisals made by the partner of the loan broker; and the mortgages were packaged and sold by the banks as debt securities on the financial markets.

Then the shit hit the fan. The interest rate on the adjustable mortgages went up and the property values went down; and the hapless janitor was facing payments three to four times the amount he earned each month or could collect from renters of the properties; the note obligations secured by the mortgages are in default and the properties pending foreclosure, some by the lending banks that were obligated to buy back the paper pursuant to repurchase agreements, and others by assignees of the securities. The "millionaire" janitor, who has filed bankruptcy, is an uneducated immigrant from Mexico and claims that he did not understand the loan documents prepared for his purchase of the four properties; the loan broker claims that he prepared the applications based on what the borrower told him; and the banks now admit that there was no "due diligence" inquiry as to either the value of the collateral or the borrower?s financial ability to make the payments. One bank officer stated: "He looked pretty good on paper."

This is not an isolated case - it?s rampant. There are a record number of defaults recorded on subprime loans secured by overvalued property that will end up being foreclosed on credit bids by the holders of these bad mortgages. The government regulatory agencies did not exercise proper oversight of mortgage bankers and financial markets; and now we will all be paying for it.

But, you aren't looking at the big picture here. Obviously those who approved those loans realized that a lot of these people wouldn't be able to pay them off if the market cooled and they didn't have an equity. So why did they make the loans anyway? Because Wall St. would buy them. Why would Wall St. buy them? Because they could repackage and sell them to investors including Fannie and Freddie. How was all this credit available? Due to Fed loose money policy.

Sure, at the small level this is what happened- there is no doubt about it. But, while the janitor is to blame for his short-sightedness and the loan approver for simply approving it since he could sell the mortgage to Wall St, in the end it was all because that credit was available and the eventual buyer was willing to pick up those assets. Now you can make the argument that Wall St. should have stopped the purchase of these assets, but their job is not to look out for the whole economy or the people. There job was to make money and so long as government propped up this false market, they knew they would be bailed out and hence, they were willing to make these riskier -moves- the moral hazard. The entity that has taken the voice of the people is government and not Wall St. and they could have just as easily stopped this by removing that moral hazard with a stricter monetary policy and NO government investment in these assets. They didn't do that.

Tracing the crisis back, there are several stops you can take from the janitor to the loan approver to the lending company to Wall St. But, if you want to trace it to the roots you will inevitably end up at government.

 

[deanhills]

For me the economy is just soooo very much complicated, and you are right MYP, all roots will probably track back to Government. I don't see the sense in any legislation, other than completely starting from scratch, which naturally is impossible, given the huge debt loads, and most financial institutions operating on the basis of "good faith". The US basically being bankrupt.

 

[Nemo]

Well then, is there to be no accountability? Are the banks and the financial markets to be allowed to go unregulated? (Even Alan Greenspan admitted he was wrong on that score.) And what about all the unfettered speculation with borrowed money (viz., the trading with securitized assets, collateralized debt obligations and credit default swaps)? Is there to be no transparency? (To this day the government doesn?t know exactly where all the bailout money went!) Is it to be back to "business as usual"? Now, with the tacit approval of the "best Congress money can buy," it is apparently so.

 

[DodgeFB]

Well then, is there to be no accountability? Are the banks and the financial markets to be allowed to go unregulated? (Even Alan Greenspan admitted he was wrong on that score.) And what about all the unfettered speculation with borrowed money (viz., the trading with securitized assets, collateralized debt obligations and credit default swaps)? Is there to be no transparency? (To this day the government doesn?t know exactly where all the bailout money went!) Is it to be back to "business as usual"? Now, with the tacit approval of the "best Congress money can buy," it is apparently so.

I am afraid there will be even more money to buy congress now. And I am still waiting for some bailout money to stick to me.:help:

 

[myp]

Well then, is there to be no accountability?

Of course not, had government not created a moral hazard, the consequences of the bank failures would've been just that- they would've failed instead of being bailed out.

Are the banks and the financial markets to be allowed to go unregulated? (Even Alan Greenspan admitted he was wrong on that score.)

Alan Greenspan supported deregulation while the moral hazard existed and that is why he was wrong. Had that moral hazard not existed, the deregulation would've been fine. On his end he would still have made a bad move with loose monetary policy, but I don't think anyone- the regulators or deregulators- is currently saying that was good. Sound money would be a must.

And what about all the unfettered speculation with borrowed money (viz., the trading with securitized assets, collateralized debt obligations and credit default swaps)?

Investor beware. Investors need to be more aware of where their money is going. Sitting back and being told you will make x% on the year clearly does not work. The recent Madoff scandal is an especially strong example. If investors are going to be lazy, then maybe they just have it coming if it happens to them.

Is there to be no transparency? (To this day the government doesn’t know exactly where all the bailout money went!) Is it to be back to "business as usual"? Now, with the tacit approval of the "best Congress money can buy," it is apparently so.

Well under what I am saying there would be no moral hazard and as such no forced government bailouts of the banks. Companies with capital would pick up the assets they wanted from the failing bank. We already have a system to deal with company collapse- bankruptcy. No bailouts also means no "bought" Congress or not knowing where taxpayer money went.

 

[Dirk]

And I am still waiting for some bailout money to stick to me.:help:

The bailouts were for rich people - nothing to do with you. Know your place, peasant.

 

[deanhills]

I am afraid there will be even more money to buy congress now. And I am still waiting for some bailout money to stick to me.:help:

I just have this feeling that Obama is going to come up with something so that people will vote for him. I.e. a ruling or some or other Aid that will put money in their pockets. So don't give up hope yet .... :smug:

 

[DodgeFB]

I just have this feeling that Obama is going to come up with something so that people will vote for him. I.e. a ruling or some or other Aid that will put money in their pockets. So don't give up hope yet .... :smug:

He would have to come up with something really good to get my vote. Monthly beer and steak funding at the very least.

 

[deanhills]

He would have to come up with something really good to get my vote. Monthly beer and steak funding at the very least.

Not Free Medical Insurance? :cold:

 

[DodgeFB]

Not Free Medical Insurance? :cold:

For me? No! After I took my last chemo. I went years before seeing a doctor. Then two years ago my mother asked me to go to the doctor "for her birthday". So I went and now take blood pressure meds. But until 2 years ago I had not been to a doctor for over 7 years. I am just looking for an excuse to stop again. My mother is not doing well so when she is gone I doubt I will ever go back.

 

[David]

For me? No! After I took my last chemo. I went years before seeing a doctor. Then two years ago my mother asked me to go to the doctor "for her birthday". So I went and now take blood pressure meds. But until 2 years ago I had not been to a doctor for over 7 years. I am just looking for an excuse to stop again. My mother is not doing well so when she is gone I doubt I will ever go back.

Ya, I haven't been to a doctor in a few years myself. Don't see the point being healthy.

 

[DodgeFB]

Ya, I haven't been to a doctor in a few years myself. Don't see the point being healthy.

I am not so healthy. I just don't think going to the doctor is going to help. I think they are fine for "bone setting". But they run ya to death, cost a bunch of money, and they sure don't stand behind their work.

 

[deanhills]

For me? No! After I took my last chemo. I went years before seeing a doctor. Then two years ago my mother asked me to go to the doctor "for her birthday". So I went and now take blood pressure meds. But until 2 years ago I had not been to a doctor for over 7 years. I am just looking for an excuse to stop again. My mother is not doing well so when she is gone I doubt I will ever go back.

I'm just as cynical about doctors, but I'm also confident that there are good ones around, you just need to shop around to find one. Usually networking is a good way to find one. Always good to have a good doctor around.

 

[DodgeFB]

I'm just as cynical about doctors, but I'm also confident that there are good ones around, you just need to shop around to find one. Usually networking is a good way to find one. Always good to have a good doctor around.

I have had only one doctor since the mid 80s. I have been going to him sine 1972. We call each other by first names. He told me a while back he feels like he can't retire or die as long as I live. He knows when he is gone I am done with doctors.

My wife has had and still has some low life doctors in my opinion. They run us to death and "over test time and again. We thought they were afraid of getting sued. But she told a couple of them recently she would sign a release, but they keep putting her surgery off. Right now her lung doctor is the the one dragging his feet.

 

[deanhills]

I have had only one doctor since the mid 80s. I have been going to him sine 1972. We call each other by first names. He told me a while back he feels like he can't retire or die as long as I live. He knows when he is gone I am done with doctors.

Now this is a good story, really awesome, the kind of doctor everyone should have