Have Banking Tactics Run Amok?

Great Debates
21

[QUOTE=Renob]
When it comes to my financial situation and my needs, I’m the expert, not the banker. A banker offers a product and he is knowledgeable about that product. I, however, know my financial situation much better than the banker. I know whether or not I can afford this product and the chances I’ll be able to repay any line of credit the banker gives.
[/QUOTE]

In which case we can do away with credit checks and people should be allowed to borrow whatever they want whenever they want. After all, they’re the experts in their financial situations, right?

Oh, only when it’s a net negative for them, not when it’s a net negative for a business.

-Joe

22

I think subprime lending started out as a result of demands in the early 1990s that banks achieve “equitable” lending by reaching out to LMI (low-moderate income) people and neighborhoods, and by extension to Blacks, Hispanics, Indians, and Asians. Banks were bragging as early as 1995 about how successful they had become, and Home Mortgage Disclosure Act reports bore them out. Warning bells went off about predatory subprime lending by the turn of the century (includes link to PDF data file), but govenrment was fearful of appearing all racist and everything by doing anything about it. Had the predatory lenders been stopped, the LMI numbers would have plummeted again. After all, LMI people often lack sufficient income to afford permanent housing. In my opinion, the present crisis, at least in part, is an unintended consequence of do-good interference by a Congress full of cowardly lions.

23

[QUOTE=Liberal]
I think subprime lending started out as a result of demands in the early 1990s that banks achieve “equitable” lending by reaching out to LMI (low-moderate income) people and neighborhoods, and by extension to Blacks, Hispanics, Indians, and Asians. Banks were bragging as early as 1995 about how successful they had become, and Home Mortgage Disclosure Act reports bore them out. Warning bells went off about predatory subprime lending by the turn of the century (includes link to PDF data file), but govenrment was fearful of appearing all racist and everything by doing anything about it. Had the predatory lenders been stopped, the LMI numbers would have plummeted again. After all, LMI people often lack sufficient income to afford permanent housing. In my opinion, the present crisis, at least in part, is an unintended consequence of do-good interference by a Congress full of cowardly lions.
[/QUOTE]
There is a VAST difference between subprime lenders and predatory subprime lenders. You’ll find few people who have a problem with the former, and few defenders of the latter.

24

[QUOTE=xtisme]
Ironic, isn’t it? When the bankers become (to paraphrase) ‘the banker with a heart’ suddenly now it’s a bad thing (well, IMHO it always was…but the people SAYING it’s a bad thing…well, there is the irony).

-XT
[/QUOTE]

But you do agree that under no circumstances should one dollar of tax money be given to these people, though, right? That the people who made the loans get to bear the responsibility for making them? That freedom from government intrusion should also mean freedom from government largesse?

25

Welcome to the world of sophistry and illusion. Everybody was being bombarded with emails ,phone calls and fliers ,touting cheap mortgages and no money down. No body could avoid them. refis galore. Companies that originated the loans did not carry them. They were packaged and sold to huge finance companies. Lenders were promised by financial experts,which the borrower was not, that by the time the low percentage jumped up the house would be worth so much more that they would always be ahead of the game. Just pay us another 3k and we will redo it again.
The danger was known by the financial experts but fortunes were being made. What did they care. Multi million dollar bonuses and industry affection and esteem followed. regulation was totally missing. There were lots of warnings ignored. Why. They were getting rich.
A guy buying a house and told of the fine deal he is getting by a financial expert ,educated in economics and trained to see the ramifications assured them it would all work. And you jerks blame a lowly person for this mess. Who was supposed to be the expert and know better?. Who was supposed to be watching to make sure the lenders did not go overboard. ?

26

They made me borrow! They came to my front door with bales and bales of cash, waving it at me! What was I supposed to do, spit in their faces?

27

[QUOTE=xtisme]
Let me just chime in with a bit ‘me to’ for those saying that the last thing we need is another nanny style regulation to protect us from ourselves. Bankers aren’t holding guns to peoples heads and forcing them to take loans.

-XT
[/QUOTE]

And who was holding a gun to the head of a banker who made the loan?

On one side we have the MBAs and Finance grads with sophisticated credit analysis software. On the other we have some poor guy with a high school education desperate to participate in the American dream by owning a house before the prices get even higher. You right wingers always blame the people, not the companies.

Do you remember the thread that quoted testimony from the subprime broker? How they especially looked for the unsophisticated? How they got bigger bonuses selling subprime loans than the best loans a person could qualify for? How when someone by mistake faxed a W2 with an application, the bank called saying that they had to reject that loan and that they broker better make sure that this mistake never happened again.

Who is responsible for no-documentation loans? The borrower or the lender? Who sold off these loans under false pretenses, into such complicated financial instruments that today’s Times says the banks and investment houses still can’t price them. Yep, Joe Average borrower. He’s to blame. Not the poor oppressed CEOs of the companies that are now taking 10s of billions in losses. It’s all Joe’s fault. They can’t be blamed.

28

[QUOTE=Bricker]
They made me borrow! They came to my front door with bales and bales of cash, waving it at me! What was I supposed to do, spit in their faces?
[/QUOTE]

They made the poor bankers give them the loans, even when a chimp could tell they wouldn’t be able to repay when the rate reset. The borrowers are no better than bank robbers, right? Let’s throw them all in jail. They must have forced those poor upstanding bankers to do it.

Question for Mods: If I call Bricker a Republican, does it qualify as an insult? :smiley:

29

[QUOTE=Evil Captor]
Chief Pedant’s attitude is a big reason why banks and credit card companies have been able to get away with all that they have (well, that and all that money they have, in a time when politicians are routinely bought and sold). Chief Pedant thinks that all responsibility should rest on the individual, and none on the corporations or the governments. It’s the individual’s responsibility to negotiate the financial mine fields, and as far as he’s concerned, the corporations can go hog-wild laying out the mines, and the government should’t stop them. I can imagine him trying to beat up on Jesus when he was tossing the moneylenders out of the temple, because Chief Pedant is all in favor of the moneylenders.

My feeling is, yes, we should be held responsible for our financial decisions, and you know what, we are. A lot of the people who bought into ARMs have been EVICTED from their HOMES through foreclosure, their credit ruined as well. How’s that for some consequences, boyos? I don’t recall that happening to any BANKERS. That’s being HELD RESPONSIBLE big time.

Now, I think all the greedy bankers and real estate developers who were baying for the chance to shoehorn middle class wage earners into McMansions should lose a little something too. But that’s just my problem, I guess. I’m all about fairness, even for the rich. Unpopular here on the Dope, but there it is.
[/QUOTE]

GD is not the place for scolding, but the single most annoying thing for me on the SDMB is having someone paraphrase what I said, or worse–in your case–attribute a position to me I neither took nor implied. There’s enough of that ridiculous type of rhetoric in politics without dragging it in here. If you want to quote me and take issue, fine. If you can’t do that, do not attribute my name to a position I did not take.

[QUOTE=Evil Captor]
“It’s the individual’s responsibility to negotiate the financial mine fields, and as far as he’s concerned, the corporations can go hog-wild laying out the mines, and the government should’t stop them.”
[/QUOTE]

What the hell are you babbling about, and where did I say that?

For the record, I think there is currently enough regulation. Within reason, just about the right amount of regulation. More regulation and more oversight will not suffice to keep the polloi from being fiscally irresponsible. For every prudent banker who refuses to lend, an unprincipled lender will find a way to make a loan, even if it’s the mafia under the table. It is not possible to regulate away greed and stupidity. For every loan turned down, a complaint will be filed of discrimination or unfair lending. More regulation will not solve this. Moreover, the current fiasco is not attributed to people who have been cheated by not understanding either the amount, or the interest rate, or the terms of their loans. It’s attributed to people getting money too easily so they can have something today, without regard to the fact that it will need to be paid back.

I am opposed to government bailouts. We ought to let institutions collapse when they make bad decisions, even when the effect of that collapse is widespread. FWIW, a principle driver of the current problem is that loan brokers are paid for generating the loan, giving them an incentive to write bad paper. That loan can be sold into a portfolio which is backed, indirectly at least, by public money. That’s too much governmental intervention. Let the bad loan’s consequence fall directly to the holder of the paper and there would be more care in buying the paper from whoever wrote it. Lenders would suddenly care more what brokers are doing.

Nonetheless, the “I am a victim mentality” annoys me when the victim’s complaint is that they were somehow snookered or dragooned into imprudent overborrowing. Nonsense. Imprudent mortgage holders and imprudent lenders can both lose their houses. Timid and fiscally conservative folks like me will be happy to take them off their hands at a discount.

30

[QUOTE=Voyager]
And who was holding a gun to the head of a banker who made the loan?
[/QUOTE]

Preachin to the choir brothah! I’m not for bailing these banks out any more than bailing out the folks who over extended themselves. I’m for letting the market correct itself, remember? That includes letting those banks and lending institutions that miscalculated take their lumps to.

[QUOTE=saoirse]
But you do agree that under no circumstances should one dollar of tax money be given to these people, though, right? That the people who made the loans get to bear the responsibility for making them? That freedom from government intrusion should also mean freedom from government largesse?
[/QUOTE]

I agree…I’m rather surprised you asked actually. Did people think my stance was for bailing out failing businesses or institutions? The people who took those loans bear responsibility. The people who made them do to. Market corrects. Some folk get hurt unfortunately. Life happens.

[QUOTE=Liberal]
I think subprime lending started out as a result of demands in the early 1990s that banks achieve “equitable” lending by reaching out to LMI (low-moderate income) people and neighborhoods, and by extension to Blacks, Hispanics, Indians, and Asians. Banks were bragging as early as 1995 about how successful they had become, and Home Mortgage Disclosure Act reports bore them out. Warning bells went off about predatory subprime lending by the turn of the century (includes link to PDF data file), but govenrment was fearful of appearing all racist and everything by doing anything about it. Had the predatory lenders been stopped, the LMI numbers would have plummeted again. After all, LMI people often lack sufficient income to afford permanent housing. In my opinion, the present crisis, at least in part, is an unintended consequence of do-good interference by a Congress full of cowardly lions.
[/QUOTE]

Exactly. The ‘banker with a heart’ reference, for anyone curious, was from Atlas Shrugged. I thought the reference apt considering the subject.

-XT

31

[QUOTE=xtisme]
Preachin to the choir brothah! I’m not for bailing these banks out any more than bailing out the folks who over extended themselves. I’m for letting the market correct itself, remember? That includes letting those banks and lending institutions that miscalculated take their lumps to.

-XT
[/QUOTE]

Good. But in this thread certain people seem to be blaming the borrowers far more than the lenders, when the lenders had the majority of power and knowledge. Not to mention that the companies getting hurt the most are those who didn’t make the loans, but bought up the loans which were mischaracterized and which got ratings better than deserved. Countrywide does deserve to get screwed more than ML.

Speaking of which, the Times business section today has an article about how the two guys in charge of the division of ML which lost all the money, and who got fired, are in hot demand on Wall Street. People are getting fired at the investment houses, but the people responsible for this mess are doing fine.

32

[QUOTE=Voyager]
Good. But in this thread certain people seem to be blaming the borrowers far more than the lenders, when the lenders had the majority of power and knowledge. Not to mention that the companies getting hurt the most are those who didn’t make the loans, but bought up the loans which were mischaracterized and which got ratings better than deserved. Countrywide does deserve to get screwed more than ML.

Speaking of which, the Times business section today has an article about how the two guys in charge of the division of ML which lost all the money, and who got fired, are in hot demand on Wall Street. People are getting fired at the investment houses, but the people responsible for this mess are doing fine.
[/QUOTE]

I am staggered at the notion that anyone but the borrower should be blamed for borrowing money the borrower borrowed. It boggles the mind.

I’m curious about what “power” and what “knowledge” it was that the lenders had.

Lenders have money. They have no power to coerce anyone into taking out a loan.

Borrowers, as someone pointed out upthread, have the most knowledge–or should be responsible for having the most knowledge–about their personal finances.

Painting lenders as having the most power and knowledge may make for effective rhetoric but it has no basis in fact.

It is true that whoever holds the paper stands to get “hurt” the most, along with taxpayers like me who are asked to pay for the folly and greed of overborrowing and the greed of overlending. However since that paper was bought by institutions whose expertise should be evaluating the paper they buy. I have no sympathy for them, nor do I feel any obligation to bail them out when they make bad decisions.

33

[QUOTE=xtisme]
Exactly. The ‘banker with a heart’ reference, for anyone curious, was from Atlas Shrugged. I thought the reference apt considering the subject.
[/QUOTE]

Specifically Eugene Lawson. The results of his giving to the common man, the poor and the needy based entirely upon their “need” rather than their ability to pay are not at all dissimilar to what we’re looking at now. I thought it was an apt comparison. But we’re just spitting in the wind here. Rand is anathema to the particular bent of the most assertive critics on the SDMB and always will be, no matter how much it comes to resemble reality. Feelings are more important.

34

[QUOTE=DMC]
There is a VAST difference between subprime lenders and predatory subprime lenders. You’ll find few people who have a problem with the former, and few defenders of the latter.
[/QUOTE]
Yes, I agree. But what about what I said?

35

[QUOTE=Liberal]
Yes, I agree. But what about what I said?
[/QUOTE]
Sure, if you provide a cite that demonstrates that the government let predatory subprime lenders partake in abusive practices out of fear of appearing racist, I’ll happily side with you. I haven’t seen evidence of that to this point.

36

[QUOTE=Voyager]
They made the poor bankers give them the loans, even when a chimp could tell they wouldn’t be able to repay when the rate reset. The borrowers are no better than bank robbers, right? Let’s throw them all in jail. They must have forced those poor upstanding bankers to do it.

[/quote]

Not at all. The lenders are responsible for their poor business decisions, and should bear the financial consequences of those poor decisions. The borrowers are also responsible for their poor business decisions, and should bear the financial consequences of those poor decisions.

On this board, I’m sure it’s read as one by many a member…

37

If the whole subprime mess been simply one of the uninformed being given expensive lessons in finance, it would bother me that so many people were so easily misled, but I would not be looking to take the banks to task.

However, this mess is much larger and it is due, in large part, to the banks playing with their/our money at levels they knew were irresponsible. When Joe Neverreads gets stuck with a foreclosure, that is a problem for Joe and his bank. When the banks (many of whose analysts noted that there was a limit to how far the subprime bubble could go) gleefully sold off their collected high risk mortgages to outfits who were not even as responsible as the borrowers and international financial institutions invested their/our money in what had to be recognizable from the top as really bad risks, then the banks are legitmately targeted for bad practices and the solution has to hurt someone, somewhere.

You say that you are super responsible and have never taken out a loan for more than four times your annual income and that you have no debt other than your mortgage? Congratulations. Now, did you put your savings/money market/cd/whatever into a bank that had a division that was speculating on bad mortgages? Then shame on you for not paying attention to what the multinational that happens to own your corner bank was doing in Germany or France one afternoon a year or two ago. When it all collapses, you can hold your dime-on-the-dollar paper and tell yourself just how wise you are.

And while I never quite figured how a subprime mortgage could ever be a good thing, there are a lot of people who read a lot of financial analysts in the papers who were proclaiming that borrowing twenty times your annual income was no big deal, so I have a bit of difficulty getting all contemptuous toward folks who simply believed the professionals–especialy when the professionals have demonstrated pretty well that we cannot trust them with our money, either.

Did all the “responsible” posters in this thread put down a 50% down payment on a house that cost no more than twice the annual salary of a single wage-earner? Those were the typical conditions in the 1920s prior to the decision to encourage people to buy their own homes. All this business of 20% down (or 10% down with insurance) was wild speculative stuff that was going to cause the financial basis of the U.S. to collapse–except that it got home ownership from less than 10% of the country to over 60% of the country and kept the nation in housing for over 70 years. A lot of people who were swept up by ARMs and low introductory rates did so on the assurances of their lenders that this was simply the next evolution of home financing and that they would probably be able to refinance to something more secure before the really big rate began–except that the bubble burst before they could actually roll their mortgage in that way and now they are “stupid” for believing what was explained to them.

Now, I realize that a fair amount of the sarcasm and sanctimony displayed in this thread has been a response to the tenor of the OP and I have no problem with that. I am also not looking for the Feds (or Congress) to rush out and either punish the bad ol’ banks or to create massive amounts of paper reporting that will make a lot of people feel good without adressing any specific problem. I am also not claiming there were no people who were primarily victims of their own greed and stupidity. However, the current (near-)crisis is not merely a case of a bunch of stupid people borrowing wildly for no reason. The financial reporters in the papers, the banks, and the multinationals all share some responsibility for the larger problem.

38

So…

We have a bunch of people who know exactly what they’re out (ie. payments, house, some penalties I’m betting) because they bought something they couldn’t afford, and we have a bunch of companies who aren’t sure how many billions (with a “b”) they’ve flushed away on an obviously terrible investment.

And the people are the ones that are irresponsible?

-Joe

39

[QUOTE=tomndebb]
<snip> However, the current (near-)crisis is not merely a case of a bunch of stupid people borrowing wildly for no reason. The financial reporters in the papers, the banks, and the multinationals all share some responsibility for the larger problem.
[/QUOTE]

They do not share the responsibility for someone wanting to borrow money they cannot repay. They share responsibility for having a bad business model (lending to and selling paper that was made to high risk borrowers. Let 'em suffer for it. Let 'em get fired and go broke over it, like any other business that tries to make a buck on a sketchy product.

The root of the market for the subprime loans are a bunch of people borrowing wildly for personal reasons, many of which are speculative, and some of which are stupid; for the most part all of which are self-serving.

The OP inquires as to whether the banking tactics are running amok. The principal tactics cited are easy credit, low introductory rates and poor discretion, with a description of executives as laughing, shrewd thieves. The answer is not more regulation–there is plenty of that already. It’s not higher credit simply to make borrowing more expensive–that would profit only the lenders.

The answer is to let the (currently regulated) free market bear the cost of its folly on the side of the fools who borrowed and the fools who lent. Complaining that lenders lent too freely is like me griping that McDonald’s is responsible for my fat ass.

40

I work with a lot conduit lenders including the CDO crowd. To be sure it’s a complicated issue but let’s not lose our heads here. Banks are significantly regulated institutions. They cannot, and do not. lend money willy-nilly. Do they make bad loans? Yes they do. Do they price loans differently? Of course they do. A subprime loan isn’t a bad thing inandof itself. It simply refers to a different class of borrower whose credit is such that they do not qualify for a “prime rate” loan. That is, they are a riskier borrower. To regulate this market out of existence would be devastating. It would prohibit a massive number of people from ever getting access to credit thus preventing them from ever elevating themselves.

Now back to the conduit market. The conduits allowed certain banks to shift the loan burdens off of their balance sheets by packaging the loans into the form of a security and selling that security onto a secondary market. This meant that they could relend additional monies without going ‘overline’ or beyond their regulated maximum lending amount.

With the housing boom you had a massive number of people looking to get into the property market. The lenders responded to this. There is no real fault per se as the purchasers of the securities knew the risks as did the borrowers of the money. The banks who made the subprime loans (let’s not get into predatory lending) made a business decision to make the loan and will potentially suffer the consequences.

Big picture though, let’s not get too emotional about this. This is a necessary correction and there are a great many people out there who now own their house who are in no real danger of losing it. Further, the banks who over extended themselves will pay the price in the long run. Market efficiency really.