Talk:Subprime mortgage crisis

Could I get a tl;dr version?

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)

First paragraph edits

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)

Speculation sections

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)

support. I suppport merging the sections.

Minsky, an economist, who predicted this type of financial crisis died in 1996, the article is about his death. Check this quote out:

"Minsky found that in prosperous times [..] a speculative euphoria develops and soon lending gets beyond what the borrowers can pay off from their incoming revenues. That produces a crisis. There is a pull-back in lending, even to companies that can afford the loans, and the economy contracts."

That's exactly what is happening now. EconomistBR 04:11, 3 October 2008 (UTC)

Bank capital replenishment

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)

Very interesting graphs, IMO they should be added but we must explain what "Non-Borrowed Reserves of Depository Institutions" means to readers.

They may not fit here but one of the sub-article can totally take them.

EconomistBR 15:28, 3 October 2008 (UTC)

Causes of the crisis

Please discuss here removal of the following cause: "requirement of commercial and mortgage banks to lend to high-risk borrowers ". Gogino (talk) 14:08, 15 October 2008 (UTC)

Please remove your edits or I will later today. Cite a credible source that says these are the most important causes. They actually aren't in the top 20, so I'd like to see if you can support it.Farcaster (talk) 14:26, 15 October 2008 (UTC)

Farcaster, I responded to this your post below. You ignored it and again censored my contribution. Why?

--Gogino (talk) 21:01, 15 October 2008 (UTC)

> CRA is covered under regulation or lack thereof.

I agree and this part should be expanded.

> It is not the primary cause.

Yes, this complicated problems usually do not have one primary cause. It is one of the primary causes.

> CRA is covered in depth in the later portion.

I do not want to cover it here. I want to list it here as one of the causes.

--Gogino (talk) 21:18, 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)

> this article is already too large and should be an umbrella rather than a detailed discussion of every part

I agree. Then all possible causes should be at least listed there so that people can research them and make up their own opinions.

How about to list major causes all agree on, then major causes only some agree on, then minor causes all agree on, and finally minor causes only some agree on?

--Gogino (talk) 00:06, 16 October 2008 (UTC)

There definitely is too much information and exposition and extraneous details on various topics, some more related than others, and Farcaster should feel free to move those details to his background article and otherwise let the sources speak for themselves. Carol Moore 12:51, 16 October 2008 (UTC) Carolmooredc

Predictions of crisis

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)

Good. There also were lots of predictions that various govt polices were leading to doom and they need to be there too. Carol Moore 12:53, 16 October 2008 (UTC) Carolmooredc

Causes in general

Clearly there are two major causes of the crisis:

• the existence of the problem of subprime mortgages and
• its acceleration.

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)

I appreciate you trying to resolve this and your thoughts on the causes. My point is not to overweight this towards regulation. This crisis demonstrates flaws in nearly every aspect of the economy and some would argue with capitalism in general. We've had massive amounts of capital sloshing uncontrolled from bubble to bubble (Dot-com, Housing, Commodities). Now it sloshed right out of the container (cash is sitting on the sidelines and in bank vaults) and everyone is freaking out. A debt-financed existence is changing to one where people live within their means. Technically, I disagree with the acceleration vs. existence assessment above, but put a bunch of smart experts in the room and they wouldn't all agree. I really like the article at the bottom by Blackburn on the crisis; probably the best I've read. There is a fair amount of discussion about the regulatory causes in the article and in supporting articles. If you want to expand your argument about CRA, please do so in the CRA article. However, characterizing a law passed in the 1970s as the primary cause of a problem as pervasive as this is simply not supported by the sources cited or the many I've reviewed. I have tried to capture regulation as one of many elements in the summary and we give government regulation pretty thorough treatment in the body of the article. Many conservatives want to blame over-regulation, while many liberals want to blame under-regulation. I think both extremes miss the point, which is that people got caught up in thinking they could get a free lunch on housing and they got burned badly. Every aspect of our value system pushes us to jump in with the stampede when there's a bubble and in this case the leaders of the pack ran us off a cliff. I could summarize this crisis in one simple sentence: People tried to live beyond their means and it cost them. Everything else is academic and there is no regulation in the world that can stop the invisible hand of Adam Smith, or the stampede when it starts.Farcaster (talk) 03:09, 16 October 2008 (UTC)

While I'm not ready to make changes in this particular article I'd like to point out some of the problems with Farcaster's arguments above:

• Nearly every change in the economy can be traced to some inappropriate government regulation or deregulation that benefits one special interest to the detriment of everyone else. I repeat: it's not the bare fact of regulation or deregulation that matters but who benefits and who gets hurt from each one.

• Sure there's a lot of sloshing money from American billionaires who got rich off government protections, subsidies and contracts; Chinese government or government-connected investors wealthy from manipulation of labor markets, trade agreements, environmental standards and savings rates; middle east oil-rich governments wealthy from western governments' stifling of energy alternatives through burdensome regulations and taxes that stifle competition, even as they themselves often are bullied by those govts into keeping prices artificially low.

• But there's a big difference between a bubble caused by mania and greed, like the dot coms and commodities, and those bubbles caused by conscious government laws and polices and institutions that, intentionally or not, make it profitable for shady "community organizer" and other defacto real estate brokers, mortgage companies, Fannie Mae/Freddie Mac profiteering executives, and wall street securities packagers to push people into homes or refinancing packages they don't understand and can't afford. In the former only the foolish get hurt; in the latter millions of people do.

• People who were lied to about how much their mortgage payments would be 2 years down the road weren't living beyond their means. People who had no choice but to pay $400,000 for a $150,000 house because govt policies drove up prices in a speculative bubble weren't living beyond their means. People who see 3% inflation erode their incomes, while they see no pay raise year after year, and taxes keep rising aren't living beyond their means.

• The government that promises people social security and medicare benefits it cannot pay for too many more years, that goes into trillion dollar wars and keeps 800 military bases around the world, and that borrows money from China to fund its daily expense - that who is living beyond its means! The great majority of people are victims of government policies that help the well connected get richer and everyone else get screwed.

Obsfucating those facts through a confusing catch-all article won't change the fact. However, at some point the article will be changed to make it closer to WP:RS reality as opposed to WP:Synthesis fantasy. Carol Moore 03:46, 16 October 2008 (UTC)Carolmooredc

[FarCasters Replies] to CarolMooreDc:

• Nearly every change in the economy can be traced to some inappropriate government regulation or deregulation that benefits one special interest to the detriment of everyone else. I repeat: it's not the bare fact of regulation or deregulation that matters but who benefits and who gets hurt from each one. [Baloney. Regulations didn't force 9 million homeowners to buy mortgages that are now underwater. They bought at what was market value at the time, at the peak of a bubble unfortunately.]
• Sure there's a lot of sloshing money from American billionaires who got rich off government protections, subsidies and contracts; Chinese government or government-connected investors wealthy from manipulation of labor markets, trade agreements, environmental standards and savings rates; middle east oil-rich governments wealthy from western governments' stifling of energy alternatives through burdensome regulations and taxes that stifle competition, even as they themselves often are bullied by those govts into keeping prices artificially low. [Baloney. People love cheap oil. Look at the McCain Morons chanting "Drill Baby Drill" With a dumb population, government has no choice but to feed the mob. We have the regulations and government we ask for.]
• But there's a big difference between a bubble caused by mania and greed, like the dot coms and commodities, and those bubbles caused by conscious government laws and polices and institutions that, intentionally or not, make it profitable for shady "community organizer" and other defacto real estate brokers, mortgage companies, Fannie Mae/Freddie Mac profiteering executives, and wall street securities packagers to push people into homes or refinancing packages they don't understand and can't afford. In the former only the foolish get hurt; in the latter millions of people do. [This bubble was caused by mania and greed too. Nearly 40% of homes purchased in 2004-2006 were second homes! That's insane! We had a ton of excess inventory once the smarter speculators got out.]
• People who were lied to about how much their mortgage payments would be 2 years down the road weren't living beyond their means. People who had no choice but to pay $400,000 for a $150,000 house because govt policies drove up prices in a speculative bubble weren't living beyond their means. People who see 3% inflation erode their incomes, while they see no pay raise year after year, and taxes keep rising aren't living beyond their means. [Oh, yes they were. Most knew what an ARM was. They thought it wouldn't happen to them, because everybody else was doing it. Classic bubble mania; same story, only it's houses and not tulip bulbs. If you can't make a 20% down payment and still have $10K in an emergency fund, don't buy a house!]
• The government that promises people social security and medicare benefits it cannot pay for too many more years, that goes into trillion dollar wars and keeps 800 military bases around the world, and that borrows money from China to fund its daily expense - that who is living beyond its means! The great majority of people are victims of government policies that help the well connected get richer and everyone else get screwed. [We agree on this!]

Obsfucating those facts through a confusing catch-all article won't change the fact. However, at some point the article will be changed to make it closer to WP:RS reality as opposed to WP:Synthesis fantasy. [Good luck with that. I suggest a separate article.]

I enjoy your posts, if only for the entertainment value.Farcaster (talk) 04:11, 16 October 2008 (UTC)

Carol, I favor clearing up the facts ASAP based on WP:RS instead of the current apparent POV pushing. The perspective of the government's actions and regulations being a source for the crisis is not representatively covered in the article. The dots are not connected as well as they should be. Terjen (talk) 04:57, 16 October 2008 (UTC)

I created a subarticle for you guys to tackle, if you want to contribute called Government policies and the subprime mortgage crisis. I just copied what we had here verbatim in the government policies and put a few basic sections in there. You guys seemed fired up on this issue; please put that fire to productive use!Farcaster (talk) 05:19, 16 October 2008 (UTC)

User:Terjen- A few of us have been beefing up Subprime crisis impact timeline with just the facts and it shows the effects of govt regulation over time, though it's still a work in progress, doubtless with some important public and private moves missing, some unsourced info, and too much material on some tangential topics. I went through this and several other articles for any significant dated events/trends, public and private, from WP:RS sources, but it could certainly use more.

User:Farcaster - Wikipedia policy is cooperative editing, not to create a new page every time someone challenges one's favorite formulation in an existing article. See WP:OWN, WP:edit war, WP:Etiquette. Carol Moore 12:24, 16 October 2008 (UTC)Carolmooredc

The subarticle Government policies and the subprime mortgage crisis created by Farcaster is easily recognizable as a WP:POVFORK in clear violation of wikipedia policy. Terjen (talk) 00:51, 17 October 2008 (UTC)

It would be a POV Fork (had to look that one up) if I moved the Govt Policy section there. We've got a thorough discussion of it here. If folks want to expand the discussion of that topic, it can go there, with a summary of the key points here. We've done the same thing with about 10 other sections of this article and I have heard no such complaint. Government regulation is mentioned in the introduction, it's mentioned in the body in its own section, and in several places throughout the article. I have not thinned out the text in this article because of you guys. I hope that you summarize the key points here and move the quotes and detail into a sub-article.Farcaster (talk) 01:01, 17 October 2008 (UTC)

Carol, all you really do out here is blog about your radical views. Start contributing please. I've given you a new venue to do that. Government regulation is one of many causes; any attempts to make it the primary cause will be rebutted.Farcaster (talk) 13:30, 16 October 2008 (UTC)

Please read Wikipedia:TALK#Behavior_that_is_unacceptable. Characterizing and attacking other's incompletely understood or mischaracterized views to avoid dealing with their legitimate criticisms or suggestions is unacceptable. Carol Moore 14:11, 16 October 2008 (UTC)Carolmooredc

Farcaster, I talk here only about listing causes. I do not want a separate article at this point and don't need one just for listing causes. On the other hand, I see you are able to create new articles fast and may use your help later. However here, your response is off topic. The only relevant part I could understand is that you do not want to list causes related to regulation. Do you have any credible source that explains why listing of these causes is not good?

Please do read what I write before responding as you don't seem to. Besides being off topic you wrote above, for example, "Baloney. Regulations didn't force 9 million homeowners to buy mortgages that are now underwater(...)" In "Ad (7)" above, I explained why many homeowners always have poor judgment and that the deciding factor were lenders influenced by regulations. By the way, I did this to explain that I don't like the cause (7) but I still haven't removed it!

--Gogino (talk) 06:00, 17 October 2008 (UTC)

The portion you keep adjusting is what's called a "lead-in" paragraph with a quick overview of what is next. Government regulation is in there. The detail belongs in the government section that follows. Leave the lead-in alone; we are wasting a lot of time on this. If you want to add to the government regulation discussion, either add to what is in this article in the appropriate section (NOT the lead-in) or put in the sub-article.Farcaster (talk) 06:57, 17 October 2008 (UTC)

Yes, the lead-in is biased. --Gogino (talk) 05:19, 18 October 2008 (UTC)

Terjen, thank you for removing the unsourced POV sentence. --Gogino (talk) 03:48, 19 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)

Give it a shot in this discussion area and we'll see what happens. To me, the primary causes will always be bad lending and bad borrowing decisions by individuals and corporations. There are a series of supporting or enabling pressures/conditions behind each of those. To throw Carol a bone, there was a lot of pressure by politicians and market participants on Fannie and Freddie to lower their standards, expanding subprime and Alt-A lending. That is a cause behind bad lending decisions, for example.

• Primary cause: Bad lending decision
• Level 1 cause: Fannie & Freddie funding practices (e.g., purchasing and thereby encouraging low-quality loans)
• Level 2 cause: Congressional and market pressures on Fannie/Freddie (see NY Times Article; google "The Reckoning")

Each primary cause has several Level 1 causes; each Level 1 may have several level 2; etc. In problem solving, this is called a fishbone diagram or Ishikawa diagram. You can also set it up more like an org chart, with the tree expanding downward from these final decisions to borrow or loan. If you guys want a stimulating exercise, try that. Perhaps we work on that separately and see where it goes? I tried something similar with my initial overview diagram but it didn't make everybody happy. You can probably get a lot of the causes in front of you there and rearrange to your heart's content. Just go to an old version of this article and the chart is there at the top.Farcaster (talk) 07:17, 17 October 2008 (UTC)

You know that there are different opinions on what should be called primary, level 1, ..., and so it cannot be there. Why did you suggest that?

I, on the other hand, suggest to use a general principle of causality. You need to have bad loans first and only after that you can have them so many that they cause a crisis.

--Gogino (talk) 05:39, 18 October 2008 (UTC)

First, POV forking depends a lot on motivation. I don't have a problem with a Law and Regs page that has lots more details than main article. The problem is you created the page to avoid the main issue: I and doubtless other people want govt laws and regs described as a primary cause, in the lead, in any overview, and first or second in the list of causes.

Govt promoted subprime mortgages and low interest rates and Fannie/Freddie lending and allowed or condoned all sorts of fraudulent and risky mortgage and investing practices. It created a bubble that attracted all that sloshing cash and the bubble burst. You can't avoid that debate by creating a new page.

By the way, a new good article that describes Fannie Freddie influence is out from American Enterprise Institute (WP:COI note: even though I've organized and participated in more than a dozen protests at their offices vs. Iraq/Iran wars, I'll still look with a neutral eye at many of their domestic economic pieces :-) The Last Trillion-Dollar Commitment: The Destruction of Fannie Mae and Freddie Mac, By Peter J. Wallison, Charles W. Calomiris. Lot of footnotesCarol Moore 13:24, 18 October 2008 (UTC)Carolmooredc

Carol, I suppose your response was to Farcaster and I changed its indentation. --Gogino (talk) 03:40, 19 October 2008 (UTC)

Other

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)

Need to Discuss Bank Leverage

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 ever $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 Coffee at Columbia Law School has complete details on the regulatory changes. Professor Coffee was one of the authors of the Sarbanes Oxley Act. 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)

Addressed with a paragraph in the cause section and a killa diagramFarcaster (talk) 07:56, 18 October 2008 (UTC)

Opposing views

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)

We should avoid such unsourced editorialization. The use of "however" is a blinking, red warning light.Terjen (talk) 06:39, 17 October 2008 (UTC)

I fixed it. --Gogino (talk) 05:01, 18 October 2008 (UTC)

Much better! Terjen (talk) 05:50, 18 October 2008 (UTC)

Causes of the Crisis - Part Deux

Business week has a cover article that lists the causes at Business Week - The Financial Crisis Blame Game. They list in order:

• The "Whole System" with plenty of blame to go around and a quote from Obama about living beyond our means.
• Soaring home price to income ratio (the housing bubble). Bernanke backed that up here: Bernanke
• Securitization / No skin in the game - passing on risk through MBS
• Smoke and mirrors - complexity and derivatives, lousy disclosure
• Too much leverage (debt)
• Regulators DIDN'T regulate
• Basic bad banking - Even more basic was the mistake of taking too much risk. More risk allows for bigger payoffs for participants, but it put the whole system in jeopardy.

Please read this article Gogino and Carol.Farcaster (talk) 09:04, 18 October 2008 (UTC)

• In any highly government regulated industry - and that includes both banking and housing, as the article infers to some extent - increased or decreased regulations will be major factors, including in creating/allowing booms and causing busts. However, the article is not perfect and BusinessWeek is not the ultimate authority on this.
• More importantly, editing wise let me remind you that you are Not the Dictator of who edits how much on the page or on the talk page. Except for minor obvious improvements, I've avoided editing on the main page until I have a complete understanding of how laws and regulations caused this problem. Meanwhile I'm supporting those who want to go ahead with tweaks in the direction.
• Another reason I haven't tried to do more on the main page at this point is your intimidating and bullying editing and talk page style. FYI, it makes you ripe for complaints to administrators and their institution of a "mentor" upon you who will teach you how to edit cooperatively. I've seen it done before to newer editors with your style. I just haven't had time to investigate how many people have to make those complaints to whom. Obviously you have lots of knowledge, but that doesn't excuse much of your behavior.
• Later note: I just noticed Gogino complained about Farcasters 3RR and both got banned for short periods. Just the kind of edit warring I have been hoping to avoid by having Farcaster learn more cooperative editing! Carol Moore 12:52, 18 October 2008 (UTC)Carolmooredc

Yes, I misunderstood the 3RR rule :( . I thought that this topic is too hot to wait until he would be more cooperative. --Gogino (talk) 06:32, 19 October 2008 (UTC)

Thanks for the article. It confirms again that there are different opinions about this crisis. I added it as a reference supporting that. --Gogino (talk) 06:58, 19 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)

Govt reports, when you can find relevant and timely ones, are under WP:RS are "primary sources" which means they can be used along with other sources, but have to be used carefully by themselves. And their analysis, when it exists, can be self-serving to cover up what agencies have been up to. Like Fannie Mae's falsified reports which got its leaders in trouble. Carol Moore 16:56, 18 October 2008 (UTC)Carolmooredc

Yes, no source should be overweight until a reasonably accepted explanation of this crisis is found. --Gogino (talk) 06:42, 19 October 2008 (UTC)

"Understanding the risks of default" section

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)

Subprime Crisis Diagram

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)

Agreed. Bond Head (talk) 11:57, 19 October 2008 (UTC)

Definitely. I am appalled by much of the financial content on Wiki and this takes the cake.--JohnnyB256 (talk) 14:48, 19 October 2008 (UTC)

The diagram follows the explanation summarized by the U.S. President in his address at President's Address to the Nation. Many government regulations or actions were causes in building the housing bubble (e.g., Fannie & Freddie), but once this bubble was built the crisis flowed pretty much as described by Bush and this diagram and dozens of other sources. This diagram is not intended to cover all aspects of the crisis. It is designed to show how the foreclosures and declines in mortgage payments flow through the economy. Within that scope, it's pretty fair I think. If you have specific improvement suggestions, put them here or in the diagram and I'll modify. I've put a lot of caveats in the diagram's page and if there are more please add.Farcaster (talk) 17:13, 19 October 2008 (UTC)

This doesn't address the main concern. A diagram should not express POV if it is controversial. --Gogino (talk) 17:33, 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)

Causes of the Housing Bubble

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)

There are things that are correct on the diagram but that is not the point.

I also understand your frustration since you put your time and a lot of your experience into it. --Gogino (talk) 04:09, 20 October 2008 (UTC)

I am sorry I forgot to check the diagram at right. I'll respond later. --Gogino (talk) 15:07, 20 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)

Conflict of interest section

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 [1] 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)

Farcaster, you edited your own post above today. If you changed your mind or want to add something then please add another post. This is a talk page. --Gogino (talk) 14:59, 20 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

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)

Speaking of analogies, guns do not have "no-harm use". Could an airplane be a better analogy? It can be used as a bomber but also as a passenger plane.

Do you know answers to my questions above? --Gogino (talk) 04:03, 20 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)

MBS weren't the problem, per se. It was the poor risk modelling of the packaged mortgages. I believe Tyler Cowen may be one of the credible sources that agrees with this conclusion. 71.76.12.114 (talk) 20:34, 24 October 2008 (UTC)

Government Policies

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)

I agree :) --Gogino (talk) 15:01, 22 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)

Non Voting Shares!

Taxpayers cash being used to buy non voting shares ie A No Strings Attachted Gift! Please could this be interegrated:

• http://news.bbc.co.uk/2/hi/business/7658277.stm
• http://www.time.com/time/business/article/0,8599,1849612,00.html
• http://www.globalresearch.ca/index.php?context=va&aid=10597

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)

contents and name

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)

Proposed revision of government section

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.

Failure of Free Market

the basic problem or mot 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 worked 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.