jb32 wrote:
mbafwi wrote:
I think regulation was lacking in the banks, where they were not verifying applicants' income when they applied for mortgages. Too many people got loans for houses that were out of their league, hence creating the bubble and eventual popping of the bubble. Its obvious when some engineer in So Cal buys a $500k house with a $60k salary that we're gonna have problems. Banks didn't care cause they would package and sell them, so it was win win.
Note: I am not attacking you, just challenging your thoughts.
So how would you do things differently? Would you have the government outlaw all no downpayment loans? Outlaw teaser rate loans? Ban subprime loans? Have the government devise lending standards for all mortgage lenders? What would be your solution? I want to see how you would change things going forward. Of course, these are just suggestions that would have prevented the last crisis, and would most likely do nothing to prevent future crises. The question is: how would you prevent the next crisis? That is the ultimate challenge of regulation, preventing the next crisis from happening, not just preventing previous crisises from occuring again. Any idiot can do that, but try and regulate for the next crisis without producing any unintended consequences. That is why I say there is enough regulation, and the problem is with the regulators themselves and not the framework of regulations they work in. The problem is that the current regulators don't understand the system well enough to regulate it. They do not have people that are smart enough to analyze the current markets and predict what new challenges will emerge and need to be dealt with.
First of all, I don't really like the existence of "too big to fail" institutions. They can gamble and make tons of $$ in the good times, and then not pay the price in the bad times. So if an institution falls in this category, have expert regulators for each segment of the biz. Right now there are tons of unemployed bankers, so hiring some experts shouldn't be hard. For banks that issue mortgages, the regulators should perform frequent audits of people's income compared to what their mortgage is based on. I thought this was being done already, but apparently not. But that's just part of the solution. Banks need to care if people default or not. So instead of promoting home ownership for any and everyone like previous presidents did, set some credit standards. If only people with good credit and a decent down payment could buy a home, it would be very hard for another bubble to come about cause there would always be limited buyers. Or if banks couldn't sell off the mortgages, they'd probably care a lot more about who they loan their limited funds to and make sure the people could pay them back. Basically, just put some common sense into the system, it shouldn't be too hard, and is already being implemented. Key is, even though its hard to get credit now, there always needs to be set standards to get credit in the future, whether in boom times or recessions.
Overall, I agree with Obama that people in financial institutions can't really be trusted. 95% (or more) of them went into the biz to make big money and nothing else. No higher calling, no saving of whales, no doing good for the country, or humanity, or the love of finance, or anything, they just want to get paid WELL. If a whole industry is full of these kinds of people, they need to be watched carefully.