Newt Gingrich gives esoteric civics lesson

[Al68]

The government did not force anyone to make fraudulent mortgages...

I never said this. Government bribed banks to make bad loans. Many banks refused (like mine). The banks that refused to participate were labeled as "not caring about poor people", etc.

Of course nobody forced the banks to do this, and they shouldn't have. I'm just saying that without the bribes by government, they wouldn't have because banks in general don't try to lose money on purpose.

I cannot prove that bankers want to make money instead of lose it. But it's true nevertheless.

 

[Al68]

I agree, your comments convey my understanding, and I'm still at a loss at to where Al68 is coming from here. Granted, I have heard the arguments before, but I've yet to see anything to substantiate them.

My only claim other than what is public record is that banks would not try to lose money on purpose. These bad mortgages were known to be money losers when they were made, and were made for the purpose of selling them to government entities (Fannie and Freddie).

Mortgages went from being a max of 80% of a home's value with good credit (free market standard) to 125% of a homes value plus closing costs rolled in, nothing down, low interest, bad credit, low income, etc. (gov't mortgage buying standard).

Sure I can't prove that a bank wouldn't lose money on purpose, but I'll bet nobody here can give an example of a bank making these types of mortgages for any other reason than to sell them to a government entity.

I guess my "substantiation" will have to be the lack of any examples of banks making bad loans on purpose without government "bribes".

 

[Gokul43201]

For starters, you will need to substantiate your claims:

(i) that banks were investing in mortgages with the knowledge that these mortgages were guaranteed to lose them money, and

(ii) that these bad decisions were due to bribes from the government.

Also, I'm curious why the market would continue to invest in banks that were buying mortgages/securities that were known to be bad, and why CRAs like Moodys and S&P were certifying these demonstrably bad assets as very low risk (AAA)?

 

[Al68]

For starters, you will need to substantiate your claims:

(i) that banks were investing in mortgages with the knowledge that these mortgages were guaranteed to lose them money, and

(ii) that these bad decisions were due to bribes from the government.

Also, I'm curious why the market would continue to invest in banks that were buying mortgages/securities that were known to be bad, and why CRAs like Moodys and S&P were certifying these demonstrably bad assets as very low risk (AAA)?

(i) The mortgages were not guaranteed to lose the banks money, they were very likely to lose money for whoever bought them for obvious reasons.

(ii) I was using the word "bribe" as an exaggeration to describe the fact that government was buying the mortgage notes via Fannie and Freddie.

Are you asking me to prove that Fannie and Freddie were buying them, or that mortgage notes for 125% of home's value to people with bad credit, nothing down, low interest, etc are likely to lose money for whoever ends up with the note?

 

[LowlyPion]

Not to put too fine a point on this discussion, but I would hope that those that want to tussle over the issues of bank failures and under-regulated securitizations will seek another venue. There is a New Thread button that I encourage you to consider.