Bankers Yearn For Old Days; Gripe About Regulation
For anyone that really wants to know why the housing market collapsed, I highly recommend two books- “The Big Short” by Michael Lewis, and “All The Devils Are Here” by Bethany McLean & John Nocera. Lewis’s (of “Moneyball” fame) is by far the more entertaining of the two; McLean’s is more researched and goes back to the days of the Carter administration, the repeal of Glass-Steagall under Clinton, and the trillions of worthless paper ignored during Bush 43’s eight years of low unemployment and rising housing values. When GDP is a robust 4+% every quarter, who in their right mind is going to yell from the mountain tops that it’s all b.s., right? From Gretchen Morgensen at the NY Times this morning:
You’d think the mortgage bust would qualify as a teachable moment.
But some people refuse to learn from mistakes — a list that apparently includes certain mortgage bankers. Their industry is fighting a new rule that might prevent a repeat of the lending binge that helped drive our economy off a cliff.
In case you just arrived from another planet: America’s mortgage mania was fueled by home loans with poisonous features that made them virtually impossible to repay. It was fun while it lasted, at least for the financial types who profited by making dubious loans and selling them to investors.
But the Dodd-Frank financial overhaul last year barred lenders from making home loans before determining that people could probably repay them.
(It’s depressing that we have to legislate common sense, but, hey, that’s the world we live in.)
Dodd-Frank also required regulators to define the characteristics of loans that would most likely be repaid. The idea was to ensure that banks had skin in the game when they bundled risky mortgages into securities.
The proposal was this: If a mortgage security contains only high-quality loans, the banks can sell the entire offering. If the investments included riskier mortgages, the underwriters must keep 5 percent of the issue on their own books.
Basically, Wall Street would have to eat a bit of its own cooking.