Talk:Subprime mortgage crisis/Archive 4

Removal of external links, January 2009

I removed links to external sites that were either dead, non-notable or not directly related to the authority listed in its description. Flowanda | Talk 04:58, 25 January 2009 (UTC)

Removal of Knol article

I have removed a link to a Knol article several times asking the IP editors to show their rationale for continuing to add the link to several articles without comment. As a user-generated site, Knol is not considered a reliable source, and there's no indication that the author of this article has any authority or notability.Flowanda | Talk 07:01, 15 February 2009 (UTC)

2-28 ARMs and banks entering the bond market

Farcaster If you don't know what a 2-28 ARM is, no offense, but you probably shouldn't be working on the Subprime article and reverting information with which you're unfamiliar. 2-28 ARMs comprised 80% of subprime loans. Please read the link I provided before you revert and remove my work. Thanks! Scribner (talk) 22:51, 18 February 2009 (UTC)

What am I to do with you? You put NPOV statements about what you personally think are the most important elements of the crisis, in the wrong place repeatedly. Then, you don't bother to explain what a 2-28 is in the article anyplace and assume all the readers get it. I've been maintaining this article for a year and haven't heard that term. I don't see it in your cited source. Perhaps you can pull out the quote that says: a) ARM's are predatory lending. Show me that first. Then b) Show me where somebody says the 2-28 and predatory lending were a major cause of this. I'll remove until that point, as your information is uncited and NPOV.Farcaster (talk) 23:27, 18 February 2009 (UTC)

The ARM information is mentioned in the BBC article I linked, twice in fact. Here's yet another link, this one from Chairman of the Banking, Housing, and Urban Affairs Committee: [[1]] Scribner (talk) 23:38, 18 February 2009 (UTC)

That's more like it! Now please put into the section on risky lending practices, as the place you are putting this info is intended to be a brief summary. "Risky mortgage products" is already mentioned in this summary. Thanks for fixing!Farcaster (talk) 00:00, 19 February 2009 (UTC)

A 2-28 ARM is not a "risky lending practice". It's a predatory lending practice, the way it was used. By the way, the sentence you mention in the "cause summary" containing "Risky mortgage products" is not referenced correctly. That's a CNN op-ed article about Wall Street, not the subprime crisis. Peace. Scribner (talk) 00:35, 19 February 2009 (UTC)

Another important mention of this [[2]] cite used in the "Cause" summary, it does not mention or support claims of the "poor judgment of borrowers". It does, however, mention predatory lending, "5. We need better consumer protection laws, including laws that prevent predatory lending.", which wasn't mentioned anywhere in the Wiki Subprime Crisis article. Pretty obvious omission. Scribner (talk) 20:12, 20 February 2009 (UTC)

Nobody held a gun to these people's heads. They entered into these loans willingly. ARM's are not predatory lending per-se; you are stretching there. I'll add citation to support poor borrowing & lending decisions later, if you aren't comfortable adding back without it. Business Week listed comprehensive causes, which included bad individual decisions, actually a quote from Obama. This is capitalism, after all. Hard to get into this mess if people didn't get caught up in the bubble and take out loans they knew they couldn't afford based on income. See list source for that info: Business Week-Yep, FolksMade Some Bad Decisions - We are not all innocent victims of predatory lendersFarcaster (talk) 21:09, 20 February 2009 (UTC)

The facts point specifically to deception in lending and these ARMs being a major cause of the foreclosures. Don't you understand that these ARMs resetting at a higher rate are causing the majority of the foreclosures? These 2-28, 3-27, 5-25 loans resetting to a higher rate are a major cause of the foreclosures and the crisis. Scribner (talk) 22:10, 20 February 2009 (UTC)

Agree with you on the ARM's & resets being a huge part of the problem. However, see the wikipedia article on predatory lending; no clear criteria apparently on what is and isn't predatory but there are specifically forbidden practices, ARM's not being among them. So we have to be careful on saying predatory lending is a big cause, as ARM does not equal predatory. If only 10% of ARM's are truly predatory lending, then your emphasis on predatory lending is inappropriate, as I've been trying to explain. ARMS were mentioned many times in the article already; you could not miss it. Predatory lending deserves mention as you say, but the two concepts should not be combined as you have done in my view. Believe me, everyone has their pet cause and I've dealt with probably 10 people who have tried to hoist their pet peeve on the rest of us, so pardon me if I'm cranky. So if you want to insert something about predatory lending and "some arguing" that ARM=predatory, then that is OK but please do that in the applicable section and not in a cause overview, where you are distorting this. Predatory lending is a very small subset of the ARM problem. Disagree? Amazing how nobody was complaining much about predatory lending when the market was going up...that should answer your question about whether an ARM is predatory in-and of itself...Farcaster (talk) 22:43, 20 February 2009 (UTC)

A Wikipedia article is a tertiary source and won't suffice as a cite. The Senate cite and the BBC article I used both single out the 2-28 ARM, nicknamed the foreclosure loan, and refer to it specifically as a form of predatory lending. ARMs aren't the only type of predatory lending used against subprime borrowers, excessively high interest rates were used as well. Scribner (talk) 23:56, 20 February 2009 (UTC)

You're all missing a fundamental point. The only reason innappropriate loans could get made in the first place was because loan originators were able to easily sell them to Wall Street firms. And the only reason Wall Street firms could buy them was because they could easily repackage them into investment grade securities and sell them to mainstream institutional investors. The problem is that the whole system was based on a widespread, fundamental misunderstanding of the correlation of risks in asset pools.

The cover story in latest issue of Wired magazine has the best explanation I have seen yet of the issues at play. The way that investment banks, rating agencies and investors modeled the correlation of risks in mortgage pools--the underlying assumptions that allowed huge volumes of CDOs and structured finance ABS to be sold with investment grade ratings--turned out to be completely wrong. Everybody had drunk David Li's Kool-Aid. While fraud, weak regulation, lax origination standards and other factors all played a part, none of that would have been possible without continued funding of loan originations, which was accomplished based on a fundamental misunderastnding of risk correlation. Bond Head (talk) 15:28, 23 February 2009 (UTC)

Mdeckerz, that fundamental point you mention is in the article, at least a brief mention is, I know of because I added it in the causes section. It may be detailed out in another section, I haven't checked. Part of the problem is that the problem is so complex and we're so close to occurrence of the event nobody in the media really knows exactly, in detail who and what's to blame. Scribner (talk) 05:42, 12 March 2009 (UTC)

Loss Calculations

Nice addition to the article mdedckerz; thanks. I am wrestling with another fundamental question which is: Why did we have an $8 trillion stock market loss when we only have about $1.2 trillion in delinquent or foreclosed homes (10% of the $12 trillion in outstanding mortgages are delinquent or in foreclosure). Further, homes are worth something; even if one writes these foreclosed homes down to 50 cents on the dollar you have about a $600 billion loss. Let's double that for future home losses and you still have a manageable but painful number. I have a pet conspiracy theory that CDS bets were stacked on particular bonds and are the cause of the massive losses at financial institutions and in the stock market, but I cannot prove it. For example, instead of $1,000 maximum loss for a $1,000 mortgage-backed bond you could have $3,000 in losses say because CDS were allowed as speculative bets against the same underlying collateral. With $60 trillion in notional value, losses of $2-3 trillion can stack up pretty quick. I just don't see anything else big enough to cause this crisis. I wonder if the massive amount of cash flowing from taxpayers through Fannie, Freddie (another $200 billion in the mortgage aid package), and AIG (another $60 billion) is paying off a huge amount of CDS losses. Lehman's bankruptcy sent shockwaves to a large extent because of its CDS obligations and folks worried about its ability to pay them off. Have you got any other articles like this one under your hat that could help explain why the losses are so massive and how much of it is CDS related? Even if one factors in credit cards, auto loans, etc, the $8 trillion is way off base. Any thoughts on how to add up to this amount, as the stock market should theoretically reflect the value of the underlying companies?Farcaster (talk) 02:00, 24 February 2009 (UTC)

Good question. I'm not sure the CDS idea stacks up because overall, the CDS market is a wash. Every contract is two-sided, so for every dollar lost by one investor, a dollar is gained by another. Maybe the losses are concentrated in public companies and the gains are concentrated in private entities like hedge funds; that might explain some of the problem. Lehman was a problem not so much because of their net CDS positions but because of their role as an intermediary and because of all the CDS that had been written aginst Lehman debt--there was a lot of concern about counterparty risk with such a big defaulted borrower.

Stock valuation has more to do with the present value of future earnings (or cash flow) than the book value of assets. To oversimplify, if you think Citigroup is going to earn $100 next year and the right P/E ratio for a company like C is 10, then C's market cap should be $1,000. If C has a lot of unexpected write-downs and they're now going to make only $10 next year, and because of a market retreat the P/E ratio for companies like C drops to 5, their market cap is now only $50. The value of assets comes into play with respect to future earnings--write-downs aren't good for profitability--and the effect on capital and the ability to stay in business: when a bank becomes undercapitalized, it gets shut down and equity holders get wiped out. But expectations for future earnings are more important than the book value of assets. Does that make sense? Bond Head (talk) 03:29, 24 February 2009 (UTC)

Goldman Sachs came out with an estimate of $4 trillion for US mortgage and consumer debt losses in January,[3] but losses from consumer debt are just one issue. There was a lot of other silly lending: e.g. commercial real estate (prices in the UK dropped by a quarter last year [4]) and leveraged buy-outs such as Chrysler and TXU. And stock prices are based in part on expected future profits, so they should have gone down anyway due to the recession. An $8 trillion drop doesn't seem too much to me. -- Avenue (talk) 03:52, 24 February 2009 (UTC)

An interesting theory here from Mr. Katz in Foreign Affairs. He indicates the big losses are in the shadow banking system, were losses are being multiplied by a combination of factors...very interesting. My theory isn't as crazy as it looks...you may be right Mdckerz regarding where the losses are occurring: Katz - Losses in the shadow banking system Farcaster (talk) 06:01, 3 March 2009 (UTC)

No doubt that CDS are a problem for players with big directional positions like AIG, but most dealers run matched books. Even for directional positions, for every dollar that AIG lost on CDS, somebody else earned a dollar (setting aside counterparty risk). Katz is absolutely right about credit provided by non-banks. The economy can't advance without the lending that's provided indirectly by pension funds, hedge funds, insurance companies, etc. through the securitization market There's not enough capacity in the banking system even when banks are lending freely. That's why Treasury and the Fed are investing so much in the TALF program. I have my doubts about it, because it only covers triple-A tranches of ABS deals. Who's going to buy the mezanine and equity pieces? But it's still worth a try. I think if they could get away with it, the Fed would be lending to consumers directly, giving us all Federal Reserve-branded, high-limit Visa cards and telling us to go out and spend, spend, spend. Bond Head (talk) 03:16, 4 March 2009 (UTC)

"made to subprime borrowers"

The introduction states: "Many U.S. mortgages issued in recent years were made to subprime borrowers". However, a study for the Wall Street Journal found that of the subprime loans originated in 2006, 61% went to people with credit scores high enough to qualify for conventional [i.e., prime] loans. It seems to me that the main problem was not that mortgages were issued to subprime borrowers, but that a larger problem was that subprime mortgages were unnecessarily issued to borrowers. Maybe rewrite that part of the introduction? Could not find the article on the wsj-site but it has been republished on several sites, for instance here: Rick Brooks & Ruth Simon, "Subprime Debacle Traps Even Very Credit-Worthy: As Housing Boomed, Industry Pushed Loans To a Broader Market", Wall Street Journal, December 3, 2007, A1 Wprange (talk) 06:12, 22 February 2009 (UTC)

Thanks for this. I added a paragraph to the section on risky lending practices to specifically mention mortgage broker incentives and how this may have encouraged them to originate subprime loans even to those that might have qualified for a lower interest rate. At the bottom of any crisis are conflicts of interest and/or incentives that drive bad behavior. Thanks for spotlighting this. I would not change the summary at this point, as it is still accurate. We would be on this ice saying this is a "larger problem" as you indicate. As the source states, there are many factors beyond just the credit score that matter in originating loans.Farcaster (talk) 18:00, 22 February 2009 (UTC)

"Subprime loans", ARMs and loans with higher interest rates and fees, written to prime borrowers will likely fall under predatory lending, not risky lending. Farcaster your POV on borrowers and as you state, their "McMansions" [[5]] is getting tiresome. I've reverted your edit using Business Week because it doesn't substantiate your claim. I'll look into Wprange's article later today. Scribner (talk) 19:35, 22 February 2009 (UTC)

Here are some quotes from the business week article that indicate bad judgment by lenders or borrowers:

"Or, that folks should never have signed up for no-doc, interest-only loans, no matter how many silhouettes danced across their computer screen in a Web ad. In that case, the villain may be no further than your bathroom mirror."

"Even Presidential candidates eager for votes have acknowledged there's no easy scapegoat. "Part of the reason this crisis occurred is that everyone was living beyond their means—from Wall Street to Washington to even some on Main Street," Senator Barack Obama (D-Ill.) said on Oct. 13."

"If you ever drove through row after row of new tract homes sprouting from the California desert and wondered, "How can all these people afford $500,000 houses?" the answer was, they couldn't.' [Hint: That is a McMansion reference.]

"As a system, we were pressing beyond what the economics were suggesting people could afford," says Michael Strauss, chief economist at Commonfund. Nonetheless, nearly everyone in the system had a "false sense of security that housing prices would always go up." That included home buyers and real estate and mortgage professionals."

So again, what am I to do with you and your NPOV push that people were coerced as a primary cause? Please put back the sourced and supported statement that bad judgment was involved. See also the quote from the G20, that people did not appreciate the risk they were taking...that includes homeowners.Farcaster (talk) 19:59, 22 February 2009 (UTC)

Farcaster, you're the one who's been nesting this article for a year and hadn't seen the need to add predatory lending to the article, even though it's mentioned in existing cites. Anyway, I reworded your edit to "borrowers overextending". We've already agreed ARMs resetting were a primary cause.

]] Sorry for the intrusion folks, but just a quick point. While the article is very good, it seems to treat the interest rate increases which triggered the whole card-house collapse as the result of some mysterious force of nature rather than the conscious actions of the Fed. If "ARMs resetting were a primary cause", then, ultimately the almost four-fold increase in the Fed Funds rate between 2004 and 2006 (1.35% in 2004, 4.97% in 2006 (avg annual)) was the actual cause - the ARMs didn't autonomously inflate themselves. Is there another article that can be linked to which will provide an analysis of this move by the Fed? Just a suggestion. Best regards, Steve M. —Preceding unsigned comment added by 70.51.212.215 (talk) 03:34, 2 March 2009 (UTC)

Good idea. I have a copyrighted chart that compares ARM's to Fed funds rate that is great. I'll make one and get it out there. We can probably find an article to support your suggestion without a problem; I'll dig around. I've seen that argument made; it is very credible. Amazing to me that this far into the crisis, we still haven't frozen ARM rates or capped them at like 5%. Thanks!Farcaster (talk) 04:56, 2 March 2009 (UTC)

]]] Apologies again for the lack of editing expertise (or identity) but there is some suggestion of less-than-infallible judgement on Greenspan's part here: "http://en.wikipedia.org/wiki/Alan_Greenspan#Housing_.22Bubble.22." It seems he may have been at once inadvertently responsible for the inordinate predominance of ARMs for the period, and ignorant of the significance of this market segment in subsequent rate-setting deliberations. Just didn't know his own strength, I guess. Hoisted by his own anti-regulation petard and all that. We gotta cut the old guy some slack, but it seems retirement really is the best career choice at 79! ;-) Steve M —Preceding unsigned comment added by 70.51.212.215 (talk) 06:33, 2 March 2009 (UTC)

]]]] Sorry, me again. The real question would be: "How could the Reserve member institutions support a rate increase virtually guaranteed to throw a million or so of their most recently-written mortgages into jeopardy, and how did they figure on preventing the subsequent foreclosure wave from jeopardizing their entire mortgage portfolio?" If they didn't think even that far, it really is no wonder we are in this mess. (I am an ex-banker, by the way) SM —Preceding unsigned comment added by 70.51.212.215 (talk) 06:57, 2 March 2009 (UTC)

I appreciate your thoughtful comments; fixed the part per the above. Greenspan bashing is popular, but I think overstated. Let's pretend to be him for a minute. Were running the Fed in 2005-2007. Stock market and housing prices are going up like crazy. Democrats are happy because lower-income folks are buying houses and making some money. Republicans are happy because banks are making a fortune flipping mortgages like burgers, getting paid for transactions instead of good loans. Bush doesn't want to say that 2/3 of economic growth during the period is due to home equity borrowing & spending, so Republican's can claim tax cuts are driving growth, not massive deficits as Keynes would assert. Unemployment is at a record low. In other words, everybody is happy. We would have to presume we know more about the market than the most brilliant financial minds all over the world to decide one day to end the party. In other words, why does the Fed know better than everyone else that there is a bubble? We try that, and we get hammered from all sides. We're worried about inflation, which to central bankers is job #1 along with employment. So we've raised interest rates 2004-2006. Folks were warned...you don't fight the Fed. What else are we supposed to do? Unfortunately, we were overdue for this. It will be safe to get into the markets again once the key controls are put back in: a) 20% down payments; b) Leverage restrictions on financial institutions and higher-quality regulatory capital; c) Elimination of CDS, at least for speculative purposes and perhaps across the board. All have been proposed in citations in this article. Now let's see if the geniuses running the country can figure out the obvious.Farcaster (talk) 07:10, 2 March 2009 (UTC)

To Steve M: The Fed cannot hold its target for the (nominal) federal funds rate fixed indefinitely. Such a policy would certainly result in a catastrophe, either hyperinflation or depression. Even if this interest rate were set appropriately at first, perturbations in the economy would result in either a little too much inflation or a little too much disinflation. Once that occurs, the real interest rate would shift in a direction which caused positive feedback and a vicious cycle of inflation shifts and real interest rate shifts would occur.

Lenders and borrowers must assume responsibility for ensuring that they can fulfill their contracts even when interest rates vary (within the normal range). JRSpriggs (talk) 20:55, 2 March 2009 (UTC)

ARMs were written with the implication of borrowers establishing credit. Steve, it's not a million or so homeowners in trouble, it's 11 million. The recent mortgage rescue plan is estimated to help 5 million, if I recall correctly. 63.226.208.223's first edit on the 10th refer to borrowers lying about income as a cause. Scribner (talk) 03:47, 12 March 2009 (UTC)

Attempted Firing of Falcon

In 2003, the head of the F&F regulator, the Office of Federal Housing Enterprise Oversight, Falcon, released a report on the high risk activities at Freddie and Fannie - Bush fired him, then backed down as the scandals erupted But he was replaced in 2005 by a non-financial buddy of Bush who was on board with more lending. Later Bush uses report they tried to quash as proof they were warning of looming crisis. See http://www.nytimes.com/2008/12/21/business/21admin.html?_r=1&pagewanted=all Mulp (talk) 20:45, 6 March 2009 (UTC)

DlawBailey Changes

Hi editors. You have done a lot of great work here, and I'm sorry to be a bit of a bull in a china shop, but some changes have to be made. Here's why:

1) Specifically the "Credit Risk" section was simply not right. Credit risk does not come from the fact that borrowers can fail to pay. Of course they can. We no longer live in the Middle Ages. There are no debtors' prisons where people are seized, all their property is seized and they made to work off debts. Mortgage defaults are commonplace and the primary recourse is to the property. Sometimes essentially the only recourse is to the property. So collateral risk is a primary consideration, most especially in loans like subprime which are largely collateral-based (thus fraud is an incredible danger). Under normal circumstances, interest rate risk is what banks worry about most. Liquidity risk on the level of the loan is what we are facing right now - loans can't be sold because the MBS market has collapsed. The only thing left is the GSE MBS market and of course GSE MBS started with Fannie Mae at the end of the Depression. Some forms of levered, derivative MBS are new, but MBS itself is not even slightly new and I think a sophisticated entry like this has to reflect reality.

2)Small but important point: MBS have been traded in huge amounts for decades and should not be referred to as something new. However popular a misrepresentation, it is nonetheless a complete misprepresentation of the mortgage market. Information already in the article debunks the notion. Also, CDOs are a small part of the MBS market. Agencies, REMICs, pass-throughs, swaps, CMOs, ABCP, it's all important and although agencies are technically bonds and not MBS, it should all be talked about as MBS. Unless there is a specific point to make about CDOs including high-risk MBS tranches (some of the worst offenders), I think CDO is simply and overused term here. It is what it is and should not be used as a catch-all for "new MBS".

Sorry I am so late to respond to these comments. While it's true that MBS were/are nothing new, what was new was how private label (non-agency) MBS came to account for such a large volume of MBS issuance. Private label MBS went from around 15% of total MBS issuance on 2000 to over 40% in 2006.SIFMA statistics Private label MBS are almost always collateralized by non-conforming mortgages, and the growth in private label issuance in the 2000s was almost wholly attributable to the rise in subprime lending. The other thing to keep in mind with private label MBS is that because they're not agency/government guaranteed, investors take real credit risk. The issue wasn't CDOs--they're just repackaged ABS/MBS. The issue was the rise in private label issuance, which indicated that institutional investors had become willing to take the credit risk associated with pooled subprime loans.Bond Head (talk) 21:20, 6 July 2009 (UTC)

3) Most important point: The actual losses from borrower delinquencies on subprime are simply not large enough to have created the crisis. The numbers just aren't there. This is not a case of bad payers - yet. This is a case of securities losing value and a securities market shutting down. The primary reason for this was a sudden, jarring realization that the value of the collateral underlying subprime loans was catastrophically insufficient. If you look at the changes in real estate value rather than the change in the cash flow, you'll see this is correct. Because they are made to risky payers, subprime loans are primarily collateral-based loans. That's why so many were low-doc and no-doc. It was all about the collateral.

You are mostly right about the value of securities. The actual issue isn't that the securities have fallen in value, but that nobody really knows what their value is, and that issue won't sort itself out until all the bad loans have been closed out and removed from pools. Also, what really sparked the crisis was deleveraging among previously leveraged investors. In the good old days, it was easy to build a leveraged portfolio of ABS/MBS using money borrowed from banks/dealers or in the ABCP market or wherever. When the world went south, all those lenders wanted their money back, which was the real spark.Bond Head (talk) 21:20, 6 July 2009 (UTC)

4) Thus I will be making the case that fraud was incredibly important here and I will continue to make it again and again because that's what the documents tell us. Fraudulently inflated property assessments were the key to subprime. The Treasury IG's report on IndyMac - the most-detailed analysis of a large subprime lender extant - tells us that. These banks were commiting securities fraud. It's just that simple. Look at just one example cited in the IndyMac report: the bank is lending on a property that has two assessments. One is for about $640K and the other is about $1.5M. They picked the high one as they always did. If a bank makes a $1.5 million loan on a $600K property to keep as an asset, that's incredibly stupid to the level of malfeasance. If they make a $1.5 million loan on a $600K property in order to sell the loan, that's fraud. They are selling what is in effect a security for far, far more than it's worth based on deliberate misrepresentation.

They weren't selling the loans to little, old widows, though. They were selling them to sophisticated, professional institutions. Wouldn't you think those loan investors have the responsibility to do a little due diligence regarding valuations, LTVs, documentation, etc.?Bond Head (talk) 21:20, 6 July 2009 (UTC)

5) To point to the borrowers is foolish in light of this kind of behavior. Given a bank's cost of funds, in financial terms loans like the above would represent a total loss for a bank the moment they were signed. You're taking demand deposits borrowed at, say, 3%, and instead of investing them risk-free at 5% you are, in financial terms, instantly squandering at least 20% by lending against totally overvalued collateral. Your liquidy risk rises to insolvency levels unless you get rid of those loan very quickly at something near the, vastly-inflated price. That is a business model based on fraud. If you can't move that fraudulent paper out the door, you're finished, as indeed IndyMac was the moment the game stopped and they had to hang on to their own counterfeit paper.

The questions you haven't answered, though, are who was buying the loans, why were they buying them, and why weren't they doing their own homework regarding the underlying collateral? How did so many smart, experienced, professional investors get so ripped off?Bond Head (talk) 21:20, 6 July 2009 (UTC)

Again, sorry if I tread too hard here, but the real, detailed information is finally coming out. --Dlawbailey (talk) 08:14, 6 April 2009 (UTC)

Dear Editors, sorry about my typos before. In terms of why I am inserting the fall in the value of collateral, that's because subprime loans are primarily collateral-based. That's the whole idea behind lending to riskier lenders. When you compare the drop in the value of subprime collateral with the drop in actual cash flow from borrowers, you'll see what I'm talking about. As to why I keep inserting underwriting, please take a look at the Treasury Report on IndyMac (one of the largest, leading subprime and alt-a lenders) and the Fitch study. These are credible sources. I suggest that if we're not talking about underwriting, we're really not talking about subprime. The macroeconomics are important, but even the most lenient regulators recognized a crisis in underwriting standards.

The trivial analysis is to say "it's the borrower's responsibility," and it's trivially disproved. To use the reductio ad absurdum, if I'm a banker and I loan $1 million to a guy who lives under a bridge, whose fault is it when that loan goes bad? Okay, so if I loan a $1.5 million on a 600K house to a person whose ability to repay the loan I do essentially nothing to verifiy, whose fault is it when the loan goes bad? It's called "underwriting" and it's what bankers are supposed to do - it's their fiduciary responsibility.

Farcaster, as to your question about Fannie, I shortened the text, but it's incredibly important for people to realize that this is not about an MBS market that is new, but an MBS market that got abused. --Dlawbailey (talk) 21:12, 6 April 2009 (UTC)

Dlawbailey, as far as the lead, let's keep it simple and readable. Right now it's right and makes sense.Scribner (talk) 03:46, 7 April 2009 (UTC)

Also, Wiki links should be used sparingly. Look over other paragraphs to get a general idea of use. Thanks, and have fun!Scribner (talk) 04:00, 7 April 2009 (UTC)

Scribner, right now the lead is not right because it wrongly states that defaults caused the crisis. That is materially untrue. By any measure, the change in cash flow from subprime loans was inadequate to cause the crisis in the subprime securities market. Not even the banks claim that it is the defaults. It is the risk and the risk comes from the collapse in collateral and total value of the securities. Again, subprime loans are collateral-based loans. If they were income-based, people wouldn't make them.--Dlawbailey (talk) 09:56, 7 April 2009 (UTC)

Scribner, please look at this piece from the San Francisco Fed: http://www.frbsf.org/publications/economics/letter/2007/el2007-14.html . It shows clearly that subprime defaults started well before 2006-2007. They were not simply a product of resets (subprime and alt-a resets are still happening) and were highly correlated to house price advance-decline. Why? because subprime borrowers in hot markets could refinance or find other subprime buyers. Why? because subprime loans are collateral-based loans. That's why banks didn't ask about income. They didn't care. Think about it. The lead as it stands is still badly slanted towards a "Democrats did this by making banks lend to poor minorities" type of explanation. A quote from Dodd? Come on. That's tendentious. Take a look at this http://www.calculatedriskblog.com/2007/09/whats-really-wrong-with-stated-income.html as well. --Dlawbailey (talk) 10:30, 7 April 2009 (UTC)

First, lets avoid a revert war. Just prove your point here before reverting to something other editors don't agree with. Let's keep the lead simple. I personally don't see any POV or bias in the lead. Paste the sentence you see as POV here. BE VERY SPECIFIC AND VERY BRIEF. This sentence from the lead summarizes what happened pretty well: "When U.S. house prices began to decline in 2006-07, refinancing became more difficult and as adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies soared." Scribner (talk) 16:32, 7 April 2009 (UTC)

I support Scribner's position. I would like to keep the intro very simple; this article is intimidating enough as it is. The argument regarding collateral can be included in the section in the body on risky lending practices, if it can be supported. I don't see why a subprime mortgage is different from a prime mortgage from the perspective that both are secured by the collateral (home) value. The conventional wisdom seems to be that as long as investors were willing to buy the MBS, banks were happy to lower lending standards.Farcaster (talk) 17:47, 7 April 2009 (UTC)

One important difference between prime and sub-prime loans (or at least ARMs) is that ARMs essentially compel the borrower to refinance when they reset, because the borrower could only afford to make payments under the initial "teaser" rate. Not a problem while the bubble is still inflating, but start to let the air out and ARM borrowers are the first to run into trouble. And if most prime borrowers had 20% equity in their homes, say, then most of their lenders (and even MBS buyers) might not be too panicked by the prospect of a 15% price drop. Compare that to the "no money down" approach that was rampant among subprime lending, and you can see why the market dried up. The lead section needs to cover the main points, and the impact of house price declines on collateral, and hence on MBS liquidity, is definitely one of the main points. -- Avenue (talk) 18:12, 7 April 2009 (UTC)

(edit conflict) But that is the fourth sentence in the lead section, buried inside the second paragraph, and it's the first time that declining house prices are mentioned. As Dlawbailey argues, price declines (ie the collapse in collateral) caused refinancing to dry up, and thus led to the rise in delinquencies and foreclosures. That final symptom is what the current lead sentence claims triggered the crisis. See the problem? We're putting the cart before the horse.

Also, I think spelling out the connection between falling house prices and the difficulty of refinancing makes the lead section more readable than if we skip this step. -- Avenue (talk) 17:53, 7 April 2009 (UTC)

Avenue, I agree but let's don't start confusing people with collateral loan concepts in the first sentence. Scribner (talk) 18:55, 7 April 2009 (UTC)

One more mention, this edit in credit risk wipes out an important historical explanation of how banks once held mortgages, then began selling, it explains MBS and CDO's. Not sure who wrote it but they did a good job explaining important terms and trends. Scribner (talk) 16:43, 8 April 2009 (UTC)

Agree, I would like that stuff put back in.Farcaster (talk) 17:10, 8 April 2009 (UTC)

I'm going to revert DlawBailey's edit and add some of his information later. Scribner (talk) 17:45, 8 April 2009 (UTC)

The Government policies section was a mess.

1) The article mischaracterized the very citations it used. People need to read these sources before accepting that they are legitimate citations for the point made.

2) It made no attempt to put the observations in terms of actual loan volumes, default rates and percentages.

3) As such, it was inevitably tendentious, showing a non-neutral point of view towards a politically-based rather than factually-based explanation of the crisis. I might add that the politically-based analysys (that it's all the fault of the government and GSEs rather than the people who profited from selling trillions in junk loans) has increasingly proven threadbare. I give you Mr. Reich, former Director of OTS.

4) There is a developing body of evidence about actual loan behavior, rather than speculation about what macroeconomic trends may or may not have caused what.

5) The entry still cites pieces labelled by the sources as opinion rather than fact.

The data are getting fairly clear. This crisis happened overwhelmingly because originators making "asset-based" or loans ( http://www.calculatedriskblog.com/2008/05/bk-judge-rules-stated-income-heloc-debt.html ) that derived their value from the rising value of collateral and a rising MBS market went crazy, in essence. When the collateral values fell, the game was over. Again, look at the IndyMac Treasury IG report. There you can see how the subprime (or, in this case, Alt-A) game worked at one of the biggest originators.

After significant resistance, I did the research and debunked IndyMac here on Wikipedia. It turned out that the truth was even more supportive of my position than I could have known. I have debunked the OTS Director John Reich here on Wikipedia, also after significant resistance. My edits have stood because I research them and cite them and connect the numbers to the situation. Look at the major financial publications. Did they tell the story of IndyMac's precarious position before or after Wikipedia did? It was all available from public sources. I'm proud of that contribution to Wikipedia because I think it has value to the Wiki community and proves that the Wiki community has value to readers.

I will continue to debunk poorly-cited writings about this crisis. I have cited everything I've put down. I have more cites if you need them. If you want to talk Alt-A, I can talk Alt-A, believe me. Wikipedia could be a good source for people to come to and see a fact-based history of the subprime crisis, rather than a compendium of various poorly-cited opinions. Some citations are more dispositive than others. "Balance" does not automatically indicate good, dispositive Wikipedia writing.--Dlawbailey (talk) 23:13, 22 April 2009 (UTC)

Dlawbailey, don't remove information about the Alternative Mortgage Transactions Parity Act (AMTPA). Scribner (talk) 01:53, 25 April 2009 (UTC)

Dlawbailey, Heritage.org is not a Reliable Source. Scribner (talk) 02:29, 25 April 2009 (UTC)

Sure thing. You want to leave it looking assinine, and that's the consensus, do so. My material is pristinely cited. Don't remove it, please. --Dlawbailey (talk) 03:57, 25 April 2009 (UTC)

I think you're confusing state/federal bank charters and (AMTPA). Anyway, I'll fix it tomorrow. But, I did remove the POV personal opinion you inserted about "critics of Congress claim...." and I removed your edit on the Alternative Mortgage Transactions Parity Act article, once again in which you removed valuable information. Scribner (talk) 04:27, 25 April 2009 (UTC)

No, I'm not confusing charters, Scribner. Possibly you just discovered the AMTPA and you think it's the answer to all the questions, but it's not. First, it did not do what you said it did, which is create adjustable-rate mortgages. That is factually incorrect. State-chartered institutions lent large percentages of mortgages and the states deregulated their state thrifts in advance of the AMTPA. Moreover, federally chartered banks were offering adjustable-rate mortgages in the 70's. Here: www.newyorkfed.org/research/quarterly_review/1979v4/v4n2article5.pdf Note the year - 1979. --Dlawbailey (talk) 08:29, 25 April 2009 (UTC)

Okay, This paragraph is about the history of ARM's. So, both the (AMTPA), and (DIDMCA) need to be included, That way there is no confusion about when an arm or option arm got started. We know they both started at that time period 1981-82 and that they were preceded by conventional loans. For sake of clarity I think we should avoid state/federal charters in this paragraph. I'm okay with leaving out these two sentences from the section, "Congress failed to enact regulations that would have prevented exploitations by these loan types. Subsequent widespread abuses of predatory lending occurred with the use of adjustable-rate mortgages." I don't feel a need to lay the blame at Reagan's feet but if you do have at it.

[6] www.fdic.gov".

DEFINITIONS

 SEC. 803.  As used in this title-- 

The Congress hereby finds that-- increasingly volatile and dynamic changes in interest rates have seriously impaired the ability of housing creditors to provide consumers with fixed-term, fixed-rate credit secured by interests in real property, cooperative housing, manufactured homes, and other dwellings; alternative mortgage transactions are essential to the provision of an adequate supply of credit secured by residential property necessary to meet the demand expected during the 1980's; and the Comptroller of the Currency, the National Credit Union Administration, and the Director of the Office of Thrift Supervision have recognized the importance of alternative mortgage transactions and have adopted regulations authorizing federally chartered depository institutions to engage in alternative mortgage financing. It is the purpose of this title to eliminate the discriminatory impact that those regulations have upon nonfederally chartered housing creditors and provide them with parity with federally chartered institutions by authorizing all housing creditors to make, purchase, and enforce alternative mortgage transactions so long as the transactions are in conformity with the regulations issued by the Federal agencies Scribner (talk) 09:10, 25 April 2009 (UTC)

Length of Article

I agree with Mr. King that this article has grown again too long. Let's discuss ways to shorten it. Here are some thoughts.

1. Create a sub-article called "Subprime mortgage crisis - causes" and move all of the cause section of this article there. Then, leave no more than one paragraph here in the main article for each subsection. Some of the subsections already have their own article, such as the heavily debated government section.
2. Drop the "expectations and forecasts" part. Not much value there in my view beyond the Greenspan quote, which is already in the article.
3. Reduce the mortgage market background information and credit risk information. Much is covered in the causes and any critical data could be moved there prior to #1 above. There also is a background article.
4. Thin out the responses section to summarize the details. There are sub-articles for most of the responses section.Farcaster (talk) 20:33, 26 April 2009 (UTC)

Agreed. Just one mention: not to oversimplify, but I believe the subprime crisis is about Wall Street entering the mbs market around 2003-2006. The article would improve with greater clarity and emphasis on this point. Scribner (talk) 17:26, 27 April 2009 (UTC)

Will do, nothing like over-leveraged shadow banking institutions to get us into trouble. Do you happen to know or have a source that explains what the restrictions were on the investment banks prior to the 2004 SEC decision? I've got the article from the NYT that talks about the SEC decision & meeting that helped wreck the economy. I've heard different interpretations of what rule exactly was relaxed and what it required.Farcaster (talk) 00:42, 28 April 2009 (UTC)

The Net capital rule article goes in some detail and then this article for the NY Sun is what a lot of blogs link to: [7] Scribner (talk) 03:33, 28 April 2009 (UTC)

Thanks. The article is now down to 124K, from 170K. I haven't touched the causes part yet; I have to think about that part, which was worked on the hardest by a lot of editors.Farcaster (talk) 04:18, 28 April 2009 (UTC)

Shaved a bit more out. Now 116K vs. 170K. If you guys passionate about the government section would like to take a cut at summarizing that, please do so.Farcaster (talk) 15:41, 2 May 2009 (UTC)

Broken links

There are some broken links, particularly to .gov websites.

• "Senator Dodd: Create, Sustain, Preserve, and Protect the American Dream of Home Ownership". DODD. 2007-02-07. http://dodd.senate.gov/?q=node/3731. Retrieved on 2009-02-18.
• "President Bush's Address to Nation". http://www.whitehouse.gov/news/releases/2008/09/20080924-10.html.

118.208.229.207 (talk) 05:39, 29 April 2009 (UTC)

Thanks; fixed the Bush link; other works for me.Farcaster (talk) 06:03, 29 April 2009 (UTC)

Poland the only EU country with growth. Belarus in recession

It seems that the map is wrong/out of date - according to http://www.bangkokpost.com/news/world/147688/poland-eyes-gulf-investment-hub-role "Poland is the only member of the EU to have posted economic growth so far this year -- output grew by 0.4 percent in the first quarter compared with the final three months of 2008.". This is the latest data I think. Also, according to this - http://www.kyivpost.com/world/44404 - belarus is in recession, though no official data is available. 85.221.202.5 (talk) —Preceding undated comment added 16:25, 3 July 2009 (UTC).

WSJ article

According to an article in the Wall Street Journal[8], the crisis has little, in fact, to do with sub-prime lending. -- 209.6.238.158 (talk) 02:21, 6 July 2009 (UTC)

This is an Op-Ed you're referring to, don't tag this article as dubious because of one individual's opinion. Scribner (talk) 02:40, 6 July 2009 (UTC)

GOP Congressional Report says Fannie Mae and Freddie Mac were the chief culprits in the housing crisis

CNS News says, "Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday." Grundle2600 (talk) 11:15, 8 July 2009 (UTC)

CNS is a biased source and the link they provide is to a blog on the Heritage.org, also a biased source. Personally, I won't waste my time reading it until there's a reliable source. Good luck Scribner (talk) 22:07, 8 July 2009 (UTC)

The same report is available directly from the U.S.House of Representatives. See Report: The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008. JRSpriggs (talk) 05:21, 9 July 2009 (UTC)

The report is from the GOP Minority only, not the whole committee (which of course is controlled by Democrats).Rjensen (talk) 06:26, 9 July 2009 (UTC)

I hope that you are not claiming that only Democrats are reliable and unbiased. That would be very POV. JRSpriggs (talk) 06:30, 9 July 2009 (UTC)

Oh no, quite the contrary. But Wiki should say that it is a partisan report from the minority. Rjensen (talk) 07:19, 9 July 2009 (UTC)

From the GOP minority? Since it's a common conservative claim that the subprime crisis was caused by home ownership goals, not Wall Street, which has been proven false, I won't waste my time reading the report. Good luck. Scribner (talk) 16:04, 9 July 2009 (UTC)

To Scribner: I am not aware that it has been proven false. What is your evidence?

To Rjensen: If we label reports from the minority as partisan, then reports from the majority are also partisan. Only reports endorsed by both the majority and the minority could rise above unilateral partisanship and become bipartisan. Even so, both major parties are pro-government, so it is still partisan in a sense. JRSpriggs (talk) 12:59, 10 July 2009 (UTC)

JRSpriggs, this study is an attempt to shift the cause of the subprime crisis to home ownership goals, which is a common fringe conservative myth that has been debunked, repeatedly. I'm going to wait until MSM comments on the study because it is a partisan study, coming from a group that have proven to be biased. Scribner (talk) 17:13, 10 July 2009 (UTC)

The study being bias or partisan is irrelevant for sources and NPOV. What should happen is that the study describes a point of view and then the other side describes why they believe that view to be inaccurate - letting the reader decide what viewpoint they believe based on the facts and opinions. Morphh ^(talk) 17:33, 10 July 2009 (UTC)

Just so everyone is aware, partisan or bias sources are completely fine in an article when they are attributed. It is expected when representing different viewpoints that such sources are used. A bias source does not make it an unreliable source defined in our Verifiability & Reliable source policies (in fact, they say nothing about bias in the policies). Heritage Foundation reports (not the blog), U.S.House of Representatives reports, and CNS news are fine as reliable sources per Wikipedia policy, but the content of the statement itself has to follow NPOV policy. In regard to suggesting that the report is from a GOP minority. Let me quote from the NPOV policy:

None of the views should be given undue weight or asserted as being judged as "the truth", in order that the various significant published viewpoints are made accessible to the reader, not just the most popular one. It should also not be asserted that the most popular view, or some sort of intermediate view among the different views, is the correct one to the extent that other views are mentioned only pejoratively. Readers should be allowed to form their own opinions. The neutral point of view is neither sympathetic nor in opposition to its subject: it neither endorses nor discourages viewpoints. As the name suggests, the neutral point of view is a point of view, not the absence or elimination of viewpoints.

You can attribute the material to the source but I think it is against policy to pejoratively poison the well in the suggested way. Morphh ^(talk) 14:04, 10 July 2009 (UTC)

JRSpriggs and Rjensen, please don't add generalized statements from the study admonishing and blaming Washington about home ownership goals. At least state the agency(s) or the politician(s) the study is attempting blame. Thanks. Scribner (talk) 17:51, 10 July 2009 (UTC)

On the Report in question--it takes the standard Republican viewpoint and Democrats take a somewhat different viewpoint. (They are not totally opposed.) The GOP viewpoint should be included and should be labeled as Republican, is my main argument here. The Republicans like to blame government agencies if possible, and while Fannie Mae and Freddy Mac are NOT government agencies, some foreign bankers thought they were. The policy to promote rapid growth of housing was pushed by BOTH Clinton and Bush--indeed, Bush even more than Clinton I think. (In the Fed's analysis, Freddy and Fannie added a small amount to the overall crisis. Private banks like Lehman and Bank of America were much more central.) Rjensen (talk) 19:11, 10 July 2009 (UTC)

About the edit, let's be specific as to who in Washington the study blames. Let's use page numbers in the ref, etc. Scribner (talk) 20:07, 10 July 2009 (UTC)

To Scribner: Who or what is MSM? Simply repeating the leftist myth that Fannie Mae and Freddie Mac are not (partly) responsible and that they are not part of the government does not make it true and does not provide the evidence for which I asked you. That they are part of the government is evident from the fact that they are specially created and specially regulated by acts of Congress. They only exist because Congress made them to further its desire to distort the economy by getting mortgages for people who do not deserve them. JRSpriggs (talk) 10:26, 12 July 2009 (UTC)

To Scribner: Above, you said "...please don't add generalized statements from the study admonishing and blaming Washington about home ownership goals. At least state the agency(s) or the politician(s) the study is attempting blame.". You want me to name names instead of blaming "Washington" (government) in general. To avoid being a hypocrite, you should name names also and stop cursing "Wall Street" (the private sector, i.e. ordinary people) in general. Please. JRSpriggs (talk) 18:18, 14 July 2009 (UTC)

In articles the mention of Wall Street is specific to investment banks or rating agencies, or if not probably should be changed, I agree. Scribner (talk) 20:18, 14 July 2009 (UTC)

Another cause

Another possible cause of the crisis: a productivity slowdown, see http://www.voxeu.org/index.php?q=node/3760. Btw, the sourcing of this article is atrocious. So much has been written by academic economists about this crisis, and what we find in the article are clippings from newspapers or partisan think thank. 76.117.1.254 (talk) 07:00, 11 July 2009 (UTC)

One reason that we do not reference academic studies is that they are usually in journals that require the payment of substantial fees to gain access. One cannot just link to them from here. JRSpriggs (talk) 08:42, 12 July 2009 (UTC)

Background and timeline of events

Tagged as dubious. Wall Street's entrance and market dominance of subprime lending in 2003 created the "Boom and bust in the housing market" more than interest rates and foreign monies. Key to all of this is the Wall Street rating agencies falsely rating 3.2 trillion in MBS. Scribner (talk) 20:19, 13 July 2009 (UTC)

Here are Bernanke's quotes, answering the question: How did we get here? "Importantly, in our global financial system, saving need not be generated in the country in which it is put to work but can come from foreign as well as domestic sources. In the past 10 to 15 years, the United States and some other industrial countries have been the recipients of a great deal of foreign saving. Much of this foreign saving came from fast-growing emerging market countries in Asia and other places where consumption has lagged behind rising incomes, as well as from oil-exporting nations that could not profitably invest all their revenue at home and thus looked abroad for investment opportunities. Indeed, the net inflow of foreign saving to the United States, which was about 1-1/2 percent of our national output in 1995, reached about 6 percent of national output in 2006, an amount equal to about $825 billion in today's dollars...Saving inflows from abroad can be beneficial if the country that receives those inflows invests them well. Unfortunately, that was not always the case in the United States and some other countries. Financial institutions reacted to the surplus of available funds by competing aggressively for borrowers, and, in the years leading up to the crisis, credit to both households and businesses became relatively cheap and easy to obtain. One important consequence was a housing boom in the United States, a boom that was fueled in large part by a rapid expansion of mortgage lending." He also wrote: "Mortgage markets were not the only ones caught up in the credit boom. The large flows of global saving into the United States drove down the returns available on many traditional long-term investments, such as Treasury bonds, leading investors to search for alternatives...Bernanke-4 questionsFarcaster (talk) 21:57, 13 July 2009 (UTC)

Here is the quote from President Bush: "First, how did our economy reach this point? Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions -- along with low interest rates -- made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition -- some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs. Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit -- combined with the faulty assumption that home values would continue to rise -- led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on..."President Bush's address to the nationFarcaster (talk) 21:57, 13 July 2009 (UTC)

These are both authoritative sources supporting the point here and in the other articles, so please pull those items from your list of issues.Farcaster (talk) 21:57, 13 July 2009 (UTC)

Wrong. This contradicts several sections in this article, (as well as two other wiki articles), not just the background section of this article, (as well as countless references), most of which are being used in these subprime articles. A couple of cherry-picked Bernanke and Bush's speech comments are not sufficient for the claim "Low interest rates and large inflows of foreign funds created easy credit conditions"

The "foreign funds" you reference were buying falsely rated MBS. That's what caused the boom, the 292% increase...this mention: "2003-2007: U.S. subprime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac.[56][57]"

Rewrite coming. Scribner (talk) 22:52, 13 July 2009 (UTC)

LOL. You lose all credibility as an editor if you ignore these sources. I will treat you as a vandal if you disregard them. You should stay away from editing the sections you don't understand. Make your case in the appropriate section or add a blurb on your point above, which is another valid cause. Or, read the "Giant Pool of Money" (which won the Peabody Prize; maybe that is good enough for you) which explains how $75 trillion worth of private funds went in search of higher yields because treasury interest rates were so low, driving down lending standards. Wall Street answered this demand, which dovetails nicely with what you argue above.Farcaster (talk) 23:07, 13 July 2009 (UTC)

This article does a good job summarizing what we're going to be saying on Wikipedia. I encourage you to join in the effort to help with the edits. Wall Street created the "easy credit" by blending subprime loans with higher rated loans to achieve a higher tranches of product. I think that's how they achieved the higher false ratings. I'll check in to that issue.

To lay the blame of the subprime crisis in this wiki article and this wiki article on easy credit and foreign investors is only a part of the story. Scribner (talk) 00:38, 14 July 2009 (UTC)

You've taken issue with that particular part and I've defended it. If you don't like Bush and Bernanke, I cannot help you there. You'll just have to cope as the statement is supported. You are welcome for me taking the time to excerpt those quotes for you. Foreign investors is where a big chunk of the capital came from that helped drive this bubble. I'll remove the tags and place those citations right on that spot so there is no confusion. I like the article you mention; that is a helpful way to view the narrative of what happened. If you read the articles, you'll see investment banks are covered in depth, right in the overviews following the parts you have taken issue with. But investors had to provide the funds, and homeowners had to speculate in buying them. Further, the crisis is now much broader than just the subprime market, which is what the article misses since it was from late 2007. The effects of the financial market on the broader economy and feedback effects are not addressed.Farcaster (talk) 01:55, 14 July 2009 (UTC)

That entire paragraph that you use in three different subprime articles as the cause for the subprime crisis will be rewritten (or replaced), with appropriate cites. You omit a great deal of information that involves how Wall Street packaged and sold subprime MBS to the world. It may take me a couple of weeks to a month to get around to it but the rewrite is coming. The cites you use are irrelevant because they don't address the key issue, which is how a toxic asset was turning into a AAA rated product and sold to the world. Scribner (talk) 03:22, 14 July 2009 (UTC)

I will remove the banners then while you think about it. The role of the shadow banking system, including investment banks, plus financial innovation is all there in the overview. The overview hasn't changed in weeks so your sudden reaction to it is a bit surprising. Bear in mind that getting into the nuances of CDO's is a bit much for a summary. The CDO gets a lot of treatment in the body of the article.Farcaster (talk) 04:32, 14 July 2009 (UTC)

I think you'll find this article from Krugman interesting: [9] "Today we know that subprime lending was only a small fraction of the problem. Even bad home loans in general were only part of what went wrong. We’re living in a world of troubled borrowers, ranging from shopping mall developers to European “miracle” economies. And new kinds of debt trouble just keep emerging."

Removing the tag in this article is fine for now. Your writing a section on the cause of the subprime crisis from excepts of a speech of GW Bush is really humorous. I hope you realize that fact. Wall Street bundling subprime loans to get higher ratings to sell the CDOs is the reason so many subprime loans were able to be originated. Needless to say the other two articles need to remain tagged until resolved. Peace. Scribner (talk) 05:21, 14 July 2009 (UTC)

I think it's great that you're going to include a more robust description of the connections among the financial crisis, securitization, and the (now defunct?) concept of using structured credit products to convert low-grade assets into high-grade assets. When you do, I suggest you also attempt to address the question of how and why so many smart, professional investors fell for the illusion and bought so many garbage assets disguised as triple-A investments. To say that there was some cabal among the investment banks and the rating agencies isn't enough, I think. Professional--as opposed to individual or retail--investors need to do their own due diligence and not rely just on a rating. What broke down in that regard? Were so many of the "best and brightest" duped? If so, how? Bond Head (talk) 11:31, 27 July 2009 (UTC)