Amadd wrote on Aug 8
th, 2009 at 12:43am:
Could you eleborate on just how the banks were forced to give loans to people who couldn't afford them?
From what I could see, even in Australia, banks were throwing money around willy nilly with blatant disregard to the risks involved.
People were buying their Mc Mansions on the never never, or never ever in a lot of cases, when a couple or percent interest rise or a job loss would mean disaster.
Nobody was twisting the arms of the banks here to send out letters offering people money and redraw options on their mortgage. The motivation was greed.
The United States has a statute known as the Community Reinvestment Act, which requires banks to make an "appropriate" level of lending to low-income and minority borrowers in the community. While this statute has been on the books since 1977, the demographics of the nation has been changing and went from roughly 90% white when the law was passed to more like 65% white today. President Bush also made a big push to increase the rate of minority home ownership, and whenever Federal regulators approve bank mergers one factor they look at is the minority lending portfolio. Not enough minority lending, no merger.
Of course greed played a huge role, but greed is normally balanced by fear and a rational capital allocation process. When the central bank simply prints huge amounts of money neither exists, and when all hot-shot Wall Street investment bankers know that GSEs will buy whatever crap they sell to them, even if they also short it, and that any mistakes will result in their being bailed out by the government, how can there be fear?
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