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Oct 6th 2008

Subprime lending = Good Idea

But don’t take my word for it, let’s listen to Barack Obama from a year ago.

 

7 Responses to “Subprime lending = Good Idea”

  1. Paul

    In this recording Obama says “sub-prime mortgages started out as a good idea…” and by the tone of his voice it sounds pretty obvious he was about to explain why it was not longer a good idea. Though I may not agree with Obama, it seems pretty cheap to take a small exert from a speech and not even let him finish his sentence.

  2. travis

    you’ve got to cut obama off some time. the harvard elite like him will talk all day if you let them.

    enough is enough! vote nader 08!

  3. doug

    Paul,

    It is a short quip, you’re right. The point, I think, is that subprime mortgages were not a good idea, even at the start.

    Obama, like most Democrats, believes that they were a good idea to start out and that the government should have been involved in getting unqualified folks into mortgages. Then, through unforeseen circumstances and GREED!! things spun out of control.

    The reality, of course, is quite different that the one Obama and the Dems are painting.

  4. Tiff

    Obama is totally cut off here. We can’t even hear the rest of his sentence. You have to give me more than this for me to take this post seriously.

  5. doug

    Ask and ye shall receive! 🙂

    Context:

    ——————————–

    In fact, the danger with this mentality isn’t just that it offends our morals, it’s that it endangers our markets. Markets can’t thrive without the trust of investors and the public. At a most basic level, capital markets work by steering capital to the place where it is most productive. Without transparency, that cannot happen. If the information is flawed, if there is fraud, or if the risks facing financial institutions are not fully disclosed, people stop investing because they fear they’re being had. When the public trust is abused badly enough, it can bring financial markets to their knees. We all suffer when we do not ensure that markets are transparent, open and honest.

    We saw this during the dotcom boom of the 90s when conflicts of interest between securities analysts, whose research was supposed to guide investors, and the banks they worked for led investors to doubt the markets in general.

    We saw it during the Enron and WorldCom scandals when major public companies artificially pumped up their earnings, disguised their losses and otherwise engaged in accounting fraud to make their profits look better – a practice that ultimately led investors to question the balance sheets of all companies.

    And we cannot help but see some reflections of these practices when we look at the subprime mortgage fiasco today.

    Subprime lending started off as a good idea – helping Americans buy homes who couldn’t previously afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories and spread them out among investors around the country and around the world.

    In theory, this should have allowed mortgage lending to be less risky and more diversified. But as certain lenders and brokers began to see how much money could be made, they began to lower their standards. Some appraisers began inflating their estimates to get the deals done. Some borrowers started claiming income they didn’t have just to qualify for the loans, and some were engaging in irresponsible speculation. But many borrowers were tricked into glossing over the fine print. And ratings agencies began rating bundles of different kinds of these loans as low-risk even though they were very high-risk.

    Most everyone knew that some of these deals were just too good to be true, but all that money flowing in made it tempting to look the other way and ignore the unscrupulous practice of some bad actors.

    ——————————–

    Obama is either dumb (unlikely) or just playing dumb (much more probable). Giving mortgages to people unable to pay it back is normally not smart business. It is not “a good idea”.

    Nevertheless, when you read the entire quote in context its even more damning. Obama equates the mortgage crisis with the frauds of Enron and Worldcom…and yet Obama and the Democrats were complicit in the very accounting boondoggles business practices that sunk Fannie Mae and Freddie Mac.

  6. miguel

    shouldn’t have asked.

  7. tiff

    Much better. Thanks.