Dave Yost: Deregulation the real culprit
Silverthorne and Wisc.
I feel the title of Mr. Liddick’s column is right but the wrong parties are blamed for today’s loan mess. While Mr. Liddick did manage to pen another very well-written column and one that appeared to be well documented, one has to question his sources for such information as to why we had banking regulations in the first place. Asking a banker why people cannot get loans today is a little bit like asking an arsonist why he set a fire.
Back in the days when banks, savings and loans, insurance companies, and investment houses (i.e. Wall Street firms) were fully separate entities, people went to the appropriate source for a loan. Someone who wanted a house went to their local savings and loan. A business owner went to a big bank and worked with someone who specialized in these things. Before the late 1990s, these firms actually made a loan decision based on the customer’s willingness to pay and then held onto the loans until they were paid off. I clearly remember having to dig up the 10 percent downpayment necessary on our first house. While government programs aimed at increasing minority home ownership were an early part of the free money flow, the 2000s saw loans literally handed to people in the streets. The big banks and Wall Street were certainly acting extremely irresponsible. Many of the recent books like “Too Big to Fail” by Andrew Ross Sorkin or “A Colossal Failure of Common Sense: The Inside story of the Collapse of Lehman Brothers” by Lawrence McDonald explain this very well.
In recent years, and particularly in the eight year ramp-up to the housing and financial crash, most firms who issued loans simply sold the loan to another outfit that bundled it up and sold it to firms that securitized the loans. This happened with every kind of loan imaginable. The source firm was completely off the hook. What happened to these financial products after they were sold is far too complicated for a letter, but the whole process led to the money guys to getting rich while a good chunk of the country used their houses as an income source.
No, Mr. Liddick, it was not Sen. Dodd and Rep Frank’s 1977 programs or even the Clinton era enhancements that tanked the ship and led to today’s partial return to banking sanity. It was the eradication of regulations started in the 1930s that took us down this path. It is unfortunate that today’s poor banks have to set aside 3 percent of their loans for reserves instead of selling everything off to a CDO swindler. Maybe when they treat the loan business for what it is, their owners can make a living without having to shore up their stockholders.
To be fair, some of the rules that were introduced in the Dodd-Frank bill may be a bit too rigid. People like retirees with money in the bank and no outside income should be able to use their funds to buy a house and still get a loan. That’s tough these days. Some business owners are in the same boat. However, if the GOP is successful in killing Wall Street reform, we are back to the days of rampant gambling with our houses.
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