Most loans to NINJA customers with horrible credit SHOULD NOT BE GIVEN. They are allowed because it gives the banks a legal excuse to say they have new ASSETS when they know the ASSETS are CRAP! Quoting: Anonymous Coward 203360
The system runs on DEBT, so the banks simply need "PEOPLE SIGNING ON THE DOTTED LINE" to fraudulently bolster the "debt end".
This is why the housing market was opened up to NINJA. The banks knew they would ultimately NOT get stuck with the non-payment part, yet they still get to show the loan as an asset for awhile, then it gets wrapped in some other complicated "fund" scheme and sold.
Am I wrong?
In the 1970s Jimmy Carter got a little federal housing program started called “The Community Re-investment Act”. It required banks to make loans to people who could not afford them by offering government subsidies to the banks who were willing to make those loans. Very few loans were made because the banks weren’t dumb enough to write bad loans they knew were not going to get paid. Under Bill Clinton’s administration, the Community Re-investment Act was amended to force banks to make the bad loans by fining them greater amounts than the bad loans were worth it they didn’t make the loans. So, banks were forced take the lesser of two losses and write a ton of bad loans.
To get out from under the mountain of debt they were piling up they created Credit Default Swaps or CDS. That is when you have a huge pile of bad loans you need to get off your books so bad, you take a loss and sell it to a bigger fish for pennies on the dollar just to get rid of it. The CDSs played leap frog up through the bigger and bigger banks until the last frog got squashed when the leaps couldn’t rise high enough anymore. The crash took out Leman Brothers who was insured by AIG who also had lots of major investors. Etcetera, etcetera, etcetera. It was one gigantic pyramid of dominoes.
Back up a bit to spread the blame a little more. Under Reagan, banks were not just deregulated, they were allowed to expand beyond states to grow into national and international size. That one decision meant that the bigger the banks got, the bigger and more wide spread the fall would be.
In 2004 (or 2005 I think), the W. Bush administration attempted to act to limit exposure to the bad loans that banks were being forced to make by the federal government, but in typical Republican fashion, they left their balls at the door and got steam rolled by Maxine Waters, Barney Frank, and other top Democrats on the Banking Committee. The usual claims of racism for banks not loaning to poor (read black) neighborhoods stopped the effort dead in its tracks. Republicans as usual were too afraid of being labeled as racist by people who actually are racists. With that and the surging economy in the mid 2000s, the housing market exploded. The debt from the bad loans exploded too until in 2008 it just blew chunks all over the entire money market.
This wasn’t just the greedy evil banks, or the Federal Reserve. It was the end result of three decades of government forced socialist re-distribution of wealth. It’s like Margaret Thatcher said, “The trouble with socialism is that eventually, you run out of other people’s money.”