It's A Wonderful Mortgage Crisis

People seem to be missing the salient point.

That those weren't "simpler" times where you could trust your banker, broker, etc.

And shame on Mr. Rosenfield for writing something he has to know is factually untrue.

Banks were not allowed to diversify by branching out the way they do now (and did in Canada at that time even).

This isn't an opinion but an economic fact that isn't even argued among Left and Right economists. Not allowing banks to branch out made them mortally vulnerable to local economic fluctuations, and was almost solely responsible for the rash of bank failures during that time period. (Compare the number of bank failures in this time period in the US and in Canada.)

Mr. Rosenfield knows this of course, so what his impetus for writing such populist eye candy is a mystery, but it's simply not true, and he knows it.

The Community Reinvestment Act does not force a financial institution to make a loan if it can prove that you do not qualify. Bankers made this loans because they could make money on fees and points, then sell these loans to investors.
Let me ask you a simple question. would you, as a Banker, make a loan to someone that was not qualified to pay it? of course not! However, what if you sold it before it blew up on your face? UHMMM. No, Bankers are too honest to do that......:)

Neat discussion. One obivous difference was back in the day people bought a reasonable size house with a reasonable payment. If things improved they would move up. Today young couples want their dream house from the start. When was the last time you saw a house and said that would be a great starter house? It don't happen anymore. The builders nor the bankers make enough money to suit their desires. The young family doen't want to appear cheap to their friends or family. So what else can you do but jump in to a huge mortage if noithing else to appear successful. A bump comes along and you're out! "Oh how can this happen"

The truth is that in those days, you could trust your Banker, your Broker, and your Real Estate Agent. Now, they all fight for a piece of the pie (your money) without any regard for your well being. I worked in the banking industry for 17 years before I started my own transportation company, (Consumer loans, not Real Estate) and I can tell your first hand that all these Bankers knew within 5 minutes if you qualified for a loan. However, it ony took one minute to find a "Loan Program" that you could qualify for (at a higher cost of course) with assurances that it was just to get you in the house, then you could refinance for a lower rate or better terms. If I had a dollar for every time that I heard "Trust us, we are here to help", I would be a millionare like them. They were trained to make a loan, no matter what, then sell it so that the bank had zero risk. The banker passed the "HOT POTATO" to the investors (the ones that purchased all these loans without auditing) for them to take the fall. The Banks crying for help are the ones that were too slow in selling these loans, they got caught with the "HOT POTATO", so now they must pay the price for their greed.

The article misses the main point; George Bailey did not lend money to people who couldn't possibly pay it back.

From one economic historian, writing of this "simpler" time in banking history:
"One of the greatest strengths of the American economy, its immense size and diversity, was deined to the banking sector with which all other sectors necessarily had to deal. It would, in time, prove a near fatal weakness."

The "It's a Wonderful Life analogy: "Drill Baby Drill", a booze store on every corner, more guns less education, less protection for workers, no to a living wage................It's clear the rethuglicants want the country to be Pottersville, The Democrats and others who voted for Obama want the country to be Bedford Falls

The problem is of course that we can't do away with or change human nature. so the idea of more Bailey's and fewer Potters is simply naive.
The level of regulation that we have now in the financial world does not of course change Baileys into Potters, it does not drive out the evil greed, but what it does is obfuscates what could be a much more transparent business.

Or think of it this way, more and more and more regulation only puts more trees in the forest for the Potters to hide behind.

More to the point of simpler times, Bailey's institution would have failed in real life as so many did during that time period precisely because they were so illiquid. What the author neglected to mention in this article is that our government had restricted our banking system back in that simpler time so that they could not branch out the way they do now. (And the way they did even then in Canada - look up bank failures for the US and Canada during the middle 20th century.)

Because Bailey was restricted by law from branching outside of the community, he was overly vulnerable to the ups and downs of the local community. That is, if Bedford Falls - a presumably small town - suffered a drought or a factory closure, the bank would be wiped out as a result because the bank was completely exposed to that single large event.

Going back to those simpler times would increase the amount of local bank failure by a magnitude that would be simply unacceptable, and the idea itself is absurdly simplistic. I hope that Mr. Rosenfeld is lecturing on something besides economics.

Thanks for writing this article. I've said many times how we need
more Bailey's and less Potters. Most people think I'm talking about
Harry. Just a little more compassion and a little less greed would
go a long way to solve our problems. Those who don't want to
help may cause a very bad situation that they will have to deal with
as well. Unless totally self sufficient, we are co-dependent.

The idea is good!

The bottom line is greed. If we let the greedy rule we will always end up with what we have now. A pile of paper worth only what you can get by recycling the paper. Maybe we need to go back to a simpler time and let real money drive oue economy.

"All that Brad Pitt's George Bailey could ever know is that he bought securities rated highly by each and every one of the three government-endorsed rating agencies,. . . . Nothing more. "

If he didn't know more than that, he was a fool. When 50% of homes were being purchased on interest only or negative amortization loans, and household incomes of the average American was holding steady it was pretty damn obvious to anyone paying attention that the bubble was getting pretty damn thin. The fact that the bubble popped about 3-5 years after the teaser ARM became the primary home purchase vehicle is not entirely a coincidence.

Simply stated, those who didn't know this was coming were not paying attention.

Brad Pitt is not amused.

The greatest movie ever was always a lesson of the importance that each person is to the lives of the people immediately around us. It should also serve as a lesson that if you really want things in life to be simpler and understandable to all, you have to stop wanting instant gratification. Get the fancy house when you can afford it, go on vacation when you have the money, make the big bucks before your 30. George Bailey sacrificed these things time and time again, but ended up the "richest man in town". Merry Christmas America

The lesson from It's A Wonderful LIfe? Mary is a Witch. She tosses the rock at the old house and pretty much simultaneously George's father tips over sideways, dead (check the timing of the actions). She's trapped George in an endless cycle of drudgery for her benefit. George finally goes off the deep end. And while Georage is having his hallucinations, Mary is out as well doing whatever (off screen) - perhaps casting spells over the rest of Bedford Falls to bring their stuff to the Bailey's, and casting all these visions into George's head.

So the lesson? Bewitching people with false illusions and when the rubber begins to meet the road, expand the con even more so they voluntarily ask for more of what they've been dished, and be deludedly happy about it. Sounds vaguely like Federal Public Policy.

"davelja's" comment was so right that I've copied again! I will add that this article is an excellent example of why our society is collapsing. By exclusively focusing on the technical complexities of finances we completely miss the real story. The value of life is people helping people. If that's working, the money will follow. From Clarence the angel, "Remember Gerorge, no man is a failure who has friends."

Posted By: davelja @ 12/24/2008 9:14:36 AM
Having just watched this movie last night, I was struck by one thing: When George Bailey was in need, all those that he helped pitched in to help him regardless of what was being said about him. Today, any "George Baileh" who got himself in trouble (even by accident) would be chopped up by our need for instant news, crucified by the talking heads, disemboweled by investigators and officials at a news conference, indicted like a ham sandwich, and all those who help him would gossip on their cell phones, look for the media spotlight to cry to the world, and ultimately turn their backs on someone who'd helped them. We're a different country than we were then. Different does NOT MEAN BETTER!!! What I would hope would come out of this crisis are several things: realize that the money in one person's palm is worth less than the extended palm of friendship, a quick buck isn't a good buck and most often a buck can't ever buy you lasting happiness, and that for all of us there is a deeper truth than anything that is uttered for the sake of "news" or glory. Maybe we can learn to be more like George Bailey and the people he helped and admire them more, and stop trying to be a rich and soulless Potter.