Exposed: The true cause of the sub-prime crisis.

[HairyArsedBloke]

Bloody do-gooders again.

Forbes: The Government Did It

It is popular to take low lending standards as proof that the free market has failed, that the system that is supposed to reward productive behavior and punish unproductive behavior has failed to do so. Yet this claim ignores that for years irrational lending standards have been forced on lenders by the federal Community Reinvestment Act (CRA) and rewarded (at taxpayers' expense) by multiple government bodies.

The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?

According to one enforcement agency, "discrimination exists when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants." Note that these "arbitrary or outdated criteria" include most of the essentials of responsible lending: income level, income verification, credit history and savings history--the very factors lenders are now being criticized for ignoring.

It’s all the fault of those pick-o, leftie scum.

[BrilloPad]

I still think the subprime was a result of SOX and over-regulation. By forcing products offshore they become harder to understand - hence possible for the emporers clothes situation to arise.

And now the solution is more regulation.

[AtW]

Govts were certainly encouraging those debts - that's why I say categorically that Brown is #1 responsible figure, followed by City boys and others - this includes people who loading up with debt without thinking about consequences.

[HairyArsedBloke]

I agree with you on this my little furry chum.

Cheap debt and the wealth effect of house price inflation has been at the root of the tricks that nuLieBore use to maintain their hold on power.

[AtW]

I agree with you on this my little furry chum.

You know what pisses me off most? The tax laws that they adjusted to encourage spending spending spending - in my company I want to be sure that it has got reserve of money just in case. So I don't want to declare all profits as salary or dividends, I want to keep them in reserve so that the company won't go bust. The taxation system in my view should encourage such prudent behavior - a lot of companies go bust because they could not get some cash from bank or cashflow problems for a few months, yet the tax system would tax those unused money with corporation tax even though the money are not distributed in any way (I don't mind if they tax them if such monies used to be paid as dividends later - they already do it on top of CT ain't they?)

[Paddy]

There is nothing wrong sub-prime lending but the problems were caused by selling them on in packages to investors (including large banks) who hadn’t a clue of what they were buying; as long as the sub-prime package came from a respect bank or institution they took it a face value and traded them on. I liken in to mock auctions whereby the stooges pretend to buy a black bin liner full of goods from the auctioneer and when he opens it is full of valuable kit. The greedy public then start bidding for other black bin liners containing “Stereo Players” or similar only to find when they open the bag up after auction it contains junk from the 99p shop. Sub-prime trading like playing pass the parcel the bin liners full of junk.

What is ironic is that the directors of such trading companies bailed out with public money are paying their salaries and chauffeur driven limousines with public money are probably the first people to be complaining about people living off of state benefits.

[stackpole]

I agree with hairy-arse and the russian. The problem is lending to people who are stretching themselves to the limits, or can't pay it back at all. It is simple. It's not rocket science.

All the other stuff, like selling bad debt in packages, is just a symptom of how it is starting to unravel.

[expat]

You know what pisses me off most? The tax laws that they adjusted to encourage spending spending spending - in my company I want to be sure that it has got reserve of money just in case. So I don't want to declare all profits as salary or dividends, I want to keep them in reserve so that the company won't go bust. The taxation system in my view should encourage such prudent behavior - a lot of companies go bust because they could not get some cash from bank or cashflow problems for a few months, yet the tax system would tax those unused money with corporation tax even though the money are not distributed in any way (I don't mind if they tax them if such monies used to be paid as dividends later - they already do it on top of CT ain't they?)

Corporation Tax is the price you pay for being allowed to use the Limited Company structure. Most companies reckon the price worth paying (obviously!). You could just run your business not separated from your personal life: of course then the Government would want a lot more tax from you. Govt does like you to save; but they like their tax more than anything else.

[BrilloPad]

Corporation Tax is the price you pay for being allowed to use the Limited Company structure. Most companies reckon the price worth paying (obviously!). You could just run your business not separated from your personal life: of course then the Government would want a lot more tax from you. Govt does like you to save; but they like their tax more than anything else.

Exactly. And this is what IR35 is designed for - we get nothing back for our change in status/increased risk.