Bankers in sack-cloth & ashes!

[OwlHoot]

...

I think you might mean la la land? In the US there was widespread fraudulent selling of sub prime mortgages and certainly no law ordering it to happen. In fact there were laws against it, which resulted in prosecutions, including countrywide who were I think the biggest.

What drove it was investor appetite for high yield "safe" debt and too much capital sloshing around. I agree that governments failed to spot the problem or deal with it effectively but to suggest it was all done at their behest is bobbins.

centurian is right, or morally right at least. As I've often argued here in the past, the whole mess started when the Clinton administration pressured reluctant lenders, and threatened legislation to compel them, to increase sub-prime lending.

It's understandable they wanted to improve the lives of millions of poor, including at least 10 million immigrants who had appeared in a mere few years (and are still pouring into the US today). But you can only do that so fast.

An article here relates how the situation stemming from this developed, and went from bad to worse.

...

In the Clinton administration, a primary mission of HUD (Housing and Urban Development) was to increase home ownership rates, especially among minorities and low-income families. That mission was carried out through HUD subsidy programs and through the two government-connected mortgage finance giants, Fannie Mae and Freddie Mac. In 1992, HUD was given regulatory authority over these government-sponsored enterprises, and it began pushing the two firms into the subprime lending business. We now know that these political decisions on housing that were made in the 1990s helped fuel the housing bubble and subsequent crash in the early 21st century, so it is worth looking into the leadership of HUD during those years.

Henry Cisneros served as President Bill Clinton's HUD secretary from 1993 to 1997, when he resigned to deal with allegations that he lied to the FBI about payments he made to a former mistress. Cisneros plead guilty in 1999 and was fined $10,000, avoiding a possible prison sentence.

Cisneros oversaw a politicized HUD that mobilized to help fend off the Republicans, who gained a congressional majority in the 1994 election. The resurgent GOP initially sought to eliminate HUD as part of a plan to rein in federal spending and reduce budget deficits. HUD was one of the Republican targets, and department officials fought back in numerous ways to ward off proposed reforms.

HUD held a series of "standing up for communities" rallies, financed by taxpayers, which encouraged local officials and special interest groups to lobby against Republican budget cuts. One piece of propaganda distributed by HUD's New York office warned that the budget cuts "would dramatically expand America's underclass" and that "thousands of families, many with children, would end up homeless."23 HUD also sponsored a National Tenants Organization convention in Puerto Rico to defend the department. But that event was so political that even a HUD translator refused to take part and walked out of the proceedings in protest.24 According to HUD's inspector general, an NTO official responded that "he really didn't care whether HUD translated or not because the point was to get rid of Newt Gingrich."25

When Cisneros left HUD, he was lauded for the increase in homeownership rates that occurred on his watch. Part of his apparently winning strategy, Cisneros noted, was HUD's "ability to convince lenders, builders and real estate agents that there was money to be made in selling housing to low- and moderate-income individuals."26 Part of this "convincing" involved HUD-initiated legal action against mortgage lenders who declined higher percentages of loans for minorities than whites. As a result of such political pressure, lenders begin lowering their lending standards, which was another contributing factor to the housing meltdown in the 2000s. ...

I reckon the Crash of the 1920s was ultimately caused largely by the same thing, a mass influx of immigrants in the early 20th century overwhelming the ability of economic growth to keep pace with their housing demands. But admittedly, not being an economist, I'd have trouble making a sound case and no doubt there were other factors.

OH in "sitting impatiently at home waiting for the gas engineers to arrive with my new combi boiler" mode

[doodab]

centurian is right, or morally right at least. As I've often argued here in the past, the whole mess started when the Clinton administration pressured reluctant lenders, and threatened legislation to compel them, to increase sub-prime lending.

It's understandable they wanted to improve the lives of millions of poor, including at least 10 million immigrants who had appeared in a mere few years (and are still pouring into the US today). But you can only do that so fast.

I've no doubt those polices added fuel to the fire, but to blame Gordon Brown for early 90s US policy really is far fetched .

The original mandate to have goals for low income housing was actually enacted by the first Bush administration in 1992. It certainly inflated the bubble and caused trouble for Freddie and Fannie but it wasn't intended to encourage either fraud or misselling and it didn't require investment banks all over the world to hide subprime backed securities in off balance sheet vehicles to circumvent capital adequacy requirements either.

[OwlHoot]

I've no doubt those polices added fuel to the fire, but to blame Gordon Brown for early 90s US policy really is far fetched .

Oh, I missed the bit where he blamed Gordon Brown for everything (if that's what you say he did).

I was referring to the part of his post which you quoted:

Yes, they did - but governments were practically begging them to do it, and in the US, banks were virtually ordered by law to dish out cheap credit to people that couldn't afford it.

OH in "still waiting for the gas guys to turn up" mode

[doodab]

It just amazes me how many people seem to think Gordon Brown was some sort of evil genius who intentionally manipulated the global financial system to make himself look good for 10 years before getting caught out.

I'm not defending the guy, I'm saying that view gives him far too much credit. He was just a politician who rode a wave over which he had no control whatsoever, like a shaman taking credit for rain. Ergo, he couldn't have stopped it even if he wanted to.

I think you could say the same about any individual bank or regulator. The only thing that could have stopped it was a collective decision not to try to make money where there was none to be made.