I am no fan of George Bush, but think he is not totally to blame for this mess (Iraq on the other hand...). Wall Street is not totally to blame either. The guilt falls on a lot of groups - the Bush and Clinton Administrations, Greenspan, Wall Street, and the American People (borrowers). Let's do a brief recap:

1) In 1999, Clinton Administration pushed Fannie and Freddie to lower their standards on what kinds of mortgages they would buy from banks (see article below from NYTime in 1999). This is, without question, and major part of where this all began, although it's not all of it.

2) The problems started in 1999, but when rates fell to 2% during the 2001-2003 recession, and less than 0% in real terms, banks were yield-hungry. Fannie and Freddie were willing to buy risky mortages, so banks started making them. Yes, low interest rates are partly the fault of the Bush administration, but everybody wanted rate cuts (it was not some sort of "Republican Agenda" cause. People couldn't bear the temporary pain of a recession - unfortunately, a recession is necessary evils to correct economic imbalances, which was the tech boom crash back then. Trying to prop up the economy with rate cuts is likely trying to keep partying for a week on cocaine (I figure Wall Street types will like this analogy): it works for a while, but you crash much harder than you would've if you went to sleep after one night of not sleeping.

3) Wall Street and Main Street banks played a part in this. They did sell people bad loans; they also parcelled up risk and packaged the loans into incredibly complex instruments that nobody understood and masked the true risk. There is no question that they led people to believe they could afford loans they couldn't; but there is also no question there was political and economic pressure to do this.

4) Lastly, as Bloomerg put it on "Meet the Press" a few weeks ago, Americans wanted a piece of the American dream too early. They didn't want to save that 20% downpayment like people had done before them; they didn't want to stick to the old rules that you shouldn't buy a house for more than 3x your income. In fairness, of course, interest and amortization schedules are complex concepts and people were led to believe they could afford things they couldn't. But we can't blame Wall Street 100% for this - people need to

5) Both the Bush Administration sat back and ignored warnings from some well-respected economists about the problems in the mortgage markets.

It disgusts me that politicans - both Republicans and Democrats - continue to lie to the American people and misrepresent what actually happened and think oversimplifying by saying "Greedy Wall Street" will solve the problem. How about the truth? How about everybody admitting to their guilt in this ... Wall Street, Congressional Pressure on Freddie and Fannie, poor oversight by Bush AND Congress, the American people, Greenspan and the pressure he was under to lower interest rates ...

September 30, 1999
Fannie Mae Eases Credit To Ad Mortgage Lending
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups

I agree, kspeak.

I think the country put waaaaay too much emphasis on people owning homes, to the point where folks who couldn't afford them were being pushed to ownership. To me, everything else was just a byproduct of that. The housing bubble, the crappy mortgages, and the scumbags taking advantages of the mortgages on both sides.

But it certainly took MILLIONS of people for this to happen... including the folks who took out the crappy mortgages they couldn't afford, and the folks who speculated on the rising market.

OF COURSE there are brokers and banks willing to take advantage of those people, just like they'll give you a credit card with 20% interest. The shady types are always there.

Only this time they had MILLIONS to prey on.

Medical doctors, Lawyers, CPA make roughly $100G a year. Wall Street "investment bankers" generally used to make at least half a million a year. Something is missing?

While I will agree that there were many factors involved in creating this mess, a big place the buck should have stopped, but didn't, was with banks/lenders and their due diligence (or lacktherof). If you wanted into a bank (10?) 20,30,40 years ago and asked for a loan with 110% LTV and nothing down, they would have taken you out in a straight jacket.

While it might be less likely in NY, I believe most of us would enjoy owning a Ferrari. I think we're a long way away from the "everyone deserves one, sign right up" mentality there. Did they just give the underwriters, bond raters, people in "risk management" 5 years of vacation all at once?

The relative compensation of Wall Streeters vs. doctors (especially) is out of whack and is not encouraging the most talented people to go into medicine. But that is for the most part a seperate issue - some Wall Streeters made money off the mortgage market, but Wall Street compensation alone is not the cause of this mess.

TheFed, I agree... someone should "backstop", but you still needed the millions creating the wave in the first place.

> Medical doctors, Lawyers, CPA make roughly $100G a year.

Not in this town. The big law firms - and there are a bunch - are starting folks at $150k or more now. Partners (which takes 8-10 years) is generally over a million.

Doctors, once finished with residency, make several times that.

Remember, the MEDIAN income in Manhattan is over $100k. meaning half the city makes more...

Not sure if you mentioned the role leverage played in this catastrophe. If these loses weren't multiplied by 30 to 40 times, maybe we could afford to get out of this mess. The multiplier effect of this leverage, to me, was what compounded this problem to the degree we see today.

see attached article for a basic understanding:

http://www.ourbroker.com/?p=2232

Fannie and Freddie started pressuring banks to make these loans by buying risky loans. When interest rates were 2%, banks became yield-hungry ... if you're a bank and all your competitors are making money by underwriting risky loans and you're not, your shareholders jump all over you.

Proof of this: look at the few banks (Chase, Wells Fargo, etc.) who managed not succumb to the pressure, or at least not to the same extent. JPMorgan and Wells Fargo's stock price really did not go up during the boom: maybe 15% during one of the most unprecedent boom periods for financial stocsk in history. Look at some other banks to see what happened to their stock prices during 2002-2006 ... they spiked .. the shareholders of Wells Fargo and JPMorgan were irrate. Today, JPMorgan and Wells Fargo have share prices HIGHER than they were in 2005-2006, which is pretty unbelievable giving how crappy the outlook for finacials is today and how good it was then. Again, shareholder pressure doesn't mean banks HAVE to be reckless, but it doesn't help.

But people didn't HAVE to take out crazy loans either.

Congress didn't HAVE to push home ownership on people for whom it frankly proved to be more harmful than good.

What caused all this mess ... greed.

nyc10022,
Doctors upon residency makes around $100-150k/year minus couple hundred thousands in loans. If you have a successful private office, $250k and up.
Attorneys that make $150k+ are top graduates in top firms in NYC.
How do I know? I am a Doctor and my brother is an attorney for one of the top firm in NYC

so Doctors and attorneys making 3-400k/year is just all hype, just like all investment bankers make $3-400k/year

ba294,

Could you provide any insight as to how Doctors and Lawyers are viewing this financial crisis?

Many people think these two professions are quite recession proof.. just wanted to know what these guys think...

"Attorneys that make $150k+ are top graduates in top firms in NYC."

Actually every name firm in the City pays $160,000 to lawyers straight out of school. And there are literally over 100 such firms and no not all of these kids went to Harvard.

"Many people think these two professions are quite recession proof.."

No profession is recession proof. Law firms follow i-banks and they are cutting loose of personnel from the top down left and right. But they do it much quieter.

I think we have established that the "greed" was on both the lenders AND the borrower's part (wanting a nicer house than they could afford or buying spec houses). And lenders had significant political pressure, and, later, shareholder pressure, to participate.

junkman - leverage too of risky positions also played a part - good point.

TA,
My brother
Univ of Chicago
Class of '02 Top 5% of class
starting salary $170k many offers declined at $90-140k

Your brother picked his firm not because he wanted to learn a certain branch of law or wanted to learn from a certain partner but strictly because it paid the best?

Or were there other factors in his decision?

If there weren't he is part of the "greed is good" problem

He picked based on his field, pay, benefit and possible future with the company.

As for Drs being recession proof, 80% true, 20% false.
Most fee for service practice will get hit but not the ones accepting some insurances.
Most wall streeter have cobra and find a job within 6months thus maintaining their health care.

I have not seen any decline in patients nor revenue...we'll see in about 6months.

My brother is actually busier now since he works with employment.

Greed. stupidity, deregulation ...... there is plenty of blame to go around.

"I am a Doctor and my brother is an attorney for one of the top firm in NYC."

Actually, the average lawyer in New York City makes $90,000 a year. The average doctor about $150,000. The highest paid professionals in NYC are orthodontists, who average about $300,000. Of course they only work 2 days a week.

Sure, University of Chicago, NYU, Columbia will make in the $500,000 range, and they'll work 80-100 hours a week until they burn out. The fact is that the housing stock currently available in Manhattan was geared toward one end of the market - investment bankers. And they don't exist anymore.

FYI I know because I make more than the average doctor but less than the average orthodontist, and I found myself priced out of Manhattan.

That, however, will soon turn around.

kspeak, agree with all your points - but add this one: no one was responsible in the chain of lending, dividing, packaging, repackaging, repackaging, etc. The mortgage broker's not on the hook, because he gets his fees up front. The lender's not on the hook, because he resells the mortgage. The buyer of the mortgage is not on the hook because he repackages it and sells it on to funds that are "diversified." The theory was that the risk was spready so far and wide that no one would suffer. Reverse happened - everyone suffered. Trying to assign the blame to any one person, group of people, industry or political party is completely missing the point. This was all designed to not leave anyone feeling that they would have too much on the hook. That was supposed to be good for business.

It's greed and arbitrage of the tax/mortgage/securitization market. Take out a $500K first mortgage (pre '08), that paper is sold as if the loan were worth $600K. Why? Because if prices keep rising and rates keep falling the extra $100K built into the original loan is washed out during the refi and the cycle continues with another big appraisal. As soon as the housing market tanked in '07 Wall Street looked around and saw about a trillion dollars of Ponzi scheme debt on their books. And we couldn't sell it to the Asian, the Arabs of the Eurozonis.

Basically Wall Street found a way to print money. Surprise, surprise.

Expect the Wall Street to blame subprime borrowers and small town mortgage lenders (who were bought up by Wall Street firms) for causing this. The Street knew exactly what is was doing.

and don't forget the giant pool of money:

http://www.thislife.org/Radio_Episode.aspx?episode=355 (click "Full Episode").

This is a fantastic explanation just of how investor driven the subprime aspect of this bubble has been.

And of course don't forget the buyers themselves, the lenders, brokers, realtors and the criminals of all of the many fraudulent scams that came out of the bubble. Bottom line: Human psychology is the problem. It happened in Japan, the great depression and every one of the many bubble that happened prior. We probably will not see another in our life times. This could not happen if the great depression was 35 years ago instead of 75.

Securitizations have been going on for years. What caused this IMHO was not even very low interest rates - it was the effect of raising leverage limits to 30x from 10x. That multiplier effect is far greater than even negative interest rates.

They had all this money and needed to do something with it. Guess what they did?

What mess? According to the "NEW YORK REAL ESTATE MARKETING MACHINE" this is the best time to buy. Hurry, this place has multiple offers. What a joke. And some actually fell this BS over the last 2 years.

I bet that the brokers don't talk about European investors buying nyc real estate much longer. The Euro is done. They are is worse shape than us.

Many many reasons for this mess. But here's one I absolutely love.

http://www.money-zine.com/Investing/Stocks/Invest-Your-Home-in-the-Stock-Market/

An excerpt:

"Do you own a home? Are you paying a mortgage around 8%? Do you have equity in your home? If so you may want to consider taking out a home equity loan and using the money to invest."

doctors, lawyers, bankers...these are ridicuous titles. we all know that the standard deviation is massive for these jobs.

doctors - all depends on specialty. certain ones can break $500K and others difficult to break $150K (i am one and thkfully i chose a good specialty)

lawyers - all depends on firm. most in the city hover between $150K (sal. bonus - yr 1) to $300k (yr 8) and then partner at small firm to large firm ($800-2mill wachtel)...of course there is a lot of burn out so many don't make it to partner and get relegated to $400k or so after yr 8

bankers - talk about variability (how about $150 to start w/bonus out of 1st grade to 8 digits after 15 yrs and good luck)

---
no one is "down" proof. recession-wise, maybe some are better off than others, but even then. the world is always new. whats from stopping the govt to hack medicare/medicaid rates, causing other insurance companies to decrease reimbursement, causing decreased compensation? at the end of the day money will be shifted from all sectors into military/finance (as has always been historical for an empire to survive).
---
as far as i can tell the problem has a lot to do with computers. very difficult for the bankers to hide the gold behind their cloaks when things are becoming more computerized. spreads/margins are essentially nonexistant compared to 100 years ago. imagine what the bid/ask spread was from any item purchased from david rothschild...we will never know because it was opaque. so...low spreads means more leverage and then its just a matter of how many peeks we get behind the curtain until we realize the emperor has no clothes. and when that happens...

anonymousbk, are you seriously blaming computers? We had a pretty big bubble in Holland in the 1700's based on tulip bulb trading. And during the Gold Rush in the 1850's. And...not so many thinking machines were part of the 1930's crash.

Long story short. If you find a way to make money expect the rest of the world to pile on board until the ship sinks. Last one out takes the biggest beating. Dick Fuld sold $100MM of Lehman stock last year. He knew this was coming.

I ***HATE*** how all the political candidates, in their debates, say "Wall St. put us in this position, and we need to make sure they never do it again". Vote whores. FU. What they REALLY ought to say is:

"Look, your parents realized they couldn't live a millionaire lifestyle on a nurse's income. Somehow, you thought you could. Everybody now thinks they are entitled to live in a 5,000 sq ft house, drive a BMW, and take multiple vacations a year. You can't. YOU caused this problem, Joe Sixpack and Jane FatSlob, because your eyes were bigger than your wallet. Those of us who manage our financial affairs conservatively have NO obligation to bail your fat azz out. Those of us who could have afforded a house three years ago and DIDN'T buy one, because we saw how over-priced homes were b/c of YOUR overbidding, are left picking up your check. Forget it. Bail yourselves out. And don't give me any crap about how we need to bail you out or else there will be blood in the streets. Crime actually went DOWN in the great depression, because ppl knew that if they were stupid enough to try to steal from their neighbor they'd get a fork in the neck. P.S. - While you're at it, think about having a salad."

"No profession is recession proof."

Funeral homes. :p

More people are being cremated during these tough economic times. Can't afford funeral home. Funeral homes are not recession proof.

http://ozarksfirst.com/content/fulltext/?cid=49051

Doctors make $40-70,000/yr in residency, which can last up to 10 years in some specialties (like cardiac surgery, neurosurgery, plastic surgery). It is variable after that (usually around $150-250,000 in NYC) - but this often means the surgeon is in his/her late 30s/40s by the time s/he is out of residency. It may take another 5-10 years to build up a practice to make more than $250,000/year (i.e., mid to late 40s). Furthermore, if you're affiliated with a university, you're salary capped - the more prestigious the institution, the lower the salary cap (eg., Harvard starts newly graduated cardiac surgeons at $80,000, Cornell/NY Pres starts new ENT surgeons at $80,000). The upside is that they work 80+ hours/week in the hospital, plus all the prep time at home, so they don't have time to spend any money anyway.

surfer, i always thought certain specialities (radiology, orthopedic, etc) make in the mid six figures (400-600k) and above soon after their residency. Is that true?

"The Euro is done."

The euro business was BS from the beginning. I plainly demonstrated it once with a little arithmetic: if you get paid in euros and the euro falls, but your mortgage remains in dollars, you will soon go bankrupt. Yes the asset value of your real estate will go up in euro-terms, but your cash flow goes negative.

I buy an apartment for $100,000 when the euro trades at $1:E$1.50, which means that E$1 buys me $.67, meaning E$67,000 will buy me $100,000. The euro then falls to $1:E$1.00, meaning that E$100,000 will buy me $100,000. Therefore, I've made money even if the property stays the same price in dollars, because what was worth E$67,000 is now worth E$100,000.

HOWEVER, the exact opposite happens with my mortgage: if I was paying $1,000 a month in mortgage payments, that initially would have cost me E$670. As the euro falls, my mortgage payments go up to E$1,000.

Oops.

And it's even worse if the dollar-denominated property falls in value, which is what is happening. Which is why "The Europeans Are Coming!" was always a lie, even before they started rescuing all their banks.

Good Stuff.

I'm not voting for Mcain BUT.. When I watched the debate last week, Biden comes out swining in the 1st question. "What happened to the economy Joe?" EIGHT YEARS OF BUSH AND DEREGULATION!!!!!

Right there I paused the TV, looked at my wife and said, right here is the opening - IF Palin comes out now and say's "Why the finger pointing" and can actually explain what REALLY happened, she and Mccain will knock this debate out of the box...

Her answer.. Something about the PTA and Socerr moms in Alaska..

WHAT!!!!!

That debate was served on a Tee for Palin right there - Tell the American people what really happened after Biden just came out with some simplistic Lie that panders to the common folk (not as if Repubs don't do this).

ALSO - A few years back as the NY papers had headlines of Wall Street bankers making 50 - 100 MILLION DOLLAR BONUSES!!!!!!!

I wondered how this could possibly be - How could there be "extra" hundreds of millions of dollars - That's what a bonus is - "EXTRA" money given for a job well done... Wall Street took bonuses as if they were Salary...

There has to be alot of blame for these top execs - These are the guys that are supposed to be the great minds - GW, Obama, Frank, they didn't all go to top Finance schools and aren't the top minds in the world of finance - These execs were supposed to be the one's to say NO to Obama and ACORN and to Clinton and to Barney Frank!!!!!

Special_K
about 3 hours ago
ignore this person surfer, i always thought certain specialities (radiology, orthopedic, etc) make in the mid six figures (400-600k) and above soon after their residency. Is that true?

another misconception by the public.
Like he said, if you are affiliated with the hospital, it varies from 100k-250k at the most.

One of my best friend is a radiologist and he pulls around 200k with 15years of clinical experience.

80sMan - not saying computers are to be blamed. saying that returns are significantly less than before without leverage. leverage is thru the roof. compare 30:1 with great depression leverage...or for that matter the way credit works now for an average citizen. everyone is over-leveraged (well most) compared to the past.

ba294 - your friend is lying.

---
as far as all the other conjectures about physician salaries, i think it is best to say that at the end of the day, we work hard and most of us don't get crap until we are in our 30s, by which time, kids that we tutored in college are on their way to cashing out of the banking system. if i were to give advice to a smart kid today, i would tell them to become literate, go to undergrad, screw around, get a 170 on their lsat and then set up a checking acct w/direct deposit. that being said, although i don't live that life, i love my job...so maybe better advice is do what makes you happy but know what kind of lifestyle it will support.

Again, lets revert to the stat... the median income in NYC is $110k or so per the last round of reports a couple months back. Half are making more. That isn't all Wall Street, so figure it is coming from somewhere.

The doctors I know (mostly in their mid 30s) are all making at least 200k. Might not be a complete sample, but there are a lot of 'em out there.

All the Manhattan lawyers I know started at minimum 100k (you almost need to with the loans), and I can't think of any under $150k anymore. Most are in the multiple six figures now.

anonymous,
I highly highly doubt my friend is lying as I know pretty much all his finances down to his cable bill.
He works independently for 2 private hospitals and he considers him lucky to draw 200k/year.

Many private office doctors will pull couple of hundred thousands a year but it takes years to get there.

ER doctors gets around $60/hr which equates to around 100k/year

ba294 i am a radiologist. all of my friends are radiologists. Please let him know if he is interested, I am hiring currently and if he can read all cases (xray,CT,MRI,US,mammo) and is board certified, I would love to talk to him. No joke. Sorry for taking this forum to this point, but in all seriousness, I actually do need another doc and at that rate for full-time, I am sure I can beat it. thx.

(also b4 people jump to conclusions, i'm not being sarcastic, i'm serious)

http://www.streeteasy.com/nyc/talk/discussion/5464-east-hill

Interesting perspective to counter all the Republican finger pointing that the Dems encourage this bubble. I wish the politicians would stop giving each other the finger and try to solve problems. But then again, they all help make the mess.

oops! Here is the link I meant to give: http://norris.blogs.nytimes.com/2008/10/08/whos-to-blame/