The Glass-Steagall Partial-Repeal Did Not Cause the Financial Crisis

[louis-t]

73. You are WRONG about 'no credit checks'.

Even 'no doc' loans had credit checks and you had to have high score, it was the income that wasn't verified. And you had to put a large down payment, and the interest was high.

Where did you get the idea that no one was running credit checks? I don't know what you mean by "also on other customers". They lowered the minimum score from 640 to about 580 and allowed debt to income ratios of up to 50% from 38%. That increased the risk if someone had something go wrong, a health problem, a drop in income. This would not have been much of a problem if not for half the country getting the chair kicked out because of bush economic policy.

When you had $0 down mortgages, people were more likely to just walk away if they lost their job or had their pay cut. It was like they had been renting. No skin in the game. Usually, those houses weren't trashed when people walked away. Sometimes, the owner had taken the HELOC money they were given at closing and put roofs, furnaces, windows, etc but hadn't spent much of their own money.

Selling mortgages as securities was done before but not at the level that it was done in the 2000s. And not sub prime bundles that investment houses knew would fail.

Getting rid of Glass Steagall made sure there was trillions more available to invest in risky deals. It made the crash more severe.

Your perception that 'all these people got loans that shouldn't have and didn't make their payments and that caused the crash' is overly simplistic. It was a house of cards scenario, the perfect storm, the sinking of the Titanic. A perfectly calm sea, moonless night, no binoculars, ice warning the captain never got, bergs further south than ever, and a disastrous decision to reverse engines and try to steer at the same time.

Oh, and AIG failed because they had to pay off the credit default swaps when the securities lost all their value.