# Fannie Mae and Freddie Mac



## Taylor (Feb 11, 2022)

I'm writing a corporate mystery that takes place in 2005.   I have decided to base a plotline on the Private Mortgage-Backed Securities (PMBS) that were purchased by these two United States government-sponsored enterprises. (GSEs)

I'm very familiar with the situation and how the system worked, and that's not what asking about here.  What I want to know from you, is:

How much of household names were Fannie Mae and Freddie Mac in the US during the period of 2005-2007?

Would the average high-school graduate know what they are?

Would the average university graduate know how they work?

My protagonist is a financial journalist.  I'd like her to know something about the basics as to why the government buys mortgage-backed securities to free up the banks to provide additional mortgages to the public.  But not specifically about why the Housing and Urban Developments (HUD’s) affordable housing goals for the GSEs affected their investment in risky mortgages, contributing to the mortgage crisis in 2008.   Does this seem reasonable?

If you can remember the period two years before the banking crisis in January of 2008, is there anything else that was commonly discussed in the average household, with respect to Fannie Mae and Freddie Mac?


----------



## D. L. Keur (Feb 11, 2022)

> How much of household names were Fannie Mae and Freddie Mac in the US during the period of 2005-2007?



It saturated the [expletive omitted] news.  They branded it into our brains.



> Would the average high-school graduate know what they are?
> 
> Would the average university graduate know how they work?


*Average* high schooler?  ...er...doubtful.  

*Average* grad?  Depends on what they studied.  That was over a decade ago, centuries in today's world, isn't it?  Most don't study what they consider to be 'ancient history'.   

JMO


----------



## Taylor (Feb 11, 2022)

D. L. Keur said:


> It saturated the [expletive omitted] news.  They branded it into our brains.


Was that after the crises...once they figured out what happened?  What about *before the crisis,* like in 2005 and 2006?


D. L. Keur said:


> *Average* high schooler?  ...er...doubtful.
> 
> *Average* grad? Depends on what they studied. That was over a decade ago, centuries in today's world, isn't it? Most don't study what they consider to be 'ancient history'.
> 
> JMO


Yes, it still exists as a case study in banking regulation education, but again, and I know this is a big ask, but can you remember before the crisis?    Would you for example, have had conversations about Fannie Mae and Freddie Mac at the dinner table *before the crisis hit in 2008?*


----------



## D. L. Keur (Feb 11, 2022)

Taylor said:


> Was that after the crises...once they figured out what happened?  What about *before the crisis,* like in 2005 and 2006?
> 
> Yes, it still exists as a case study in banking regulation education, but again, and I know this is a big ask, but can you remember before the crisis?    Would you for example, have had conversations about Fannie Mae and Freddie Mac at the dinner table *before the crisis hit in 2008?*


No.  I never had heard of Fanny May and Freddie Mac before then at all.


----------



## got2write (Feb 11, 2022)

2005-2007 was a blur of diapers and screaming infants for me… but I think Freddie and Fannie were fairly well known in households then. Standard homeowners probably knew _something_ about them,  but mostly because of the bubble burst.

Pre-crisis, I would DOUBT most folks would have had a working knowledge of Freddie and Fannie


----------



## Taylor (Feb 11, 2022)

D. L. Keur said:


> No.  I never had heard of Fanny May and Freddie Mac before then at all.


Wow...thanks for letting me know!  It will make a difference in how I work it into my plot.  And little did people know what a major role they played in the U.S. economy.


----------



## Taylor (Feb 11, 2022)

got2write said:


> 2005-2007 was a blur of diapers and screaming infants for me… but I think Freddie and Fannie were fairly well known in households then. Standard homeowners probably knew _something_ about them,  but mostly because of the bubble burst.
> 
> Pre-crisis, I would DOUBT most folks would have had a working knowledge of Freddie and Fannie



Ok good to know...the plot thickens!    Little did people know what a tenuous situation was caused by them buying up 33% of the subprime mortgage-backed securities.    This will be fun to write.   Thanks for your response...that is helpful.


----------



## got2write (Feb 11, 2022)

Taylor said:


> Little did people know what a tenuous situation was caused by them buying up 33% of the subprime mortgage-backed securities.



Subprime what?? I just wanted the house on the corner lot!


----------



## Megan Pearson (Feb 11, 2022)

Taylor said:


> I'm writing a corporate mystery that takes place in 2005.   I have decided to base a plotline on the Private Mortgage-Backed Securities (PMBS) that were purchased by these two United States government-sponsored enterprises. (GSEs)
> 
> I'm very familiar with the situation and how the system worked, and that's not what asking about here.  What I want to know from you, is:
> 
> How much of household names were Fannie Mae and Freddie Mac in the US during the period of 2005-2007?


I almost answered, "It was everywhere and discussed everywhere. It was talked about in jest and jeers at work and in earnest in my accounting classes." But then I realized, no, that came later, maybe 2009-2010. I think there was a bit of a lag in catching up the details and the importance of what was happening for those not immediately affected by the crisis. 

But as for the names, any college student with a Federal Student loan may have been familiar with Fannie Mae. I had Fannie Mae loans back in the 1990s. But outside of the context of homeowners or college students, I couldn't say how much of a household name either was. They were just part of the woodwork of life; present yet not a focus.



Taylor said:


> Would the average high-school graduate know what they are?


Sure, the average high school graduate interested in going to college who had any financial responsibility might have read up on how educational loans worked. But I doubt they would have known or understood the implications of mortgage-backed securities.

Perhaps there are some here who have a more positive idea about what high school students know or don't know (knew or didn't know), but even the kids I know who are savvy about their money have absolutely no concept of money, the economy, or even what it means to have a loan. They're just not taught this in high schools today. 

For example, for a time I worked with a youth group. (Not during your time frame, just an observation about youth in general.) Every year I would ask the graduating seniors, so, what's next? Generally, the kids from educated homes went on to pursue a college education. Although, I suspect many just left the financial details to their parents. But those from more blue-collar homes saw taking out a $20k student loan as irresponsible. No amount of persuading them that they might benefit financially from a better-paying career after college could persuade them of the wisdom in earning an education. All of the kids seemed to have some pretty unrealistic expectations that they could get by in life without even entering into a loan for a car (their parents bought their cars), so the naivete and general misconception of how the world works ran pretty deep.

This question might have a researchable dimension as well. For example, my niece graduated around 2015. We were alarmed when my brother-in-law complained that his daughter would be graduating without ever having taken any classes in economics or government. (No driver's ed, either!) So it might be worth investigating what the nationwide version of today's common core was requiring of high school students back then. (Common core didn't take root until 2010 but I think there was a sort of cultural literacy initiative in place.)



Taylor said:


> Would the average university graduate know how they work?


Unless they had had classes in economics or finances, why would they? Most college students don't own homes and haven't had professional-type careers where they would have had enough money to play with or invest, so I would think it would have fallen outside of the ken of the average college graduate as well. 

We would like to think that when a student learns micro- or macroeconomics that they would also be learning about current events. My coursework--taken many years prior to your time period--focused on principles. I do not recall studying major case examples so much as entertaining blurbs that illustrated concepts. So even in thinking about what a student who has taken those classes would have learned--assuming it was part of their general education studies and not necessarily building into a finance-related major--is that they're going to learn the basics. Current events might make for an interesting fifteen-minute segue, but maybe only a research project for the dedicated student.



Taylor said:


> My protagonist is a financial journalist.  I'd like her to know something about the basics as to why the government buys mortgage-backed securities to free up the banks to provide additional mortgages to the public.  But not specifically about why the Housing and Urban Developments (HUD’s) affordable housing goals for the GSEs affected their investment in risky mortgages, contributing to the mortgage crisis in 2008.   Does this seem reasonable?


I will leave the reasonability of that for more informed minds! But as for your hunch in general, about a journalist not knowing specific details, go with your hunch. I worked for local government for many years and we had a journalist assigned to our council meetings. We had one journalist who was just awful--or at least we thought so. The day following our council meetings the staff would swoon over what the journalist had published about them. I mean, his figures weren't just wrong, they were extra-digits way out on the moon wrong! When it became apparent to staff that no amount of complaints about the misinformation could coax a retraction from the paper--because they only published 'the truth!'--staff stopped freely sharing information with that reporter. I just love politics. The paper stuck to its guns and kind of followed through on the threat of a public records audit of something. So they sent in the journalist who couldn't add 2+2. Man, nobody said 'boo' in that office the whole time he was there. (I should know--I sat right outside his door and got a tremendous amount of work done that week!) Soon thereafter, we got a better journalist with some financial wherewithal who could add and subtract. 

So, all this to say, if your journalist has too much of a financial background right at the beginning, then you might be talking over your reader's heads. But she ought to have some background so she knows the right questions to ask and so she can tell the difference between being boondoggled or being instructively/helpfully redirected. But I think your general instinct for structuring her investigation from the general to the more specific is a good intuition. It will not only set up complications for your MC to resolve throughout the story arc, it will also lead your reader along a more general path so that, if you're careful and explicit enough without being too pedantic, it will not only entertain but educate your general, non-financially savvy but financially interested reader.



Taylor said:


> If you can remember the period two years before the banking crisis in January of 2008, is there anything else that was commonly discussed in the average household, with respect to Fannie Mae and Freddie Mac?


I paid off my Fannie Mae loan sometime around then. (It was such a good feeling.) Our home loan was not managed through either so we didn't pay the crisis much thought. We actually thought the bubble had popped and in early 2007 bought a home that had fallen $120,000 in value and we thought we were buying it at the right time, although n the end we lost our home to the tumultuous employment aftermath that followed. Something I have _not_ heard discussed was how student loans (and I know student loans are _not_ your focus, they're a very small part of a much bigger problem), while they are supposed to have low interest rates, have nearly _tripled_ in the past 30 years. Not in all cases or for all loan vehicle types, but it was something we began talking about at about that time because of my then returning to school.

I hope you get something helpful or insightful from this. Your story sounds very interesting and is something I would be interested in reading, especially if it contained a lot of factual references. But then, I read for information, so I may or may not be the sort of reader you have in mind.


----------



## Megan Pearson (Feb 11, 2022)

I thought I had included this but, in skimming through, perhaps I had not. In one of my early accounting classes, probably around 2007, the professor took about fifteen minutes to unpack the Fannie Mae/Freddie Mac scenario. He had a lot of prescience and gave us a thumbnail about what the results would be--and were. It was the only college class discussion I recall about it as an accounting major.

I remember feeling guilty in class that we had just bought a home. When we were looking for a loan, the bank advised us that we could take a loan out for--and this was some time ago, but I think it's right--three times our income. Instead, we limited ourselves to just twice my husband's income. It really helped when the employment shuffle began. Without that decision, we wouldn't have been able to hold on as long as we did.


----------



## Taylor (Feb 12, 2022)

Megan, I can't thank you enough for taking the time to provide this much thoughtful information.  It is exactly what I was looking for and there is tons to work with here!

*THANK YOU...THANK YOU...THANK YOU!  *



Megan Pearson said:


> I almost answered, "It was everywhere and discussed everywhere. It was talked about in jest and jeers at work and in earnest in my accounting classes." But then I realized, no, that came later, maybe 2009-2010. I think there was a bit of a lag in catching up the details and the importance of what was happening for those not immediately affected by the crisis.
> 
> But as for the names, any college student with a Federal Student loan may have been familiar with Fannie Mae. I had Fannie Mae loans back in the 1990s. But outside of the context of homeowners or college students, I couldn't say how much of a household name either was. They were just part of the woodwork of life; present yet not a focus.


Did not know student loans were generated directly from Fannie Mae.  That could make for an interesting piece of dialogue.


Megan Pearson said:


> Sure, the average high school graduate interested in going to college who had any financial responsibility might have read up on how educational loans worked. But I doubt they would have known or understood the implications of mortgage-backed securities.


Even those in the industry weren't fully aware until it was unpacked by the 2011 Financial Crisis Inquiry Report, a 600-page study from the U.S. Commission, tasked with providing results of surveys and an explanation.  In 2012, I read the report for work.  I was tasked with training 20 CPAs/CFAs as banking supervisors for the Financial Institution Commission (regulator).  I had to hire a former VP of City Bank to help me develop the training.  We were all stunned by what we learned!



Megan Pearson said:


> Perhaps there are some here who have a more positive idea about what high school students know or don't know (knew or didn't know), but even the kids I know who are savvy about their money have absolutely no concept of money, the economy, or even what it means to have a loan. They're just not taught this in high schools today.
> 
> For example, for a time I worked with a youth group. (Not during your time frame, just an observation about youth in general.) Every year I would ask the graduating seniors, so, what's next? Generally, the kids from educated homes went on to pursue a college education. Although, I suspect many just left the financial details to their parents. But those from more blue-collar homes saw taking out a $20k student loan as irresponsible. No amount of persuading them that they might benefit financially from a better-paying career after college could persuade them of the wisdom in earning an education. All of the kids seemed to have some pretty unrealistic expectations that they could get by in life without even entering into a loan for a car (their parents bought their cars), so the naivete and general misconception of how the world works ran pretty deep.
> 
> This question might have a researchable dimension as well. For example, my niece graduated around 2015. We were alarmed when my brother-in-law complained that his daughter would be graduating without ever having taken any classes in economics or government. (No driver's ed, either!) So it might be worth investigating what the nationwide version of today's common core was requiring of high school students back then. (Common core didn't take root until 2010 but I think there was a sort of cultural literacy initiative in place.)


Yes, it troubles me that the average high-school student and even many college grads don't understand the basics of budgeting and how to stay out of debt.  And when debt is beneficial.  As you say, student loans, and also for real estate.   Not racking up credit card debt, when living beyond one's means.   I wasn't aware of the "common core".  That could be a good reference for a sequel in the 2010 period.



Megan Pearson said:


> Unless they had had classes in economics or finances, why would they? Most college students don't own homes and haven't had professional-type careers where they would have had enough money to play with or invest, so I would think it would have fallen outside of the ken of the average college graduate as well.


Okay...good to know!



Megan Pearson said:


> We would like to think that when a student learns micro- or macroeconomics that they would also be learning about current events. My coursework--taken many years prior to your time period--focused on principles. I do not recall studying major case examples so much as entertaining blurbs that illustrated concepts. So even in thinking about what a student who has taken those classes would have learned--assuming it was part of their general education studies and not necessarily building into a finance-related major--is that they're going to learn the basics. Current events might make for an interesting fifteen-minute segue, but maybe only a research project for the dedicated student.


Yes, one would think that a major government initiative such as Fannie and Freddie, which had been established to ease the industry of debt, so they could lend more money and keep the economy going, would at least come up on the radar in an economics class when studying the effects of government policy.  I don't even recall reading about it in the "Freakonomics" series used in curriculums around 2005.



Megan Pearson said:


> I will leave the reasonability of that for more informed minds! But as for your hunch in general, about a journalist not knowing specific details, go with your hunch. I worked for local government for many years and we had a journalist assigned to our council meetings. We had one journalist who was just awful--or at least we thought so. The day following our council meetings the staff would swoon over what the journalist had published about them. I mean, his figures weren't just wrong, they were extra-digits way out on the moon wrong! When it became apparent to staff that no amount of complaints about the misinformation could coax a retraction from the paper--because they only published 'the truth!'--staff stopped freely sharing information with that reporter. I just love politics. The paper stuck to its guns and kind of followed through on the threat of a public records audit of something. So they sent in the journalist who couldn't add 2+2. Man, nobody said 'boo' in that office the whole time he was there. (I should know--I sat right outside his door and got a tremendous amount of work done that week!) Soon thereafter, we got a better journalist with some financial wherewithal who could add and subtract.


Yes, it works well in the plot this way.  Her boyfriend works as legal counsel to the white house.  He also is part of a commission to examine the situation and advise on future policy. She learns about Fannie and Freddie through him, as he, like your professor, has an inside view of what will come before it actually happened.   It is conversations she has with others involved in real estate that inform the reader.   Eventually, she writes an article about it.   That's the part I need to be careful with.  Just how much would she have been able to uncover in 2005.  And who is it directed to, and what the outcome is of the article.  In Book 1, her articles had a significant effect on the stock market.



Megan Pearson said:


> So, all this to say, if your journalist has too much of a financial background right at the beginning, then you might be talking over your reader's heads. But she ought to have some background so she knows the right questions to ask and so she can tell the difference between being boondoggled or being instructively/helpfully redirected. But I think your general instinct for structuring her investigation from the general to the more specific is a good intuition. It will not only set up complications for your MC to resolve throughout the story arc, it will also lead your reader along a more general path so that, if you're careful and explicit enough without being too pedantic, it will not only entertain but educate your general, non-financially savvy but financially interested reader.


YES!!  This is exactly what I am going for.    I did this with my last novel about Wall Street corruption.  My first professional review said, "The language is educated but not pedantic. The writing style is accessible and intelligent without being overly literary and would appeal to a range of readers."  I like to highlight a few facts and weave them into easy-reading, entertaining, mainstream fiction with all the fun of romance, humor, and intrigue.  But you learn something of interest along the way.



Megan Pearson said:


> I paid off my Fannie Mae loan sometime around then. (It was such a good feeling.) Our home loan was not managed through either so we didn't pay the crisis much thought. We actually thought the bubble had popped and in early 2007 bought a home that had fallen $120,000 in value and we thought we were buying it at the right time, although n the end we lost our home to the tumultuous employment aftermath that followed. Something I have _not_ heard discussed was how student loans (and I know student loans are _not_ your focus, they're a very small part of a much bigger problem), while they are supposed to have low interest rates, have nearly _tripled_ in the past 30 years. Not in all cases or for all loan vehicle types, but it was something we began talking about at about that time because of my then returning to school.
> 
> I hope you get something helpful or insightful from this. Your story sounds very interesting and is something I would be interested in reading, especially if it contained a lot of factual references. But then, I read for information, so I may or may not be the sort of reader you have in mind.



You would be my EXACT target audience!  I hope you read my first novel when it is released in June.  I would love to hear your opinion of it.


----------



## Taylor (Feb 12, 2022)

Megan Pearson said:


> I thought I had included this but, in skimming through, perhaps I had not. In one of my early accounting classes, probably around 2007, the professor took about fifteen minutes to unpack the Fannie Mae/Freddie Mac scenario. He had a lot of prescience and gave us a thumbnail about what the results would be--and were. It was the only college class discussion I recall about it as an accounting major.


This is super interesting because in 2007, many people in the industry already knew about the problem but it was not common knowledge. Mortgage holders were already defaulting particularly in the sand states. But most people didn't know the extent of it until early 2008, when banks submitted year end financials. He would have been ahead of the curve.



Megan Pearson said:


> I remember feeling guilty in class that we had just bought a home. When we were looking for a loan, the bank advised us that we could take a loan out for--and this was some time ago, but I think it's right--three times our income. Instead, we limited ourselves to just twice my husband's income. It really helped when the employment shuffle began. Without that decision, we wouldn't have been able to hold on as long as we did.



Good thinking!

It was one of the many failings that lead to the crisis, banks neglecting the principle of "ability to pay."  In Canada, our banks were regulated with guidance from Basel II international regulatory framework. It has stops and balances that prevent over-lending.  Mark Carney, the governor of the Bank of Canada became famous for our sound banking system during the crisis.  Now everyone uses Basel III which is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09.


----------



## Megan Pearson (Feb 13, 2022)

Taylor said:


> Megan, I can't thank you enough for taking the time to provide this much thoughtful information.  It is exactly what I was looking for and there is tons to work with here!
> 
> *THANK YOU...THANK YOU...THANK YOU!  *
> 
> Did not know student loans were generated directly from Fannie Mae.  That could make for an interesting piece of dialogue.


Hmm, I am not sure generated would be the right term. Maybe more like managed. For example, early on I paid the US Dept of Ed directly for a while to begin with, at least through 1999, and then I had a payment book for a number of years, and the book was through Fannie Mae. So the loan was a Federal loan but, I guess you would say, the note was managed by Fannie, if that is the right term. I am thinking those were the loans I paid off. Subsequent student loans I drew out (2009-2010) were managed by another company. So, it could be something worth researching for you, especially if Fannie isn't involved in managing them anymore.



Taylor said:


> Even those in the industry weren't fully aware until it was unpacked by the 2011 Financial Crisis Inquiry Report, a 600-page study from the U.S. Commission, tasked with providing results of surveys and an explanation.  In 2012, I read the report for work.  I was tasked with training 20 CPAs/CFAs as banking supervisors for the Financial Institution Commission (regulator).  I had to hire a former VP of City Bank to help me develop the training.  We were all stunned by what we learned!


Surprise! And to think, yesterday's news seems largely forgotten. We'd like to think this sort of scenario wouldn't happen again. And I know a ton of legislation was passed to prevent this from happening again but, and unless someone has the right education and could spot it unfolding, how else would we know it won't happen again?



Taylor said:


> Yes, it troubles me that the average high-school student and even many college grads don't understand the basics of budgeting and how to stay out of debt.  And when debt is beneficial.  As you say, student loans, and also for real estate.   Not racking up credit card debt, when living beyond one's means.   I wasn't aware of the "common core".  That could be a good reference for a sequel in the 2010 period.


Yes, common core became standardized in k-12 across the states in the past decade or so. Here's a hyperlink for you, although Wikipedia might have a broad overview of its creation. I picked up _Cultural Literacy_ and its companion history book some years ago and its author was involved in standardizing the American educational system back in the early 1980's under Reagan. Common core appears to be a descendant of that concept. This is maybe not so much what you're looking for but perhaps some stray tidbit along the way will help situate your era in the right educational context.



Taylor said:


> Okay...good to know!
> 
> Yes, one would think that a major government initiative such as Fannie and Freddie, which had been established to ease the industry of debt, so they could lend more money and keep the economy going, would at least come up on the radar in an economics class when studying the effects of government policy.  I don't even recall reading about it in the "Freakonomics" series used in curriculums around 2005.


"Freakonomics"...catchy. By the time I realized how much I liked, and how good I was at economics, I was just about finished with my accounting degree. Oh well. (That might not commend me very well in this present conversation, but hey, why not add it?) I don't know if this will help you at all, but the manner in which college was done was changing very quickly around that time period. When I began my jc in the 90s, we didn't have internet. They introduced it my senior year, you know, the black screen version with the green blinking square? I took a handful of classes through the early 2000s. My first fully online class was in the later 2008-2010 era (not sure exactly when), but what might be interesting for you was the rapidity of change in the learning environment. I held off on electronic textbooks as long as I could, but the economics text we used (which I really liked) was available only in an electronic format. (Post 2010?) Several years later, I wanted to reference the book, but by then the software reader was out of date and the email I had registered it with--a school email account--was inaccessible because I had graduated. So much for "owning" the book!

I wonder, was it part of the rapidity of change that made this possible? I mean, in the 90s my associates required all seniors to take two computer classes. In one class, we were literally shown a mouse and told, "this is an input device." We were shown where the on switch would be found, and how to flip the floppy to boot the computer so we could enter our command sequences. The printer was "an output device." When asked what a byte was, we learned it was information--but outside of rehearsing the same sequence of words to us I really don't think the instructor knew himself. My spreadsheeting class was worse. We had tests on what was a cell and what was a column and we were like Martians being introduced to water. By 2000, I was self-teaching myself Excel and QuickBooks and those applications were sooo much easier to use. But we didn't invest in a computer until...2002? Really, it was my step-kids who helped accustom us to it. So my point is, while the securities industry was beginning to have a growing awareness of what was going on by 2005-2007, the how it happened was still pretty remote to the average American just becoming acquainted with the idea of a home computer and the idea of having a world of information at our fingertips.



Taylor said:


> Yes, it works well in the plot this way.  Her boyfriend works as legal counsel to the white house.  He also is part of a commission to examine the situation and advise on future policy. She learns about Fannie and Freddie through him, as he, like your professor, has an inside view of what will come before it actually happened.   It is conversations she has with others involved in real estate that inform the reader.   Eventually, she writes an article about it.   That's the part I need to be careful with.  Just how much would she have been able to uncover in 2005.  And who is it directed to, and what the outcome is of the article.  In Book 1, her articles had a significant effect on the stock market.


That sounds very cool.



Taylor said:


> YES!!  This is exactly what I am going for.    I did this with my last novel about Wall Street corruption.  My first professional review said, "The language is educated but not pedantic. The writing style is accessible and intelligent without being overly literary and would appeal to a range of readers."  I like to highlight a few facts and weave them into easy-reading, entertaining, mainstream fiction with all the fun of romance, humor, and intrigue.  But you learn something of interest along the way.


That, too, sounds very cool.  I think I would enjoy reading it. (Awesome review!!! Good job!!!)



Taylor said:


> You would be my EXACT target audience!  I hope you read my first novel when it is released in June.  I would love to hear your opinion of it.


Well, yes, I want a signed copy! Maybe I could leave a review for you on Amazon or somewhere.


----------



## Megan Pearson (Feb 13, 2022)

Taylor said:


> This is super interesting because in 2007, many people in the industry already knew about the problem but it was not common knowledge. Mortgage holders were already defaulting particularly in the sand states. But most people didn't know the extent of it until early 2008, when banks submitted year end financials. He would have been ahead of the curve.


Yeah, I'm not sure how to fact-check that date. But I do recall his conclusions were hypothetical and his enthusiastic alarm--and I think he came off as an alarmist to the class--but some of the older folks in the class seemed to nod their heads knowingly. Honestly, I was new to accounting and his ideas were over my head at the time except for the alarming idea that we were part of the problem because we had just bought a house. (Which I am sure he _didn't _mean; I just had nothing else to relate it to. Winter/spring 2007. I think the class was that fall.) I think it was his excitement that caught my attention because I can still see his hands waving over the chalkboard (not a whiteboard) and the complicated diagrams he had drawn illustrating the problem.



Taylor said:


> Good thinking!
> It was one of the many failings that lead to the crisis, banks neglecting the principle of "ability to pay."  In Canada, our banks were regulated with guidance from Basel II international regulatory framework. It has stops and balances that prevent over-lending.  Mark Carney, the governor of the Bank of Canada became famous for our sound banking system during the crisis.  Now everyone uses Basel III which is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09.


Go Basel II! (This answered the above question I asked.)


----------

