Word: grammes
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They never did so, and Gramm acknowledged that the credit-default swaps market as it developed was "so opaque that nobody knew who was holding the bag." But he said he didn't buy that it was a major precipitating cause of the crisis. What was? "It was a confluence of two forces," he said. "Alone, neither would have created a cataclysm...
...collapse of a speculative bubble in the stock market in 2001 and 2002. Consumers, and the housing market, weren't in a recession at all - and the Fed's super-low rates precipitated a bubble. "We inadvertently stimulated an industry that was already in boom conditions," Gramm said. "This changed everything. It changed consumption behavior, it changed lending behavior...
...other factor was where Gramm's culpability came in: "the politicization of mortgage lending." Gramm trotted out the Republican bogeymen of the fall election campaign: Fannie Mae, Freddie Mac and the Community Reinvestment Act. But then he did something really interesting. He didn't give them all the blame...
Instead, he said they were simply part of a decades-long, bipartisan push - from Capitol Hill, the White House, the Department of Housing and Urban Development (HUD) and even bank regulators - for ever more mortgage lending on ever easier terms. Gramm said he arrived in Washington in 1978 convinced as an economist that subsidizing housing and mortgage lending was a bad idea, but was soon won over to Washington's pro-housing consensus. During his 1990 U.S. Senate campaign, he said, polls revealed that 82% of Texas homeowners supported him over his Democratic opponent. After that, "You didn't have...
...Gramm's solution is tougher mortgage regulation. Down payments should be at least 5%, borrowers should be required to provide tangible proof of income, adjustable rate mortgages should only be approved if the borrowers can afford to make the payments after the rates have adjusted upward, home equity loans should be restricted...