Minggu, 06 Januari 2013

...North Dakota oil boom...>>> the Bakken formation in the state of North Dakota that started in late 2008.[1][2] In the backdrop of the 2008–2012 global financial crisis, the oil boom has resulted in enough oil and gas jobs to give North Dakota the lowest unemployment rate in the United States.[3][4][5] There are several reasons that led to the oil boom not just in North Dakota but also nationwide. First, the recent discoveries of shale gas reserves across the nation, second, initiatives to seek energy independence from unstable sources (countries such as Venezuela and countries from the Middle East region). Finally, the successful use of horizontal drilling and hydraulic fracturing technologies. [6] The resulting sudden boom has reduced unemployment to 3.5% and given the state of North Dakota a billion-dollar budget surplus. But the industrialization and population boom has also put a strain on road, water supplies, sewage systems, and government services of the small towns and ranches in the area. Some counties have increased in population by almost double from 20,000 to 40,000 people.[7] [8]...>>>...Strike it Rich with 2 Emerging Bakken Drillers Now Producing Millions of Barrels of Light Sweet Crude Oil A few years ago, North Dakota wasn't even a blip on the oil industry radar. Today, thanks to the Bakken Shale Formation, the state is producing 10% of the nation's oil and is poised to pass Alaska and California in annual domestic oil production in early 2012. But as you're about to discover, the biggest growth is on the horizon - and it's not too late to stake your claim to a fortune in oil riches... ..>>>



 

North Dakota oil boom

From Wikipedia, the free encyclopedia
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http://en.wikipedia.org/wiki/North_Dakota_oil_boom
 
Oil Well in Illinois
The North Dakota oil boom is an ongoing period of extraction of oil from
the Bakken formation in the state of North Dakota that started in late 2008.[1][2]
In the backdrop of the 2008–2012 global financial crisis, the oil boom has resulted
in enough oil and gas jobs to give North Dakota the lowest unemployment rate in
the United States.[3][4][5] There are several reasons that led to the oil boom not just
in North Dakota but also nationwide. First, the recent discoveries of shale gas
reserves across the nation, second, initiatives to seek energy independence from
unstable sources (countries such as Venezuela and countries from the Middle East
region). Finally, the successful use of horizontal drilling and hydraulic fracturing
technologies. [6] The resulting sudden boom has reduced unemployment to 3.5%
and given the state of North Dakota a billion-dollar budget surplus. But the
industrialization and population boom has also put a strain on road, water supplies,
sewage systems, and government services of the small towns and ranches in the area.
Some counties have increased in population by almost double from 20,000 to
 40,000 people.[7] [8]
The number of rigs is expected to reach 225 by the end of 2011, with each of
the rigs producing roughly 125 new jobs. This means a total growth of around
25,000 jobs, including an extra 10,000 jobs for workers who lay pipes to
producing wells and produce processing plants.[8] Some estimates predict
that North Dakota could have as many as 48,000 new wells, with drilling
taking place over the next two to three decades.
Of every dollar per barrel of oil, the state government receives 11.5 cents.[8]

Contents

Bakken Formation

An April 2008 USGS report estimated the amount of technically recoverable
oil using technology readily available at the end of 2007 within the Bakken
Formation at 3.0 to 4.3 billion barrels (680,000,000 m3), with a mean of
3.65 billion.[9] The state of North Dakota also released a report that month
which estimated that there are 2.1 billion barrels (330,000,000 m3) of
technically recoverable oil in the Bakken.[10] Various other estimates place
the total reserves, recoverable and non-recoverable with today's technology,
at up to 24 billion barrels. The most recent estimate places the figure at
18 billion barrels.[11]
New rock fracturing technology available starting in 2008 has caused
a recent boom in Bakken production. By the end of 2010 oil production
rates had reached 458,000 barrels (72,800 m3) per day outstripping the
capacity to ship oil out of the Bakken.[12][13] The production technology
gain has led a veteran industry insider to declare that the USGS
estimates are too low.[14]

See also

From Wikipedia, the free encyclopedia
Jump to: navigation, search
A logistic distribution shaped production curve, as originally suggested by M. King Hubbert in 1956
Historical US crude oil production 
showing similarity to a Hubbert curve

Peak oil is the point in time when the maximum rate of petroleum
extraction is reached, after which the rate of production is expected
 to enter terminal decline.[1] Global production of oil fell from a high
 point in 2005 at 74 mb/d, but has since rebounded, and 2011
 figures show slightly higher levels of production than in 2005.[2]
There is active debate as to how to measure peak oil, and which
 types of liquid fuels to include. Most of the remaining oil is from
 unconventional sources. Rough estimates indicate that out of an
 available 2 trillion barrels of oil, about half has been consumed.
Peak oil is determined by the observed production rates of
individual oil wells, projected reserves and the combined
production rate of a field of related oil wells. In order to understand
 physical peak oil, the growing effort for production must be
 considered. Physical peak oil occurs earlier, because the overall
 efforts for production have increased, expanding production.[3][4]

The aggregate production rate from an oil field over time usually
 grows until the rate peaks and then declines-sometimes rapidly-
until the field is depleted. This concept is derived from the
Hubbert curve, and has been shown to be applicable to the sum
of a nation’s domestic production rate, and is similarly applied to
 the global rate of petroleum production. Peak oil is often confused
 with oil depletion; peak oil is the point of maximum production,
while depletion refers to a period of falling reserves and supply.
M. King Hubbert created and first used the models behind peak
oil in 1956 to accurately predict that United States oil production
 would peak between 1965 and 1971.[5] His logistic model, now
 called Hubbert peak theory, and its variants have described with
 reasonable accuracy the peak and decline of production from
oil wells, fields, regions, and countries,[6] and has also proved useful
 in other limited-resource production-domains. According to the
Hubbert model, the production rate of a limited resource will follow
 a roughly symmetrical logistic distribution curve (sometimes
incorrectly compared to a bell-shaped curve) based on the limits
 of exploitability and market pressures.

Some observers, such as petroleum industry experts Kenneth 
S. Deffeyes and Matthew Simmons, predict negative global 
economy implications following a post-peak production decline-
and oil price increase—due to the high dependence of most modern
 industrial transport, agricultural, and industrial systems on the low
cost and high availability of oil. Predictions vary greatly as to what
 exactly these negative effects would be.

In 2008 oil prices reached a record high of $145/barrel.
Governments sought alternatives to oil, particularly the use of ethanol,
but that had the unintended consequence of creating higher food prices,
particularly in the developing countries.

Optimistic estimations of peak production forecast the global decline
will begin after 2020, and assume major investments in alternatives will
occur before a crisis, without requiring major changes in the lifestyle
of heavily oil-consuming nations. These models show the price of oil
at first escalating and then retreating as other types of fuel and energy
 sources are used.[7] Pessimistic predictions of future oil production
 are that either the peak has already occurred,[8][9][10][dead link][11]
that oil production is on the cusp of the peak, or that it will occur
shortly.[12][13] The International Energy Agency (IEA) says production
 of conventional crude oil peaked in 2006.[14][15] Throughout the first
 two quarters of 2008, there were signs that a global recession was
being made worse by a series of record oil prices.[16]

 




BOOMTIMES IN THE BAKKEN 

http://www.smallcapinvestor.com/landing/23165/scilandbakken30orodp

Strike it Rich with 2 Emerging Bakken Drillers Now Producing 
Millions of Barrels of Light Sweet Crude Oil


 A few years ago, North Dakota wasn't even
 a blip on the oil industry radar. Today, 
thanks to the Bakken Shale Formation, the state
is producing 10% of the nation's oil and is poised 
to pass Alaska and California in annual domestic 
oil production in early 2012. But as you're about to 
discover, the biggest growth is on the horizon - and 
it's not too late to stake your claim to a fortune in 
oil riches... 
UPDATE: My favorite Bakken oil stock is already up 
25% since I first recommended it in late December...
 And with plenty of room to run, it could return 5x 
your money in the next 8-12 months! 

Fellow Investor,  
If you're looking for the best way to profit from the ongoing 
developments in the Bakken oil field, I have exciting news for
 you: 
You can end your search here and now.

Some investors are under the impression that they "missed 

out" on the Bakken opportunity.

But the truth is: the Bakken oil story is still in its infancy

And while the BIG headlines from a few years ago got lots
 of attention..




...the past few months have really ignited boom times in the 
oil-rich region of North Dakota, Montana and Saskatchewan.

And the question isn't just which companies are finding oil, but

 rather which companies will grow the fastest? 

Today I'm going to tell you about two rapid growth companies 
drilling in the Bakken region and why they're the best 
opportunities for investors looking to own a piece of this historic
 oil formation.

The Bakken oil story isn't a new one. Oil companies have been 

drilling in the region since the early 50s. And back in the early 
days, growth remained relatively flat for decades on end.

The culprit? Lack of technology to get at the big oil reserves.

Old drilling methods simply couldn't get into the oil kitchens 

locked beneath the Bakken Shale...

That is, until very recently, when advanced drilling methods and

 the high price of oil finally made it profitable to extract the oil.... 
And production numbers and projections literally flew off 
the charts...




And so far, production numbers have not only been living up to
 expectations, but they've actually exceeded them...

The growth rate has been so exceptional the North Dakota oil 

industry has set production records nearly every month for the
 past 2 years. 
 "We just continue to see record wells being
 set and record rigs, record barrels being 
produced. The numbers show we continue 
to set records every month." 
  - Alison Ritter, North Dakota Department of Mineral Resources
 spokeswoman
And those back-to-back-to-back record-breaking months haven't 
only made plenty of oil money for investors, company executives 
and North Dakota landowners. The spike in production has also 
quickly made North Dakota the 4th largest oil producing 
state in the country.




As you can see North Dakota, a.k.a. "The Economic Miracle State",
 is now producing more than twice as much oil as it was just 
3 years ago... and is now on pace to surpass both Alaska and 
California in daily production in early 2012. 

Yes, you read correctly - production is growing THAT quickly...

And given its current rate it won't be long before Bakken oil 

production pushes North Dakota past Texas as the nation's
 number one oil producing state.

In fact, at this rate, it won't be long before the Bakken region

 is producing the coveted...  
1 Million Barrels of Oil a Day
Back in 2000, North Dakota was producing less than 100,000 
barrels of oil a day.

Today, the same oil fields are literally GUSHING black gold, 

producing a staggering 488,000 barrels a day.   
That's a 439 percent increase in just 11 years time.

I know what you may be thinking...

When most people hear about that kind of growth, they 

automatically assume the biggest profits have already been made.

But in reality Bakken oil play is still in its infancy. You see,

 companies are just now beginning to move significant 
numbers of new drilling rigs into the area because the oil 
reserves are so huge - potentially enough to supply
 the U.S. with oil for ten years and possibly more

And for companies with new wells coming on line, like the 

2 emerging drillers I'm about to tell you about, that means
 a massive and sudden increase in revenues, which will likely
 translate into share price appreciation. 
Bottom line - Bakken oil is a multi-decade boom. And we're
 still in the early years.

Decades from now, when it's all said and done, we'll be 

referring to the Bakken as the world's largest continuous 
land-based accumulation of oil - and the most lucrative oil
 play this country has ever seen.

You should know that North Dakota already produces more

 oil than OPEC member Ecuador, and the most substantial 
growth hasn't even been realized... yet.

This year, North Dakota officials expect production to grow

 by 8,000 to 20,000 barrels a day each month - and that
 number could easily reach 600,000 barrels a day by the end
 of 2012 as new infrastructure gets built.

And for companies with new wells coming on line, like the 

2 emerging drillers I'm about to tell you about, that means 
a massive and sudden increase in revenues. something that 
usually translates into share price appreciation.

One of the primary reasons North Dakota oil production is 

breaking records is that on a month-to-month basis, 
the region is... 

Shattering New Rig and Well 
Count Records 
And as you read this, nearly everyone with a stake in the 
Bakken boom is keeping a close watch on the fast-rising
 rig count... which is now at 204.

Why is everyone fixated on the rig count?

Simple: Oil companies are quickly closing in on the magic 

number of 250 rigs... the number of rigs that will allow 
North Dakota to maintain production for the next 20 years.

Remember how I stated that Bakken oil production is just 

in its infancy? Seasoned oil executives know this - otherwise 
they wouldn't be positioning expensive equipment in the
 Bakken for the next two decades.
And all these new rigs are already paying off today. They've 
allowed oil companies to spud 1,000 new wells in the past 
year alone, bringing the total number of producing wells 
up to 6,202.

If you figure an oil company spends about $5 million

 to drill a well...

And a well can produce up to 500,000 barrels of 

oil a year.... 
At today's prices, that's $50 million 
worth of oil on a $5 million investment.

It's no wonder oil companies are drilling 
as quickly 

as possible to recover... 

Enough Light Sweet Crude
for the Next 100 Years
 
In 2008, the USGS estimated there was between 3 
and 4.3 billion barrels of recoverable oil in the Bakken.
 But in light of new findings, the agency is now planning 
a revised "unscheduled" assessment in 2012 that should 
substantially increase their estimates.

It's well known that current USGS estimates are extremely 
conservative... they've been raising their estimates for 
years now.

On the other end of the spectrum, independent analysis from 
the RAND Corporation believes there to be 100s of billions
  of barrels of recoverable oil in the Bakken.

And they're not alone - there is considerable evidence that 
supports much higher numbers than the USGS estimates 
would have you believe.

 
If low estimates of recoverable oil are accurate, there's
 enough oil in the Bakken to supply America's energy 
needs for 10 years - and if high estimates are correct - 
there's enough to last us 50 to 100 years!
The truth is, even if only ten percent of the 
Bakken's oil reserves are recoverable, they 
would double our existing domestic oil reserves.

And one thing's for sure: the companies that already 
have a foothold in the Bakken will be making money
 for their investors for years to come.

Because the oil is there and the small oil drillers who
 snapped up drilling rights in the early days are just 
now beginning to enjoy...

Financial crisis of 2007–2008

From Wikipedia, the free encyclopedia
Jump to: navigation, search

The examples and perspective in this article may not represent a worldwide view 
 of the subject. Please improve this article and discuss the issue on the talk page.
 (October 2012)

The TED spread (in red) increased significantly during the
financial crisis, reflecting an increase in perceived credit risk.
 


 
World map showing real GDP growth rates for 2009.
The financial crisis of 2007–2008, also known as the global financial
 crisis and 2008 financial crisis, is considered by many economists to
be the worst financial crisis since the Great Depression of the 1930s.[1][2]
It resulted in the threat of total collapse of large financial institutions, the
bailout of banks by national governments, and downturns in stock
 markets around the world. In many areas, the housing market also
suffered, resulting in evictions, foreclosures and prolonged unemployment.
 The crisis played a significant role in the failure of key businesses,
declines in consumer wealth estimated in trillions of US dollars, and a
 downturn in economic activity leading to the 2008–2012 global 
recession and contributing to the European sovereign-debt crisis.[3][4]
The active phase of the crisis, which manifested as a liquidity crisis,
can be dated from August 7, 2007 when BNP Paribas terminated
withdrawals from three hedge funds citing "a complete evaporation
of liquidity".[5]
The bursting of the U.S. housing bubble, which peaked in 2006,[6]
caused the values of securities tied to U.S. real estate pricing to plummet,
 damaging financial institutions globally.[7][8] The financial crisis was
triggered by a complex interplay of government policies that encouraged
home ownership, providing easier access to loans for subprime borrowers,
 overvaluation of bundled sub-prime mortgages based on the theory that
housing prices would continue to escalate, questionable trading practices
on behalf of both buyers and sellers, compensation structures that prioritize
 short-term deal flow over long-term value creation, and a lack of
adequate capital holdings from banks and insurance companies to
back the financial commitments they were making.[9][10][11][12]
Questions regarding bank solvency, declines in credit availability
 and damaged investor confidence had an impact on global stock
 markets, where securities suffered large losses during 2008 and
early 2009. Economies worldwide slowed during this period, as
credit tightened and international trade declined.[13] Governments
 and central banks responded with unprecedented fiscal stimulus,
 monetary policy expansion and institutional bailouts. In the U.S.,
Congress passed the American Recovery and Reinvestment Act 
of 2009. In the EU, the UK responded with austerity measures of
spending cuts and tax increases without export growth and it has
since slid into a double-dip recession.[14][15]
Many causes for the financial crisis have been suggested, with
varying weight assigned by experts.[16] The U.S. Senate's Levin–
Coburn Report asserted that the crisis was the result of "high risk,
complex financial products; undisclosed conflicts of interest; the
failure of regulators, the credit rating agencies, and the market itself
to rein in the excesses of Wall Street."[17] The 1999 repeal of the
Glass–Steagall Act effectively removed the separation between
investment banks and depository banks in the United States.[18]
 Critics argued that credit rating agencies and investors failed to
accurately price the risk involved with mortgage-related financial
products, and that governments did not adjust their regulatory
practices to address 21st-century financial markets.[19]
Research into the causes of the financial crisis has also focused
on the role of interest rate spreads.[20]
In the immediate aftermath of the financial crisis palliative fiscal
and monetary policies were adopted to lessen the shock to the
economy.[21] In July, 2010, the Dodd-Frank regulatory reforms
 were enacted to lessen the chance of a recurrence. [22

Background

 Main article: Causes of the late-2000s financial crisis

The immediate cause or trigger of the crisis was the bursting of the
 United States housing bubble which peaked in approximately
2005–2006.[23][24] Already-rising default rates on "subprime"
and adjustable-rate mortgages (ARM) began to increase quickly
 thereafter. As banks began to give out more loans to potential
home owners, housing prices began to rise.
Easy availability of credit in the US, fueled by large inflows of
foreign funds after the Russian debt crisis and Asian financial crisis
 of the 1997-1998 period, led to a housing construction boom and
facilitated debt-financed consumer spending. Lax lending standards
and rising real estate prices also contributed to the Real estate bubble.
Loans of various types (e.g., mortgage, credit card, and auto)
were easy to obtain and consumers assumed an unprecedented
 debt load.[25] [26][27]  

As part of the housing and credit booms, the number of financial
agreements called mortgage-backed securities (MBS) and
collateralized debt obligations (CDO), which derived their value
 from mortgage payments and housing prices, greatly increased.[8]
Such financial innovation enabled institutions and investors around the
 world to invest in the U.S. housing market. As housing prices declined,
major global financial institutions that had borrowed and invested heavily
 in subprime MBS reported significant losses.[28]
Falling prices also resulted in homes worth less than the mortgage loan,
 providing a financial incentive to enter foreclosure. The ongoing
foreclosure epidemic that began in late 2006 in the U.S. continues to
drain wealth from consumers and erodes the financial strength of
 banking institutions. Defaults and losses on other loan types also
 increased significantly as the crisis expanded from the housing
market to other parts of the economy. Total losses are estimated
in the trillions of U.S. dollars globally.[28]
Share in GDP of U.S. financial sector since 1860[29]
While the housing and credit bubbles were building, a series
of factors caused the financial system to both expand and
 become increasingly fragile, a process called financialization.
U.S. Government policy from the 1970s onward has emphasized
 deregulation to encourage business, which resulted in less
oversight of activities and less disclosure of information about
 new activities undertaken by banks and other evolving financial
institutions. Thus, policymakers did not immediately recognize
the increasingly important role played by financial institutions
 such as investment banks and hedge funds, also known as the
 shadow banking system. Some experts believe these institutions
 had become as important as commercial (depository) banks in
 providing credit to the U.S. economy, but they were not
subject to the same regulations.[30]

These institutions, as well as certain regulated banks,
had also assumed significant debt burdens while providing
the loans described above and did not have a financial
cushion sufficient to absorb large loan defaults or MBS losses.[31]
 These losses impacted the ability of financial institutions to lend,
slowing economic activity. Concerns regarding the stability of
 key financial institutions drove central banks to provide funds
 to encourage lending and restore faith in the commercial paper
markets, which are integral to funding business operations.
Governments also bailed out key financial institutions and
implemented economic stimulus programs, assuming significant
 additional financial commitments.
The U.S. Financial Crisis Inquiry Commission reported its
findings in January 2011. It concluded that "the crisis was
 avoidable and was caused by: Widespread failures in financial
 regulation, including the Federal Reserve’s failure to stem the
tide of toxic mortgages; Dramatic breakdowns in corporate
governance including too many financial firms acting recklessly
 and taking on too much risk; An explosive mix of excessive
 borrowing and risk by households and Wall Street that put
the financial system on a collision course with crisis; Key
policy makers ill prepared for the crisis, lacking a full
understanding of the financial system they oversaw; and
systemic breaches in accountability and ethics at all levels."[32][33] 
Subprime lending 
Main article: Subprime mortgage crisis  
 During a period of intense competition between mortgage
 lenders for revenue and market share, and when the supply
 of creditworthy borrowers was limited, mortgage lenders 
relaxed underwriting standards and originated riskier mortgages
 to less creditworthy borrowers.[8] In the view of some analysts,
 the relatively conservative Government Sponsored Enterprises 
 (GSEs) policed mortgage originators and maintained relatively
 high underwriting standards prior to 2003. However, as market
 power shifted from securitizers to originators and as intense 
competition from private securitizers undermined GSE power,
 mortgage standards declined and risky loans proliferated.[8] 
The worst loans were originated in 2004–2007, the years of 
the most intense competition between securitizers and the 
lowest market share for the GSEs.
As well as easy credit conditions, there is evidence that competitive
 pressures contributed to an increase in the amount of subprime
 lending during the years preceding the crisis. Major U.S.
investment banks and government sponsored enterprises like
Fannie Mae played an important role in the expansion of lending,
with GSEs eventually relaxing their standards to try to catch up
 with the private banks.[34][35] A contrarian view is that Fannie Mae
 and Freddie Mac led the way to relaxed underwriting standards,
starting in 1995, by advocating the use of easy-to-qualify automated
underwriting and appraisal systems, by designing the
no-downpayment products issued by lenders, by the promotion
of thousands of small mortgage brokers, and by their close relationship
 to subprime loan aggregators such as Countrywide.[36] [37]
Depending on how “subprime” mortgages are defined, they remained
below 10% of all mortgage originations until 2004, when they spiked
to nearly 20% and remained there through the 2005–2006 peak of
 the United States housing bubble.[38]
Some scholars, like American Enterprise Institute fellow Peter J.
 Wallison,[39] believe that the roots of the crisis can be traced directly
to affordable housing policies initiated by HUD in the 1990s and to
massive risky loan purchases by government sponsored entities
Fannie Mae and Freddie Mac. Based upon information in the SEC's
 December 2011 securities fraud case against 6 ex-executives of Fannie
and Freddie, Peter Wallison and Edward Pinto have estimated that,
 in 2008, Fannie and Freddie held 13 million substandard loans
totaling over $2 trillion.[40]
The majority report of the Financial Crisis Inquiry Commission
 (written by the 6 Democratic appointees without Republican
participation), studies by Federal Reserve economists, and the
work of several independent scholars dispute Wallison's assertions.[8]
  They note that GSE loans performed better than loans securitized
by private investment banks, and performed better than some loans
originated by institutions that held loans in their own portfolios.[8]
Paul Krugman has even claimed that the GSE never purchased
subprime loans – a claim that is widely disputed.[41]
On September 30, 1999, The New York Times reported that the
Clinton Administration pushed for more lending to low and moderate
 income borrowers, while the mortgage industry sought guarantees
 for sub-prime loans: 
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...
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 1980s.[42]

In 2001, the independent research company, Graham Fisher & Company,
 stated that HUD’s 1995 “National Homeownership Strategy: Partners
in the American Dream,” a 100-page affordable housing advocacy
document, promoted “the relaxation of credit standards.”[43]
In the early and mid-2000s (decade), the Bush administration called
numerous times[44] for investigation into the safety and soundness of
the GSEs and their swelling portfolio of subprime mortgages. On
September 10, 2003 the House Financial Services Committee held
a hearing at the urging of the administration to assess safety and soun
dness issues and to review a recent report by the Office of Federal 
Housing Enterprise Oversight (OFHEO) that had uncovered accounting
 discrepancies within the two entities.[45] The hearings never resulted
in new legislation or formal investigation of Fannie Mae and Freddie
Mac, as many of the committee members refused to accept the report
 and instead rebuked OFHEO for their attempt at regulation.[46] Some
 believe this was an early warning to the systemic risk that the growing
 market in subprime mortgages posed to the U.S. financial system
 that went unheeded.[47]



A 2000 United States Department of the Treasury study of lending
 trends for 305 cities from 1993 to 1998 showed that $467 billion
 of mortgage lending was made by Community Reinvestment Act
(CRA)-covered lenders into low and mid level income (LMI)
borrowers and neighborhoods, representing 10% of all U.S. mortgage
 lending during the period. The majority of these were prime loans.
Sub-prime loans made by CRA-covered institutions constituted a 3%
market share of LMI loans in 1998,[48] but in the run-up to the crisis,
fully 25% of all sub-prime lending occurred at CRA-covered institutions
 and another 25% of sub-prime loans had some connection with CRA.[49]
  In addition, an analysis by the Federal Reserve Bank of Dallas in 2009,
 however, concluded that the CRA was not responsible for the mortgage
 loan crisis, pointing out that CRA rules have been in place since 1995
whereas the poor lending emerged only a decade later.[50] Furthermore,
 most sub-prime loans were not made to the LMI borrowers targeted by
 the CRA, especially in the years 2005–2006 leading up to the crisis. Nor
 did it find any evidence that lending under the CRA rules increased
delinquency rates or that the CRA indirectly influenced independent
mortgage lenders to ramp up sub-prime lending.
To other analysts the delay between CRA rule changes (in 1995) and
 the explosion of subprime lending is not surprising, and does not exonerate
 the CRA. They contend that there were two, connected causes to the
 crisis: the relaxation of underwriting standards in 1995 and the ultra-low
 interest rates initiated by the Federal Reserve after the terrorist attack
 on September 11, 2001. Both causes had to be in place before the
 crisis could take place.[51] Critics also point out that publicly-announced
 CRA loan commitments were massive, totaling $4.5 trillion in the
years between 1994 and 2007.[52] They also argue that the
Federal Reserve’s classification of CRA loans as “prime” is based on
the faulty and self-serving assumption: that high-interest-rate loans
 (3 percentage points over average) equal “subprime” loans.[53]
Economist Paul Krugman argued in January 2010 that the simultaneous
 growth of the residential and commercial real estate pricing bubbles
and the global nature of the crisis undermines the case made by those
who argue that Fannie Mae, Freddie Mac, CRA, or predatory lending
were primary causes of the crisis. In other words, bubbles in both markets
 developed even though only the residential market was affected by these
potential causes.[54] In his Dissent to the Financial Crisis Inquiry
Commission, Peter J. Wallison wrote: "It is not true that every bubble-
even a large bubble—has the potential to cause a financial crisis when
 it deflates." Wallison notes that other developed countries had "large
 bubbles during the 1997-2007 period" but "the losses associated with
mortgage delinquencies and defaults when these bubbles deflated were
far lower than the losses suffered in the United States when the
1997-2007 [bubble] deflated." According to Wallison, the reason
 the U.S. residential housing bubble (as opposed to other types of
bubbles) led to financial crisis was that it was supported by a huge
 number of substandard loans - generally with low or no downpayments.[55]
Others have pointed out that there were not enough of these loans
 made to cause a crisis of this magnitude. In an article in Portfolio
Magazine, Michael Lewis spoke with one trader who noted that
 "There weren’t enough Americans with [bad] credit taking out
 [bad loans] to satisfy investors' appetite for the end product
." Essentially, investment banks and hedge funds used financial
 innovation to enable large wagers to be made, far beyond the
 actual value of the underlying mortgage loans, using derivatives
  called credit default swaps, collateralized debt obligations and
 synthetic CDOs.[56]
As of March 2011 the FDIC has had to pay out $9 billion to
cover losses on bad loans at 165 failed financial institutions.[57]
 The Congressional Budget Office estimated, in June 2011, that
 the bailout to Fannie Mae and Freddie Mac exceeds $300 billion
 (calculated by adding the fair value deficits of the entities to the
direct bailout funds at the time).[58]


 




 


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