I thought liberal ideology was to blame?

Oh good lord...

The CRA was meant to keep banks from blindly discriminating against poor communities, but did not legally mandate they take actions that would harm their own operations. I believe studies have shown that lending in poor or minority communities isn't inherently any more risky when proper standards are in place.

I also remember reading a study that showed lending enhanced by CRA wasn't found to be any more risky than prime.

The repeal of parts of the Glass-Sengal Act was sponsored by three Republicans. I think Clinton struck a deal that he would sign it, and the Republicans agreed to let Clinton expand the reach of the CRA. I'm not sure how this is further liberalizing the CRA though, unless you think discrimination based on where someone lives is a good thing for development.

I think you're mixing the 2003 and 2005 proposals. In 2003 given the scandals Bush wanted to move oversight to the Treasury department. Democrats didn't think there was economic risk and therefore didn't see the value. Being politicians I'm sure they didn't want to loose their oversight privileges as well. Frank has openly said this was a mistake.

I do question how serious Bush was about reform though. Considering in 2003 and 2005 the GOP was in control of Congress you'd think they could have gotten something passed if they really wanted.

Additionally, you can't ignore other regulatory changes to the SEC made in 2004 under Bush that allowed all the giant banks to increase their leverage as well. From everything I've read, this pretty much created a pump between F/F and the banks to crank out loans, obfuscate all the risk and make a hell of a lot of money in the process.

Because you just read what you want to hear. I've been pretty consistent that this was a systemic problem. Both sides have pushed for more lending to poor and minority communities. Both sides have opposed regulation and reform.

-spence

Spence -

"Do we really think that a hallmark of Republican party -- lower regulation -- is the answer to preventing a similar calamity with our economy? I'm not sure I know anyone who seriously thinks so."

Spence, I don't think less regulation is what's needed. We need regulation to prevent financial institutions from selling mortgage-backed cecurities the way it was done before.

But your memory is unbelievably selective. Part o fthe problem was subprime mortgages. I posted a link to a bill that the GOP proposed that would have tightened the controls a bit at Fannie and Freddie. That bill was defeated by the Democrats. Therefore, it seems to me that "less regulation" isn't an ide athat the GOP has a monopoly on.

You keep bending over like a contortionist to avoid criticizing Obama. Obama has never conceded that the Democratic party did anything to cause the recession. All he does is blame Democrats. Yet you do admit that both sides were at fault. If you think the Democrats were partly to blame, but Obama says it was all the GOP's fault, why can't you criticize Obama for his stance?

Answer? You are not rational. There is no fairy tale or excuse you won't hang your hat on to avoid critizing the Messiah. Obama's party controlled the legislature since January 2006, yet in his inauguration speech, all he did was blame Bush.

Guys, does anyone think the people who signed up for these mortgages should be the ones to blame the most? I'm sick of hearing people saying they were mislead and they didn't know what they were signing up for. They are the ones most at fault. When you sign something, you have to do some due diligence and look into what you are signing. I bought my current house during the high peak of the market, I looked at what I made and what I could afford. Could I have bought a bigger house then? sure I could have but I didn’t get greedy and take a gamble on an adjustable rate staying where it was. I went with a fixed rate and a monthly payment I could afford (even re-financed since to a much lower fixed rate). Many people these days don’t take ownership for their actions and when things change (adjustable interest rates going up for example), they cry poor me and blame someone else (mostly looking to the Government to fix their problem). If they took 20 minutes to read about adjustable rates and how it effects monthly payments they should have been able to figure out the enormous risk. We wouldn’t need regulation and Government intervention if it weren’t for all these idiots running around buying houses they can’t afford. Since we have too many people in this Country without a clue, we now need the Government to step in once again and manage the rules. What a shame.
Am I being unreasonable here?

I agree that the folks who took out these mortgages bear a big part of the blame. However, part of the problem wasn't just the mortgages themselves, but the complex financial instruments that were created to bundle and sell these mortgages (credit default swaps, collateralized debt obligations, really complicated stuff), and the homeowners obviously had no idea this was going on.

What ticks me off is that these people acted stupidly, and now there are govt programs to modify those loans so those idiots can afford them. I get no pleasure from seeing someone lose their house. That being said, it's not fair that those who did the right thing still have to work our fingers to the bone to stay in our homes, and those that acted stupidly get rewarded.

You just summed up the liberal agenda in a nutshell. As long as someone belongs to a protected class of "victims", they are not responsible for their actions.

Instead, Democrats create massive entitlement programs for these "victims" that must be paid for by those who did absolutely nothing wrong. Then when the next election comes around, democrats (and the media, with the exception of one TV network) tell those victims that the scary republicans want to take away their welfare, so they better get out and vote democrat.

It's a very effcetive political strategy. It's so effective that our culture takes it for granted that liberals care more about the poor than conservatives. That's despite the fact that (1) study after study shows that conservatives give more time and money to charity than liberals, and (2) conservatives want poor people to become successful; liberals want the poor to stay poor, so that there is a permanent underclasss (of democrat voters) that's addicted to the welfare that liberals promise. The last thing that liberals want is for poor people to get wealthy, because if they did...they'd vote Republican!

I believe the Democrats have delivered on a lot of this this summer.

The 2005 proposal was abandoned. By what I've read the Dems on the Senate committee objected to a cap on the size of Fannie/Freddie holding but agreed to the increased oversight. Instead of negotiating the issue the Senate Republicans dropped it rather than take to the floor.

Considering that Bush had a majority in the Senate and the House, it would seem odd that they would drop such a substantial issue as they could have clearly gotten something passed had they wanted.

The only reasonable analysis is that both sides still didn't get it.



I think you meant Republicans.


You need to post some quotes in context to make an accusation like this. Considering your propensity to just regurgitate baseless talking points I'm not sure I'd trust any of your assertions.

And there you go again...

-spence

OK Spence, let's be really, really clear. You're going to honestly claim that you have no idea what I'm talking about, when I say that Obama has repeatedly blamed Republicans for the economic situation? You have never, not once, heard Obama say that the GOP "drove the car into the ditch"?

Spence, go ahead and google this...

" Obama republicans drove car into ditch", and see how many hits you get.

Obama: GOP Drove The Country Into A Ditch. 'Now They Want The Keys Back' (VIDEO) | TPM LiveWire

OK, Spence. Time to see if you have a shred of intellectual honesty. Since you claim that both sides are to blame (and I agree), and you now know that Obama blames only the GOP (unless syou can show me a link where admits that liberal policies were also at fault), what do you think? What do you think of Obama putting all the blame on the GOP?

Please Spence, don't say "that's what politicians do", OK? Because Obama, remember, campaigned on some vague notion called "change". So he can't do that stuff and say it's "just politics", because he said he'd be different.

Good luck with this one. And good luck convincing yourself that you didn't already know what I was talking about.

Finally Spence, you claim to not understand why, in 2005, the GOP couldn't get the regulation of Fannie and Freddie through, since they had the majority? The Dems fillibustered it, as I pointed out. And at the time, the loons in the media weren't calling the Democrats the "party of no", back then it was patriotic to fillibuster. Now it's obstructionist.

Phil Gramm, a democrat, was responsible for pushing this through. See my link above.

Huh? He switched parties in 1983.
Posted from my iPhone/Mobile device

Guess I am late to the thread.

In my opinion, which I'd be happy to back up with a !@#$load of facts :rotf2:, President Obama did indeed inherit this mess.

Culprits: Jimmy Carter, Bill Clinton and Alan Greenspan.

great article:

January 11, 2011

Let Them Eat Widescreen TVs and I-Phones
Monty Pelerin

The disparities in income between the lower and middle income Americans and those doing well continues to widen. In addition to the debt time-bomb, these income disparities represent another potential explosion.

Ambrose Evans Pritchard provides some data:
The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards - not stamps -- currently worth about $140 a month under President Obama's stimulus package.

The actual number of jobs contracted by 260,000 to 153,690,000. The "labour participation rate" for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).

The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.

Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether.

This schism continues to widen in American society. The well-off are doing just fine thank you. Many of the rest continue to descend into the abyss of joblessness, hopelessness, homelessness, poverty and bankruptcy. Social cohesion will not hold on our current path.

A thesis that I offered several years ago is that the credit expansion was a deliberate attempt to cover up America's structural decline. Ironically, by not facing up to the structural and incentive problems ten to twenty years ago when they were tractable (economically if not politically), the political elite created this current crisis. It was not their intent to create a crisis, merely to avoid hard decisions. They did so by "kicking the can down the road" using credit as their vehicle.

This "solution" enabled people to live beyond their means. "Let them buy widescreen TVs and I-phones" was the modern version of "bread and circuses." Pritchard points out a similar view:

Raghuram Rajan, the IMF's former chief economist, argues that the subprime debt build-up was an attempt - "whether carefully planned or the path of least resistance" - to disguise stagnating incomes and to buy off the poor.

"The inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly," he said.

Now, "let them eat widescreen TVs and I-phones" appears to be the solution. It is equivalent to the "let them eat cake" remedy, with the same potential ending.

The clock is ticking on the debt burden. It is only a matter of time before we are openly recognized as just another version, albeit a very large one, of the PIIGS. Just as important, however, is the ticking clock on social cohesion in this country.

The sense of entitlement cultivated by government over the years may be as intractable as the debt problem. It has corrupted the spirits and souls of men. It has destroyed the family structure. It has left a generation or two without skills and no reason to obtain them. It has transformed human beings into zombie-like creatures with little purpose in their lives. Removing them from the government teat is equivalent of separating a new-born from its mother.

There is no way out, as Pritchard alludes:

There is no easy solution to creeping depression in America and swathes of the Old World. A Keynesian `New Deal' of borrowing on the bond markets to build roads, bridges, solar farms, or nuclear power stations to soak up the army of unemployed is not a credible option in our new age of sovereign debt jitters. The fiscal card is played out.


The government is insolvent, both financially and morally.

I don't think this entirely the case. Parts of it ring true.

History will show (has shown?) that Alan Greenspan's extraodinarily accommodative monetary policy was the fuel for the crisis (which, by the way, is not over). The dry tinder poised to set off the fuel was a dumbing down of lending standards via "Affordable Housing" goals, starting with the enforcement of the Community Reinvestment Act late in Bush I, and then even more aggressively through Clinton's term.

CRA and affordable housing ultimately led to bad loans being made. Low interest rates led to a lot of bad loans being made. And, low interest rates led to massive leverage in the corporate sector as well. But it started with housing and consumer spending.

As far as the Federal Reserve (which is neither, by the way), people have been trying to figure out why Alan Greenspan acted so recklessly, bringing interest rates to near zero percent from 2001-2004, even as the recession ended in 2001. Did he abandon his free market beliefs? Was he just plain dumb? Or was there another reason?

John Williams of Shadowstats posits an interesting theory, and it is worth posting here:

Takeaway: Alan Greenspan acted the way he did to foil the encroachment of increasing government regulation that was, in his mind, stifling economic growth.

"It's too far into the future to worry about."

And there in lies the problem.

Politicians only look out over 4 years
and what they need to do to get re-elected,
afraid to take bold and courageous stands for the benefit of the country.

Not even a 5 year plan. :(

[COLOR="Red"]Recognizing that the U.S. economy was sagging under the weight of structural changes created by government trade, regulatory and social policies — policies that limited real consumer income growth


ask yourself: has the "weight of structural changes created by government trade, regulatory and social policies —
increased...or decreased.....and what does that mean for the future and real consumer income growth :confused:

We can definitely show that real incomes are down ... if you're using a true cost deflator (i.e., measure of inflation).

The CPI as published by BLS sure as hell ain't it.

http://i215.photobucket.com/albums/c...nflation-5.gif

Here's the Barney Frank response to this point...

I've not found a video of the testimony to assess the context, but I do know that David John is a die hard conservative in the Heritage Foundation. I'd like to see a detailed analysis of this...

-spence

been waiting for a follow up to this...not sure I've seen the loans as a result of the expansion of the CRA cited as the cause of the crash but the expansion of the CRA is certainly the turning point that can be cited as the beginning of government forcing banks to abandon long held lending practices in order to expand home ownership and in order to not be punished by the government...lenders became creative and translated that to the rest of the market, the government was essentially insuring their risk.....Fannie and Freddie became a repository for questionable loans...the sheer number of loan writing institutions and the risky instruments grew exponentially out of that...

as your friend Thomas Sowell said recently...banks were doing fine for nearly a hundred years prior with established lending practices...

"Prior to the rapid escalation of home prices, federal bank regulators began using the 1977 Community Reinvestment Act (CRA) to press for racial equality. The issue was the statistical difference in approval rates, not a claim that most blacks could not get mortgage loans. New regulations required that the banks not just look for qualified buyers, but make a requisite number of loans to low and moderate income buyers (quotas). Then, when legislation was proposed in 1999 to permit banks to diversify into selling investment securities, the Clinton White House urged "banks given unsatisfactory ratings under the CRA be prohibited from enjoying the new diversification privileges." The Congress happily obliged. Another factor was HUD's beginning legal action in 1993 against mortgage bankers that declined a higher percentage of minority applicants. HUD also set a 42% target for Freddie Mac and Fannie Mae (FM & FM) to buy mortgages for people whose income were less than an area's median. Banks, sensing that FM & FM were implicitly guaranteed, where only too happy to not only issue these mortgages, but to buy FM & FM debt as well. (In 2003, about 3,000 banks held FM & FM debt for 100% of their capital requirements.) The "icing" was FM & FM's creative accounting that misclassified $11 trillion of sub-prime assets. Then in 2002, Bush II urged Congress to pass the American Dream Down Payment Act, subsidizing down payments of prospective buyers with incomes below a certain level.

Sowell has now set the stage, and readers have no problem understanding what happened. Interest-only teaser rate ARMs rose to counter rising prices and down-payments. By 2005, interest-only mortgages had risen to 31% of all new mortgages, up from less than 10% in 2002. In Denver, Seattle, and Phoenix it was 40%, and 66% in the S.F. Bay area. Speculators jumped into the fray (28% in 2005, 22% in 2006) adding further fuel to the fire, and happy homeowners took out $1.13 trillion in home equity loans in 2007. However, the storm on the horizon was the rise of interest rates to avoid inflation (1% in 2004, to 5.25% in 2006), making monthly payments more expensive and reducing the demand and prices for housing, and everyone takes a loss - including the banks (about $40,000 per foreclosed house), and especially speculators, minorities, and those with ARMs and interest-only loans. (Interesting Note: As of October, 2008, 7% of Bank of America's mortgages were CRA lendings, and 24% of its defaults.) Bailing out FM & FM, with their sub-prime laden inventories, cost the government more than that for all the private banks put together.

Sowell also has no problems believing that many sub-prime loans were foisted upon unaware and uninformed buyers by predatory lenders - especially involving contracts for repairs or remodeling on credit.

Bottom Line: The law of unintended consequences strikes again - helping minorities was a good intention, but backfired. We're all to blame, though admittedly some more than others. Deregulation was not the problem, rather misguided regulation.

the government is now doing the same thing for healthcare:uhuh:

Barney is full of mancustard. As one of the fiercest proponents and protectors of affordable housing, he of course has a vested interest in passing the blame.

The CRA itself was a fairly innocuous law signed by Jimmy Carter in '77. It wasn't until the Boston Federal Reserve came out with a flawed study in 1992 (late in Bush I's term) that banks were discriminating against Black people re: home loans, that it began to be enforced.

There were a slew of lawsuits that accelerated after that Fed report came out, under the auspices of the CRA.

For example, AG Reno (Clinton I) sued several banks in 1993 (First National Bank of Vicksburg and Blackpipe State Bank for racial discrimination and in 1994 sued Chevy Chase Federal Savings Bank.

Furthermore, the fed was under pressure to use CRA as a stick for banks seeking to open new branches and ATM machines and merge with other banks. For example, in 1993, the federal reserve denied an application by Shawmut to acquire New Dartmouth Bank. The transaction was only allowed to proceed after it paid a million fine to compensate minority applicants who may have been denied loans. This arrangement was squeezed out of the bank by AG Reno.

And so on (I won't list all the lawsuits and enforcement actions here).

Most people don't know this, but in 1995, at the behest of Pres Clinton, CRA regulations were revamped to give it more teeth.

I could on and on and on ... but the enforcement of CRA, that really began in earnest with Clinton, basically bullied banks into lending to deadbeats.

I'm not sure the data really demonstrates this though. Clearly that's not the position of the Heritage Foundation expert I quoted above. My assumption is that he's undertaken a very thorough and conservative analysis of the situation.

There are a good number of articles by economists (i.e. not pundits or pundit economists :hihi:) that basically come to the same conclusion. That the CRA hasn't changed much since 1995, yet the sub-prime issue didn't inflate until a decade later, that the default rate of sub-prime loans originated under CRA regulation was about the same as prime, and that a huge % of sub-prime lending was actually made by banks outside of CRA regulation.

Sowell is being a bit misleading when he tosses out numbers like "HUD also set a 42% target for Freddie Mac and Fannie Mae (FM & FM) to buy mortgages for people whose income were less than an area's median."

This was certainly true from 1997-2000, although lending "below median" is a pretty big group and doesn't necessarily indicate sub-prime borrowers. The target for those actually considered "low income" was only 14% and nothing in the CRA stipulates a bank has to knowingly make a bad loan.

Interestingly enough, both these numbers were actually raised in 2001 (50% and 20% respectively) while Denny Hastert was Speaker.

Further, the act that started these targets was put into place in 1992. I believe the general idea is to keep the GSE's aligned with what they believe the market will actually be doing over the coming few years. In other words, it's reactive rather than proactive.

The net being that these regulations have been around for a while, but didn't seem to cause any problems until just recently. While the CRA may certainly be a factor -- as any regulation impacting the mortgage market would be -- it doesn't seem to deserve the "root cause" status that pundits like to give it.

Sowell is going to oppose anything that smells of free market intervention, although I'd note that the first commercial bank in the USA was a government run institution :soon:

-spence

Spence, that is consistent with what I've been saying.

1) The crisis had its roots in the dumbing down of lending standards via CRA and broader "affordable housing" policies.

2) Low interest rates, beginning in 2001, provided the fuel for the underwriting.

CRA enforcement and amendments were only part of the hilarity that ensued prior to the housing bubble. You allude to HUD quotas (which were ultimately adopted by GSE's after HUD established them, not the other way around as you indicate).

By the way, I am an economist and do my own research.

But it doesn't take a rocket scientist to read a chart. Mortgage originations exploded fivefold after the federal reserve dropped rates to imprudently low levels from 2001-2004, even though the economy was recovering by late 2001. The data is publicly available if you want to verify.

http://i215.photobucket.com/albums/c...onsvsRates.png

I'm well aware of your background.

But all the chart indicates is the relationship between lending and interest rates. This relationship seems pretty obvious. The issue at hand is how much the CRA enabled this growth. Most of the non-political analysis I've read doesn't seem to support the argument that it had a major impact in new loans or defaults.

And my statement on HUD quotes isn't as you indicate. Reading the actual HUD charter, it looks like they're set in anticipation of where the market is going and then set upon the GSE's. My interpretation could be wrong though as I've just read the one HUD document and it's not completely clear.

-spence

Spence, most of the analysis is pretty straightforward and implicates declining underwriting standards. I'll save you the headache of going through all the federal reserve documents. Here is a snapshot of what happened.

Issuance by year, comparing 2006 vs. 2001:

2001: Traditional 30 year fixed rate mortgages = 57%
2001: Subprime = 7%
2001: Non-traditional loans: 3%

2006: Traditional 30 year fixed rate mortgages = 33%
2006: Subprime =19%
2006: Non-traditional: 14%

This is common-sense stuff. Remember that overall issuance quintupled from 2000. The growing mix of risky loans (as % of total underwriting) on sharply rising loan issuance was a recipe for disaster, as evidenced by sharply deteriorating loan delinquencies after 2004.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 ("GSE Act") was signed into law on October 28, 1992. The timing is interesting, given the October 8, 1992 Boston Federal Reserve study which purportedly showed lending discrimination against blacks.

Fannie and Freddie adopted affordable housing missions ... in, surprise surprise, 1992.

The fleshing out of affordable housing policy implementation, apart from ad hoc DoJ enforcement actions, began in earnest in 1994 and kept going until 2007.

http://www.huduser.org/publications/pdf/gse.pdf

http://i215.photobucket.com/albums/c...ee/GSE1992.png

We're going to fast forward through a LOT of stuff here, but by 1999, not only were banks bullied into lending to deadbeats, but the GSE's were as well, with very specific goals.

double tap.

All the data you posted seems to validate is that a sub-prime explosion fueled by cheap money was a primary driver of the mortgage crisis.

And still, there's nothing that indicates the CRA was behind this, which is the context for this discussion, that the recession was caused by Liberal policies.

In fact, as I've mentioned several times now, conservative economists like David John have reported that the bulk of sub-prime loans didn't originate from CRA influenced areas nor did they suffer higher default rates.

Here's yet another analysis from someone with far better credentials than myself :hihi:
-spence

for the thousandth time Spence, it was not the CRA loans themselves but the culture created and fueled by the pracitces forced by government mandates and requirements....and threats....

There was another major change that has gotten little attention. Back in 1992, a Boston Federal Reserve study claimed to find evidence of racial discrimination -- claiming that minorities got denied mortgages at higher rates than whites even after important factors such as creditworthiness were accounted for. The data used in the study were riddled with typos and other serious errors. For example, of the 3,000 mortgages studied, 50 of the loans supposedly had the banks paying interest to the borrowers, 500 of the mortgages were not even in the data set from which the data was supposedly obtained, and some mortgages were supposedly approved for individuals who had negative net worth in the millions of dollars. When those mistakes were corrected, no evidence of discrimination remained.

Professor Liebowitz noted that Lawrence Lindsey, then a member of the Federal Reserve’s Board of Governors, "was warned about these errors in this study but the Fed ignored them."

The Boston Fed still used the study to produce a manual for mortgage lenders that said: "discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower–income minority applicants."

So what were some of the "outdated" criteria?

Credit History: Lack of credit history should not be seen as a negative factor.... In reviewing past credit problems, lenders should be willing to consider extenuating circumstances. For lower–income applicants in particular, unforeseen expenses can have a disproportionate effect on an otherwise positive credit record. In these instances, paying off past bad debts or establishing a regular repayment schedule with creditors may demonstrate a willingness and ability to resolve debts....

Down Payment and Closing Costs: Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to homeownership by lower-income applicants. Lenders may wish to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs. . . .

Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.Accepting these new criteria was hardly voluntary. The Fed warned the banks:

"Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions."

And mortgage lenders followed these rules. Liebowitz explained that these changing financial standards "encouraged speculation -- potential homeowners could gamble on the price of homes going up without using any of their own money. Remember, 25 percent of homes being purchased were purchased for speculation."

Others dispute Liebowitz's claim that these changes in rules mattered. For example, James Carr notes that it "may seem on paper that these are a curious thing to count [welfare and unemployment benefits] as income, but they simply didn’t matter."

One lender singled out by Fannie Mae for special praise for following these new criteria was Countrywide:

Countrywide tends to follow the most flexible underwriting criteria permitted under [Government Sponsored Enterprises] and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the [Government Sponsored Enterprises] programs. When necessary — in cases where applicants have no established credit history, for example — Countrywide uses nontraditional credit, a practice now accepted by the [Government Sponsored Enterprises].

Or take a 1998 sales pitch from Bear Stearns, which also followed the Boston Fed manual:

Credit scores. While credit scores can be an analytical tool with conforming loans, their effectiveness is limited with [Community Reinvestment Act] loans. Unfortunately, [Community Reinvestment Act] loans do not fit neatly into the standard credit score framework… Do we automatically exclude or severely discount … loans [with poor credit scores]? Absolutely not.

Given these lending practices mandated by the Fed and encouraged by Fannie Mae and Freddie Mac, the resulting financial problems for financial institutions such as Countrywide and Bear Stearns are not too surprising.

Liebowitz said "such reckless behavior by [Fannie Mae and Freddie Mac] has lead to their financial meltdown and to the financial problems for the whole country. During Franklin Raines' chairmanship of Fannie Mae, they were a major proponent of relaxing standards."

Priceless. You should really read this a few more times :uhuh:

Next you're going to assert that interest rates didn't really go down, but rather Alan Greenspan was just moving backwards :jester:

-spence

[QUOTE=spence;829812]All the data you posted seems to validate is that a sub-prime explosion fueled by cheap money was a primary driver of the mortgage crisis. it was what eventually caused the crap to hit the fan

And still, there's nothing that indicates the CRA was behind this, which is the context for this discussion, that the recession was caused by Liberal policies. yes, LIBERAL POLICIES...giving people money with the approval and backing or threat of goverment reprisal with no accountability!

In fact, as I've mentioned several times now, conservative economists like David John have reported that the bulk of sub-prime loans didn't originate from CRA influenced areas no kidding??? nor did they suffer higher default rates

Good god man get a grip on yourself.

-spence

I guess I'm "all wee wee'd up" :jump1:

Full of crap is more like it.

-spence

Spence you're not listening.

Sub prime and CRA were the beginnings of the dumbing down of lending standards that contributed to this mess.

If you include everything done in the name of AFFORDABLE HOUSING policies, you would see how we got here.

Sub prime got the ball rolling for reduced down payment or no down payment loans, and reduced documentation loans, ALL of which were government creations in the wake of CRA.

CRA created moral hazard. If the federal government could force banks to lend to deadbeats and then GUARANTEE subprime loans, then why couldn't EVERYONE ELSE get hust as good of a deal?

Sub prime issuance was small relative to other products, but sub prime failures via the failure of two Bear Stearns hedge funds were the catalysts for the credit crisis.
Posted from my iPhone/Mobile device

once upon a time....

car repair shops were doing business in brake repair the way they'd always done and then one day a government official stopped in and told them that "too many people couldn't afford to have their brakes done" particularly in certain areas and that the car repair shops were going to be required to do brake jobs for much, much less, "we like to call it the CRA (Car Repair Act)", he said...the car repair shop was wondering how they could stay in business with these regulations and the government official told them that they could use much cheaper materials and parts and less qualified workers....the car repair shop said " that might not be safe and we can't guarantee the quality" but the government official said "don't worry, we'll stand behind you and guarantee your work as long as you go by our new guidelines", "just bundle your traditional warrantees together with your "newly improved" warrantees and send them along to our pseudo-government agency Freaky Mac..and we'll take care of everything"....well...years went by and the car repair shop did a brisk business and other brake specialty shops opened up doing the same and soon suppliers, repairers and everyone(even Freaky Mac through various book cooking exploits), involved profited greatly by being able to use the inferior materials and service to repair brakes not just on the cars in certain areas but on most cars and some really smart Ivy League grads invented even newer ways to fix brakes with cheaper materials, everyone was getting their car's brakes fixed for practically nothing and the business grew exponentially although some members of Congress were growing concerned about what they saw going in the braking business...they were told that there was no problem with the braking business and that the braking business regulators should be replaced(get it?:)) because they were racists.... and that removing the braking system from the list of things to check during an inspection would be a splendid idea....sadly, it soon became apparent that brake sysyems everywhere were failing and many, many people were dying in car accidents from failed brake systems....the government blamed the car repair shops, the shops blamed the government and their suppliers...the suppliers blamed the repair shops and the government...

and Spence claimed that the CRA had absolutely nothing to do with it :)

brakes fixed through the CRA(Car Repair Act) represent only a tiny number of deaths or brake failures compared to the the overall number of deaths or brake system failures attribute to changes in the way business was done and so therefore the CRA had no role in the ultimate overall failure of the braking systems....:smash:

The data seems to indicate that when properly regulated this wasn't the case. In fact as I've noted, even in the run up to the crisis CRA regulated sub-prime loans weren't the problem.

The "slippery slope" argument is dubious as it ignores the regulatory side of the equation. Sub-prime isn't evil, but when firms like Countrywide run wild there's a problem. Mortgage backed securities aren't evil, but when they're sent into a derivative black hole there's a problem.

Interestingly enough, the most detailed study of this mess has just been completed.

http://www.nytimes.com/2011/01/26/bu...uiry.html?_r=1

While there's plenty of predictable blame to go around, here's on line that stuck out...

Should make for some interesting reading.

-spence

you could have ended your post there.

Spence, that is a political document.

The sad thing is, regulators won't pay heed to that report. They can ignore it, because, it is a political document.

All the bad loans came from somewhere, and if you bothered to even see where a few of them came from and what kind of loans they were, regardless of subprime or prime credit, you'd have a clue.

But nobody bothers to do their own work anymore.

I got tired of all these economists saying the same thing so I figured we'd give the politicians a try :hihi:

What's most interesting are the dissenting opinions. The bulk of the Republican dissent (aside from Wallison who seems to think the market can do no wrong, guess that's why he works for the AEI) was that they felt the global nature of the credit bubble wasn't adequately included in the main findings. I didn't see any mention of the CRA in their dissent either.

I actually think the Republican dissent is more on the mark than the main findings. All together it's a pretty good look at how this happened.

Remember, the context of the discussion is how Liberal policy caused the crisis...The government forcing banks to make loans to dead beats remember? I still haven't seen any data that really backs this up...I guess I just don't have a clue.

-spence

can't argue with the last part...


by government forcing banks to change their established lending practices and standards for more "liberal" lending...and eventually encouraging the same be applied through the rest of the industry....

"Countrywide tends to follow the most flexible underwriting criteria permitted under [Government Sponsored Enterprises] and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria. Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the [Government Sponsored Enterprises] programs. Countrywide uses nontraditional credit, a practice now accepted by the [Government Sponsored Enterprises].

Given these lending practices mandated by the Fed and encouraged by Fannie Mae and Freddie Mac, the resulting financial problems for financial institutions such as Countrywide and Bear Stearns are not too surprising.

Glad we can agree on something.

That's a gross and misleading oversimplification.

The data shows is that a very small % of sub-prime lending can be attributed to the CRA, and even then, those loans didn't perform all that badly. Programs under the guise of "affordable housing" encouraged by both the Left and the Right certainly worked to lower standards to extend credit, but the data doesn't reflect a substantial negative impact to the overall system. If anything it actually increased home ownership which I'd think was a good thing.

That's not to say that deteriorated lending standards weren't a massive part of the problem...quite to the contrary...low rates and a demand for the mortgage backed securities started to drive the number of loans, but at the risk of increased defaults the products changed and we saw the explosion of ARMs with ultra low or no interest rates. This made it easy for anyone to get a loan that they could probably make payments on...at least long enough for the warranty to the underwriter to expire.

This deterioration in lending standards really didn't start until 2002 and combined with the other factors previously discussed led to the blow up...again, mostly of adjustable rate loans originated in just the last few years before the crisis. Affordable Housing mandates might have helped to build some of the infrastructure, but I've still yet to see any real data or thoughtful analysis that shows it was a signification contributor when put in context with the other factors.

I would expect any business to do what it can within the law to create shareholder value. That firms like Countrywide did it in such a reckless manner would seem to put the blame on them first and foremost.

-spence