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Originally Posted by fishpoopoo
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?
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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...
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The report does knock down — at least partly — several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.
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Should make for some interesting reading.
-spence