patrick.net

Banks do get loan standards from Fannie/Freddie. That recent regulatory bill by Frank-Dodd forces banks to keep certain risk without selling it. Meaning they can't give deadbeat loans and sell them off packaged, they have to hold certain risk themselves.

Tat, you are right, that is what I figured to be the case. ANd what you are saying makes sense, if there are no Gov mandated standards for banking/lending. But, the Gov does make mandate standards to the banks ... I think? If not, then why would B.Frank be suggesting that his commitee wanted GB to regulate the lending more in his "blame Bush" interview? It seems as though the misconception of Gov fingers in the lending pie runs on both sides of this issue. But, at any rate, I am under that assumption, that banks are held to laws for proper conduct. It may just be waht being "FDIC insured" requires, or something. But, I could be very wrong, as I know zero about the subject.

This is from The American Spectator. The story suggests that both political parties were idiots and responsible for screwing with lending practices - and I agree. Gov sponsored reduced standards began this slide into poopdom.

http://spectator.org/archives/2009/02/06/the-true-origins-of-this-finan#

FortWayne says

Banks do get loan standards from Fannie/Freddie.

Not really. They get standards for loans that Freddie/Fannie will buy from them on the secondary market. That's much different than underwriting standards.

And you're right--Frank/Dodd does try to stop a repeat of the mess by making sure banks keep a skin in their game. As far as I can tell, however, it doesn't force underwriting standards.

Bap33 says

This is from The American Spectator. The story suggests that both political parties were idiots and responsible for screwing with lending practices - and I agree. Gov sponsored reduced standards began this slide into poopdom.
http://spectator.org/archives/2009/02/06/the-true-origins-of-this-finan#

I'm sorry to hear that. The article is complete BS. Its conclusions have been proven incorrect.

http://www.businessweek.com/magazine/content/10_49/b4206102236772.htm

http://www.nytimes.com/2010/11/21/books/review/Barrett-t.html

http://www.theatlantic.com/national/archive/2010/07/the-governments-role-in-the-housing-bubble/60333/

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

Both government failed regulation and deregulation contributed to the crisis. In testimony before Congress both the Securities and Exchange Commission (SEC) and Alan Greenspan conceded failure in allowing the self-regulation of investment banks.[113][114]

.
.

The Financial Crisis Inquiry Commission reported in January 2011 that "the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law."[92]

Believing the CRA had anything to do with the $14 TRILLION debt bubble that powered the Bush Boom is a pretty good indicator that you have pudding for brains.

Poor people buying ghetto houses weren't borrowing much of that $14T.

http://research.stlouisfed.org/fred2/series/HHMSDODNS

The GSEs, on the other hand, did in fact enable operators like Countrywide (and hundreds of other bad actors) to issue more 80/20 loans. The 80 part they sold to FRE/FNM, and the 20% they syndicated in CDOs (with the connivance of the ratings agencies).

That was bad, leaving them with no skin in the game (as long as the loans didn't default in the first 6 months or so).

CRA was signed into law in 1977. If it was the cause of the collapse, I guarantee you that the collapse would have happened MUCH sooner, not 30 years later. If you want to know the causes of the collapse, al lone has to do is go back to 2000, when Gramm-Leach and the Commodity Futures Modernization Act was passed. Those are the culprits and the sponsors of these bills should be imprisoned.

There is a somewhat coherent argument to be made that lenders that desired to merge their way to greatness (eg. WaMu) needed to be on .gov's good side, which largely meant conforming to .gov's stated desire to open up lending to everyone.

But pinning this on Barney Fag is highly dis·in·gen·u·ous. The Dems were the minority in the House from 1995 ~ 2006, they couldn't do shit (other than try to keep the system honest via speechifying, which they largely failed to do).

The destruction of my country 1998-2006 was largely a Republican endeavour, and entirely a conservative one.

Great job, conservatives.

You mofos were pretty thorough.

Bellingham Bob says

Believing the CRA had anything to do with the $14 TRILLION debt bubble that powered the Bush Boom is a pretty good indicator that you have pudding for brains.

Very true. The reality is that CRA-enabled loans have much lower default rates than the private loans made during the bubble.

Somehow magically the CRA passing in 1977 caused a worldwide credit bubble more than 25 years later, even in places where the CRA doesn't exist. Who knew?

FortWayne says

Banks do get loan standards from Fannie/Freddie.

That only applies if the bank wishes to sell the loan to FNM/FHM. If it does not, as was the case during the boom, those standards do not have to be met.

tatupu70 says

Your businessinsider article sums it pretty well. Crappy may not have been the best adjective. Perhaps riskier works better.

Yeah, fair enough. The Alt-A and interest only models were broken for the most part at the time. Traditional subprime makes sense, but all this other crap we call "subprime" was highly problematic. Luckily FNM/FHM barely got into those types of loans, and it wasn't really a significant factor for their financial troubles.

Bap33 says

WILL SOMEONE PLEASE POINT TO THE WHO/WHAT and WHEN THAT CHANGED IT??? Lets just start there, ok? Not some mumbo jumbo bullshit, but a plain old, "So-n-so who was a such-n-such did this-n-that on XX/XX/XXXX and this resulted in the removal of lending standards." Lets see that, please.

It was not the government. It was banksters. Happy? Only ideologues think it was the government, but data shows them to be wrong.

"WILL SOMEONE PLEASE POINT TO THE WHO/WHAT and WHEN THAT CHANGED IT??? "

80/20 -- "piggyback" loans was a big change. This opened the door to many many more borrowers.

When I was helping my sister get a house in 2001 they needed 10% 5% down -- and documentation from me that my $10,000 was a gift -- so the rules were changed after 2001.

What also changed was the SEC allowing Wall Street to lever up as much as they wanted. This change came in 2004 and is basically responsible for killing Lehman and perhaps still Citibank.

http://www.parapundit.com/archives/005558.html

There was also the 2003 change of "Cutting Red Tape":

http://dorkmonger.blogspot.com/2008/11/cutting-red-tape.html

Also:

"In VDARE.com on September 28, 2008, I explained how one central element in the housing bubble, President Bush's message to federal regulators to loosen up on zero down mortgages and liar loans in the name of increasing minority homeownership by 5.5 million households at his October 15, 2002 White House Conference on Minority Homeownership, was tied to the Karl Rove's grand strategy of wooing Hispanic voters to the GOP:"

http://isteve.blogspot.com/2009/06/mr-ritholtz-has-question.html

Karl Rove sold us out to the "invaders". Hah ahaa haah haha ah ha!

Good one.

corntrollio says

It was not the government. It was banksters. Happy? Only ideologues think it was the government, but data shows them to be wrong.

Bellingham Bob says

President Bush's message to federal regulators to loosen up on zero down mortgages and liar loans in the name of increasing minority homeownership by 5.5 million households at his October 15, 2002 White House Conference on Minority Homeownership, was tied to the Karl Rove's grand strategy of wooing Hispanic voters to the GOP:"
http://isteve.blogspot.com/2009/06/mr-ritholtz-has-question.html
Karl Rove sold us out to the "invaders". Hah ahaa haah haha ah ha!

Bellingham Bob says

The destruction of my country 1998-2006 was largely a Republican endeavour, and entirely a conservative one.

corntrollio says

It was not the government. It was banksters. Happy? Only ideologues think it was the government, but data shows them to be wrong.

wow ..... anyone else see that as really funny?
Gov aint responsible unless it happens to be a bad thing that can be blamed on anyone conservative? Wow

Liberalism is a mental disorder - pass it on

@tat,
thanks for the post.
that article sure seemed square

Government on both sides can be blamed for deregulation, but it has definitely always been more more of a republican policy.

In fact, you can easily find republicans now who say regulations (rather than over capacity, lack of demand, and deleveraging) are the problem in our economy , and it's all Obamas fault !

Oh, and Obama raised taxes too !!

tatupu70 says

I don't see where you've ever addressed my point, so if it's not too much trouble, why don't you rehash it.

No trouble.
If that data is correct, it's irrelevant. If it's relevant, it's incorrect. Why? Because it reports one of the economically worst periods in modern US history (33-37) with positive connotation. It also states that we had recessions 03/2001-11/2001 and 12/2007-06/2009 but none in between, or around those dates. The data ends at 9/2010, so apparently we were out of recession by 11/2001 and by 6/2009. Could it be? Sure, NBER is free to call recession whatever they want. But at some point logic says: "Wait a minute! Their definition fails to reflect the actual quality of life, or the actual state of economy!" This bluntly disqualifies data built on NBER definition of recession as an argument regarding merit of Fed. After all, we should care about whether or not our lives are better - not how well they now fit into some arbitrary definition.

There are many definitions of recession. Some economists use a specific drop in GDP, some - specific unemployment numbers, some - specific rate of growth of unemployment numbers, some - combination of the above. This conversation got me curious about NBER definition of a recession. I expected to see terms like "expansion" and "contraction" -- terms that define direction and are parts of a normal business cycle. They don't help much with actual state of affairs and still would be meaningless, but at least they define direction, somewhat precisely. This would make sense out of NBER classification of 1933-1937.

However, reality turned out better than that.
Wikipedia says: "The NBER defines an economic recession as: 'a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.'"
Not a single number! The closest that they come to precision is using terms "few months" and "significant decline". Their definition allows for more wiggle room than a retired porn star.

Do you still feel like using that table as a pro-Fed argument? Really?

corntrollio says

I don't think you've given a coherent anti-Fed argument in any case. What is your case against it?

Here is a quick test on reading comprehension. No cheating, no scrolling up. Have I already indicated my (supposedly) anti-Fed position in this thread?

lenar says

Do you still feel like using that table as a pro-Fed argument? Really?

What are you suggesting that's better? A big nothing so far. The NBER is just one standard for determining a recession. They have a good track record of doing so, and are considered one of the standards by many many people. If you disagree, find another standard that disagrees with what I said in response to dan.

corntrollio says

What are you suggesting that's better? A big nothing so far.

Imho, it's better to say nothing than it is to say something that spreads misinformation. But that's just me.

lenar says

corntrollio says

What are you suggesting that's better? A big nothing so far.

Imho, it's better to say nothing than it is to say something that spreads misinformation. But that's just me.

If the NBER were spreading misinformation, then you might have a point.

tatupu70 says

If the NBER were spreading misinformation, then you might have a point.

I think they are. "Hey folks, the recession ended in 2Q09" is just BS.

We were in a "recession" in the early 1970s when capacity utilization fell under 80%.

http://research.stlouisfed.org/fred2/series/TCU

Now, we're still under 80% but no "recession". Pull the other one.

tatupu70 says

If the NBER were spreading misinformation, then you might have a point.

argumentum ad ignorantiam.

lenar says

tatupu70 says

If the NBER were spreading misinformation, then you might have a point.

argumentum ad ignorantiam.

Good one.

Still waiting for your defintion of recession. Typically when one disagrees with data, they will explain why and then offer other data backing up their concerns. Is that too much to ask of you?

You mention quality of life and general state of the economy. Please--show me some data quantifying that and then how it was better before the Fed and got worse after the Fed. Then you'll have a point.

tatupu70 says

Typically when one disagrees with data, they will explain why and then offer other data backing up their concerns.

So let's see. I explained why your logic is flawed (see the "irrelevant if correct, incorrect if relevant" post). Your objection to the explanation is that I didn't offer an alternative. Is this a correct summary?

Boy am I glad you aren't on Wolfskehl committee. You would've forced the committee to accept the very first (incorrect) proof of Fermat Last Theorem because the committee didn't have a proof of their own.

tatupu70 says

Please--show me some data quantifying that and then how it was better before the Fed and got worse after the Fed.

I respect your conduct in this conversation (while disagreeing with your logic). I wouldn't want to resort to the "reading comprehension" test from above.

lenar says

After all, we should care about whether or not our lives are better - not how well they now fit into some arbitrary definition.

Not quite. You're conflating non-recession with boomtime or at least conflating it with "good times" or perhaps talking about "bear market" vs. "bull market." What is your definition for "our lives are better"?

lenar says

Because it reports one of the economically worst periods in modern US history (33-37) with positive connotation.

That's absolutely wrong. NBER didn't give a positive connotation to 1933-1937. It gave a non-recessionary one. Just because we are not in recession doesn't mean times are the greatest (as evidenced by now).

No one said that 1933-1937 was the greatest of times, but real GDP went up and unemployment went down during that time, as shown by your cherished Wikipedia -- these aren't usually hallmarks of recession:

http://en.wikipedia.org/wiki/Great_Depression

You're claiming NBER doesn't have an exact definition even though it looks at many metrics to make a decision, but you're basically eyeballing 1933-1937 without looking at any data and saying they're wrong. I'll definitely take NBER over random commenter who offers nothing.

lenar says

So let's see. I explained why your logic is flawed

No, there's a difference between saying I'm wrong and explaining why my logic is flawed. You did the former. I'm asking you to do the latter.

lenar says

I respect your conduct in this conversation (while disagreeing with your logic). I wouldn't want to resort to the "reading comprehension" test from above.

So, is that a no? You can't provide any evidence of your own?

tatupu70 says

I'm asking you to do the latter.

See above. Post of Wed, 31 Aug 2011 at 11:29 pm explains why that data can't be used as a pro-Fed or anti-Fed argument.
It's getting boring.

tatupu70 says

So, is that a no? You can't provide any evidence of your own?

Any evidence to what? Here is a quick test on reading comprehension. No cheating, no scrolling up. Have I already indicated my (supposedly) anti-Fed position in this thread?

IF "tough times" for an individual was defined by monthly income decreasing, and his income decreased over a period of a year, from $4000/month down to $900/month, then everyone would agree that he was in "tough times." Then if over the next year, his income slowly climbed up to $2000/month, technically he might not be in "tough times" as we defined them.

But for him, and his family times are still tough. Everybody gets this right? I don't get the argument over semantics. We all understand the situation.

Check out Troy's chart of capacity utilization above. Very good snapshot of where we are.

lenar says

See above. Post of Wed, 31 Aug 2011 at 11:29 pm explains why that data can't be used as a pro-Fed or anti-Fed argument.
It's getting boring.

There's your problem. It really doesn't. If you think their reasoning doesn't reflect the actual state of the economy or actual quality of life, then please provide your definition of recession that does include those measures. That is my point.

lenar says

Any evidence to what? Here is a quick test on reading comprehension. No cheating, no scrolling up. Have I already indicated my (supposedly) anti-Fed position in this thread?

I cheated. Your position is very hard to pin down because you purposely are vague and sometimes incoherent. Which is your goal, I imagine. It's very difficult to have a dicussion with you and probably why others think you are an alter ego...

tatupu70 says

There's your problem. It really doesn't.

You are mistaken thinking that it's my problem. See the results of reading comprehension test for more confirmation.

tatupu70 says

Which is your goal

My goal was to show that your argument in support of Fed is pure BS. I purposefully didn't disclose my own take on Fed because it has nothing to do with the quality of your argument.

See, I like red meat. But if someone says that read meat cures cancer, I'd raise my brow. Especially if they challenge my raised brow by demanding to provide a list of other meals that do cure cancer. And then insist that my raised brow proves that I don't like red meat.

I like riding motorcycles. But if someone says that riding motorcycles improves my life expectancy compare to walking, I'd raise my brow. Especially if they challenge my raised brow by demanding to provide list of vehicles that do improve life expectancy compare to walking. And then insist that my raised brow proves that I don't like riding motorcycles.

You get the drift. Or do you?

lenar says

See, I like red meat. But if someone says that read meat cures cancer, I'd raise my brow. Especially if they challenge my raised brow by demanding to provide a list of other meals that do cure cancer.

Nope. It's like saying "red meat cures cancer," and then some interloper disputes the definition of cancer but fails to give any definition of cancer.

cf. "The Fed has created less frequent recessions" where you are disputing the definition of recessions.

Agree with tatupu that you are trying hard not to get pinned down on something and so aren't saying much of substance.

Does anyone here even know whare the hell they are in the conversation?

lenar says

My goal was to show that your argument in support of Fed is pure BS.

As far as I can tell, Lenar is saying that Tat is making some incorrect inference about the fed based on the NBER definition of a recession. But I can't find what Tat said.

OBviously, I should be doing other things than trying to figure this out, but if this isn't some sort of joke attempt to see how far you can take an argument about nothing, maybe one of you should clarify (for the one person who almost cares) wth are you talking about ?

corntrollio says

NBER didn't give a positive connotation to 1933-1937. It gave a non-recessionary one. Just because we are not in recession doesn't mean times are the greatest (as evidenced by now).

Ok, so you do understand that. By NBER definition, recession doesn't mean "bad" and non-recession doesn't mean "good". So why are you using recession duration as a pro-Fed argument? Why is it even relevant?

corntrollio says

"The Fed has created less frequent recessions" where you are disputing the definition of recessions.

False. Please re-read, as we already know were the problem might be.
Contrary to what you say, I wrote "NBER is free to call recession whatever they want". See, I don't even call their definition incorrect - only vague and useless in context. Context which you are skipping (purposefully?)

Also, please re-read post by marcus a bit above (1:10 pm). It's important.

marcus says

As far as I can tell, Lenar is saying that Tat is making some incorrect inference about the fed based on the NBER definition of a recession. But I can't find what Tat said.

Tat never said it, I did. I said that the Fed made recessions less frequent and shorter in duration. I cited recessions as determined by NBER. Lenar is disagreeing with the definition of recession as given by NBER, but is offering nothing else (including any support for that disagreement). That's all Lenar is disputing and all that Lenar is offering -- "because I said so."

marcus says

As far as I can tell, Lenar is saying that Tat is making some incorrect inference about the fed based on the NBER definition of a recession.

Not Tat, otherwise correct. Talk to you folks later, got to go for now.

lenar says

Ok, so you do understand that. By NBER definition, recession doesn't mean "bad" and non-recession doesn't mean "good". So why are you using recession duration as a pro-Fed argument? Why is it even relevant?

No, now you're putting words in my mouth. Everyone agrees that recession means bad, and not just bad, but very bad. You are disputing the definition of recession. There are various degrees of bad, just as there are various degrees of good.

Once again, let's get correct what you're disputing (and again offering nothing for).

My guess is that lenar wants to sling mud at the Fed doing something positive (likely because of ideology), but doesn't want to make a substantive argument of any sort while doing so. It's cheap.

Ok, ok, last one.
corntrollio says

No, now you're putting words in my mouth. Everyone agrees that recession means bad.

...and non-recession means bad? No, not everyone. You disagree:
corntrollio says

A recession has a technical definition. You can say, "oh, the economy sucks," but it might not be in a recession. In fact, there was a bit of a bear market rally during some of those years.

Our economy can't grow fast enough even to absorb new member of workforce, let alone ones that are out of work from before. And if you accept that this is a severely bad economy or recession (by some definitions), then this is the first time that the fed seems powerless to turn it around.

In the past they could always tweak things with monetary policy. We may have been in bad shape before, where monetary policy changes only covered up how bad things were, but at this point monetary policy is just outright impotent, in bringing economic growth back up to anything close to full employment (95% employed).

IT at least seems like in all past recessions (beyond narrow technical definition), monetary policy could eventually get us up to nearly 95% employment (U-3)

If you don't want to hear my point because of semantics, and use of the word recession, then define recession (for now) as U-6 being above 9%.

http://www.shadowstats.com/alternate_data/unemployment-charts

lenar says

You get the drift. Or do you?

I do, and I find your criticism of the NBER to be severely wanting. As far as I can tell, it consists of your opinion that the quality of life and general state of the economy weren't up to some unknown level you consider non-recessionary.

Opinions are much more useful with some data to back them up. For example--unemployment had dropped, but it was still over 8%. I consider anything over 8% to be still in recession. See how that works?

marcus says

In the past they could always tweak things with monetary policy.

This is because in the past they CAUSED the recessions with monetary policy!

They'd jack up rates to slow the rate of borrowing (and economic expansion), then drop rates when (wage) inflation fell as the economy lost jobs.

http://research.stlouisfed.org/fred2/series/FEDFUNDS

The 1990, 2000, and 2008 recessions were different tho . . .

in today's headlines:

"NEW YORK (AP) -- The government has sued the nation's largest banks, along with a handful of other financial institutions and executives, for violating federal and state laws in the sale of home mortgage-backed securities."

Hmm, now we get to see some lenders turn over on some REwhores, and THERN things will get interesting.

lenar says

...and non-recession means bad? No, not everyone. You disagree:
corntrollio says

A recession has a technical definition. You can say, "oh, the economy sucks," but it might not be in a recession. In fact, there was a bit of a bear market rally during some of those years.

Nice try. Let me break it down for you, since you don't seem to understand and instead would rather try to confuse people with logical fallacies:

All recessions are bad times.
Not all bad times are recessions.

A recession also tends to indicate when things are getting worse. As I mentioned above, if unemployment is getting better and real GDP is increasing, as it was from 1933-1937 using your favored source, then things may be bad, but not getting worse.

marcus says

IT at least seems like in all past recessions (beyond narrow technical definition), monetary policy could eventually get us up to nearly 95% employment (U-3)

If you don't want to hear my point because of semantics, and use of the word recession, then define recession (for now) as U-6 being above 9%.

marcus, this is a great proposal, actually, and I do want to hear your point. My issue is not semantics, but rather that lenar is not giving any definition and just wants to throw sand on the original argument without a legitimate reason other than talking out of one's ass. If lenar had said something like this, it would be more legitimate. Then we could determine when recessions under that definition occurred and whether the Fed made that worse or not. As it is, still nothing from lenar except trying to confuse people and use logical fallacies.

A few thoughts on this as an indicator:

1) is unemployment the right indicator? Sometimes unemployment lags the recession a little. While unemployment hit 5.7% during the 2001 recession, the peak in unemployment was after contraction had stopped -- mid-2003 at around 6%. Economic activity can still be up (negating the recession) because workers are more productive.

2) I'm not sure how good Shadowstats' measurement of U-6 or U-3 is. Do you have reason to believe them? I do not trust their measurements of inflation because if you trace them back in time, they don't make any sense, but their employment numbers could be good.

3) Another question I'd have is whether we have structural unemployment here so that 95% no longer makes sense.

Is the data available and accurate enough to determine this pre-Fed and post-Fed?.