patrick.net

All true.

But this ignores the fact that Countrywide and other CRA mimickers were using the same ADs that the CRA does. So the CRA rules spread into subprime, after all whats good for the lower income folks cannot be held back from the rest of the spenders:

http://www.prnewswire.com/news-releases/mortgagestatscom-ranks-countrywide-home-loans-no-1-in-lending-to-minorities-76627002.html

The CRA mentality caused the acceptance, the marketing and the desire for a similar loan structure, and hence Subprime appeared.

Furthermore - every person I know who got in trouble clearly had loans above their ability to pay, even by the most minor of due diligence, - heck just by talking to people one might see that a person with a gardeners job might not be able to afford a de-lux condo that has doubled in price (due to CRA and Subprime jointly)

Further, before ~1997 one had to have strong documentation and 20% down. There is only one thing that changed this, and to the chagrin of many.

Then there was the Financial experts, friends of Bill Clinton, who helped insure the pipeline of Securitization, catagorically removing every roadblock to scale up MBS, bondbuying by Freddie, Fannie, all with the "Wink Wink" that would allow the banks to not have to hold all these Ponzi mortgages.

http://forestcouncil.org/the-wall-street-crooks-who-got-it-all-wrong-are-now-obamas-economic-brain-trust/

Yes, its easy for the people to say this was not a set up. But these Lawyer/Econ schemers are brilliant gamers: Much to the chagrin of all Americans.

Entitlemented says

Further, before ~1997 one had to have strong documentation and 20% down. There is only one thing that changed this, and to the chagrin of many.

So much ignorance stacked upon itself where do I begin. As someone with over 35 years in both the mortgage industry and the secondary market of mortgages let me throw my two cents in (for you Austrian economists that's 42 cents in today's money). Prior to 1997 low down mortgages where not only available, they represented the majority of mortgages made to home buyers. The primary makers and purchasers of CRA loans were Fannie Mae and Freddie Mac. The subprime market has always been around but only gained real market share beginning in around 1995. Fannie Mae and Freddic Mac NEVER held more than 15% of the subprime market and the height of their ownership was in 2007. They entered that market later only because they were losing so much of the real estate finance market share in mortgages. The primary culprit of the mortgage meltdown where the big banks and Wall Street who could charge exorbitant fees selling vast mortgage pools of subprime loans back and forth like baseball cards, knowing and in cahoots with the rating agencies that these pools of mortgages were suspect at best. If low down mortgages were bad in themselves, then Veteran loans with no money down and lower credit requirements would not have by far the lowest default rates of ANY mortgages since the VA program began in the late 1940s. I know this explanation does not fit talking points. Every time I hear someone say that the governments involvement in CRA loans was the primary cause of the economic meltdown, I feel like I am hearing a lecture from a creationist, a 911 truther, a Birther, or a climate change denialist.

saroya says

The primary culprit of the mortgage meltdown where the big banks and Wall Street who could charge exorbitant fees selling vast mortgage pools of subprime loans back and forth like baseball cards, knowing and in cahoots with the rating agencies that these pools of mortgages were suspect at best.

The consensus is that the primary culprit was the Fed and Greenspan. The reason the banks were allowed so much leedway stems from the US system of banking that mixes politics and banking. The CRA did not directly cause problems but it did cause problems by the banks saying that if we are going have these standards for some of the applicants then we have to have these loose standards for everyone. This combined with the bubble mentality.

My source of information is "Fragile by Design"

OK then, like Mozillo said, no one saw it coming, and if you did you were wrong, but you get away with it it must be OK?

The CRA and Subprime guys scurry out of the light as fast as they can, with the bankers, Frank Rains and the other scammers.

The messy footprints lead to this man's door more than any other.

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief."

"That's precisely the reason I was shocked because I'd been going for 40 years or so with considerable evidence that it was working exceptionally well."

Congressman Henry Waxman: "My question is simple. Were you wrong?"

Greenspan "Partially ... I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ... I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works. I had been going for 40 years with considerable evidence that it was working exceptionally well. The overall view I take of regulation is, I took an oath of office when I became Federal Reserve chairman. I'm here to uphold the laws of the land passed by Congress, not my own predilections."

“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,”

indigenous says

And it all works fine as long as YOUR government doesn't bail everyone out

And by "fine", you mean crashing the entire world economy and throwing it into a depression.

tatupu70 says

indigenous says

And it all works fine as long as YOUR government doesn't bail everyone out

And by "fine", you mean crashing the entire world economy and throwing it into a depression.

It wouldn't of crashed, of course Jeff Immelt and Henry Paulson wanted you to believe it would have. For sure GE would have taken a hit for leveraging their financial services and AIG might be gone as would Goldman and Morgan Stanley. But the market would have recovered shortly unlike what we have today.

BTW you notice that GE got out of financial service lately, I guess it is not as profitable when you can't play games with the finances?

indigenous says

It wouldn't of crashed, of course Jeff Immelt and Henry Paulson wanted you to believe it would have. For sure GE would have taken a hit for leveraging their financial services and AIG might be gone as would Goldman and Morgan Stanley. But the market would have recovered shortly unlike what we have today.

You live in a fantasy world. At best it would have been a much, much deeper depression that would have lasted until people like you came to their senses.

Yep. Keynesian ponzi-style policies sooner or later wreck any economy, but it's even worse when the government/central bank then rewards the players with bailouts. No tail risk = no free economy, but lots of government sponsored bubbles. It was well known that these loans would eventually put immense strain on the financial sector and warnings and objections were simply ignored by the lawmakers. The perfect setup for bank middle-men and management to make a lot of cash and then leave the burning building.

mell says

Yep. Keynesian ponzi-style policies sooner or later wreck any economy, but it's even worse when the government/central bank then rewards the players with bailouts. No tail risk = no free economy, but lots of government sponsored bubbles. It was well known that these loans would eventually put immense strain on the financial sector and warnings and objections were simply ignored by the lawmakers. The perfect setup for bank middle-men and management to make a lot of cash and then leave the burning building.

To be clear--bailout = loan that must be repaid with interest. Is that a reward?

And let's talk about your last sentence. The bank middle-men and management made a lot of cash and then left the building burning. How is that the government's fault?? Shouldn't the bank OWNERS have had policies in place to prevent this activity?? By your own admission, this was a case of poor incentives--short term gain outweighed long term concerns. That's the free market at work. The problem was not enough oversight and too much free market.

tatupu70 says

To be clear--bailout = loan that must be repaid with interest. Is that a reward?

Yeah they paid that back half with other federal (taxpayer) money.

tatupu70 says

And let's talk about your last sentence. The bank middle-men and management made a lot of cash and then left the building burning. How is that the government's fault?? Shouldn't the bank OWNERS have had policies in place to prevent this activity?? By your own admission, this was a case of poor incentives--short term gain outweighed long term concerns. That's the free market at work. The problem was not enough oversight and too much free market.

No, they would be stupid not to make riskier loans and violate the guidelines and come under scrutiny. In a a total free market scenario it would still be possible for them to make bad loans without any reason or incentive, but it would be less likely, especially if the free market would go all the way through which would mean no government help or bailout whatsoever when the game is up. It's certainly possible but the market would take care of that very quickly and efficiently by replacing those failed institutions with those who practice sound lending. Another added benefit is that the people responsible would not get a job in a free market where connections to government do not help.

mell says

Yeah they paid that back half with other federal (taxpayer) money.

Source? Link? Please explain.

mell says

No, they would be stupid not to make riskier loans and violate the guidelines and come under scrutiny

Are you still on the CRA bullshit? This is the most annoying thing you do. You'll post BS on here and then when you are proven wrong (like on the other recent thread about US growth after WWII) you will go away but then post the same nonsense on a new thread days later as if you never saw the posts proving your theories are BS.

mell says

In a a total free market scenario it would still be possible for them to make bad loans without any reason or incentive, but it would be less likely, especially if the free market would go all the way through which would mean no government help or bailout whatsoever when the game is up.

Huh? They DID make bad loans. The reason and incentive was short term gain. This is not up for debate. It is fact. The question is why did the free market fail and allow this obviously poor behavior to occur? Why were bank managers allowed to put their short term gain ahead of the corporations long term health??

I can't believe how gullible some are about all the BS on jobs & loans. Everyone knows that Bush & Rep/Cons solved all our economic problems & stopped all fraud in only eight years. It's great they were able to save so many from losing their homes. Creating TARP has saved the TBTF & allowed everyone to have six figure jobs through massive job creation which lead to record consumer spending which lead to more great paying jobs. For their hard work unemployment is -2%.

Why do people complain when things are so good?

tatupu70 says

Are you still on the CRA bullshit?

Facts are a bitch, aren't they?

"During one of the Congressional hearings addressing the proposed changes in 1995, William A. Niskanen, chair of the Cato Institute, criticized both the 1993 and 1994 sets of proposals for political favoritism in allocating credit, for micromanagement by regulators and for the lack of assurances that banks would not be expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would be very costly to the economy and the banking system in general. Niskanen believed that the primary long-term effect would be an artificial contraction of the banking system. Niskanen recommended Congress repeal the Act."

tatupu70 says

Huh? They DID make bad loans. The reason and incentive was short term gain. This is not up for debate. It is fact. The question is why did the free market fail and allow this obviously poor behavior to occur? Why were bank managers allowed to put their short term gain ahead of the corporations long term health??

They are always allowed to do that, however they were not only allowed, but ENCOURAGED to do so. Significant difference. In a free market without bailouts they could do that exactly once. Everybody is free to wreck their company once, then they're screwed. Unless they get bailed out of course.

Let's be realistic here, however. Bank Executives are the poster children for Moral Hazard, as are the Investors. The worst most banksters experienced was deferred bonuses.

What should have happened is the banks were bailout out in return AFTER they had been seized by the government and then later resold on the private market at a profit. I mean BOA should have had the board purged and controlled by government, and investors forced to give up shares at whatever price the government wanted to pay and count themselves lucky to get anything over $0.00. Now the lesson is: IF you fuck up real bad because of your greed, the taxpayer will save your ass.

However, the bailout DID work.

mell says

Facts are a bitch, aren't they?

"During one of the Congressional hearings addressing the proposed changes in 1995, William A. Niskanen, chair of the Cato Institute, criticized both the 1993 and 1994 sets of proposals for political favoritism in allocating credit, for micromanagement by regulators and for the lack of assurances that banks would not be expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would be very costly to the economy and the banking system in general. Niskanen believed that the primary long-term effect would be an artificial contraction of the banking system. Niskanen recommended Congress repeal the Act."

lol--do you think your quoted paragraph is a fact?? You're kidding, right? That is the incorrect opinion of someone from the Cato Institute. This may be a shock to you, but the Cato Institute frequently skews very conservative...

mell says

are always allowed to do that, however they were not only allowed, but ENCOURAGED to do so. Significant difference. In a free market without bailouts they could do that exactly once. Everybody is free to wreck their company once, then they're screwed. Unless they get bailed out of course.

Except that the VAST majority of the bad loans were made to non-CRA areas. The government did NOT encourage those loans. In a free market, why would banks make those loans even once?? That is my question? Bailout or no bailout, why would bank owners choose to lose lots of money?

Because they flipped them right over into securitized assets for sale by investment banks, frequently, a division of their own bank.

The other side of the story is Rocket Dockets, which didn't give a shit whether you paid or not, or to whom the loan was due - esp. in Florida.

For those who say that CRA did not create risky loans, purposely please read:

http://www.gpo.gov/fdsys/pkg/FR-1997-10-17/html/97-27518.htm

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

Looks like these REPCONTEAS did warn that loans and banks could get into trouble. Austrians saw the cause and effect in 1995-1997, DEMLOBBYLAWYERMBAS cant see it even now.

The answer is that when you mix politics and banking regulation it does not end well. Including the influence the CRA had in conjunction with the tacit and literal understanding that the government was backstopping all loans. The same thing as the current Bernanke put has on the stock market.

Entitlemented says

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

Looks like these REPCONTEAS did warn that loans and banks could get into trouble. Austrians saw the cause and effect in 1995-1997, DEMLOBBYLAWYERMBAS cant see it even now.

Did you actually read the wiki that you posted? Like the entire section where almost everyone said CRA didn't affect the housing bubble?

tatupu70 says

Bailout or no bailout, why would bank owners choose to lose lots of money?

Three words . . . O P M

bob2356 says

CRA didn't affect the housing bubble

conservatives and trolls roll CRA out like a second soccer ball at a kids' game

it is inconceivable to them that the private business could elect to engage in outright fraud in the trillions, when unregulated.

well, they probably understand this perfectly but can't admit it because ideology.

Bellingham Bill says

tatupu70 says

Bailout or no bailout, why would bank owners choose to lose lots of money?

Three words . . . O P M

Bank owners didn't choose anything. Banks are corporations. Bank executives chose to take high levels of risk in order to get high levels of compensation without understanding what the true risks were.

bob2356 says

Bank owners didn't choose anything. Banks are corporations. Bank executives chose to take high levels of risk in order to get high levels of compensation without understanding what the true risks were.

I agree and that's a big part of the problem. When the owners don't have power over the executives, stuff like this happens.

Entitlemented says

Looks like these REPCONTEAS did warn that loans and banks could get into trouble. Austrians saw the cause and effect in 1995-1997, DEMLOBBYLAWYERMBAS cant see it even now.

As the CRA had nothing to do with the housing bubble and bust, I'll add that warning as another example of Rep/Con/Teas getting it wrong on the economy. It's a long list.

tatupu70 says

I agree and that's a big part of the problem. When the owners don't have power over the executives, stuff like this happens.

What are you talking about? Corporations don't work that way. How could they? Are all the stockholders going to get together to vote on business decisions? That's what the directors are for, to provide guidance and make sure that risks are reasonable. Unfortunately boards have become a tangle of interlocking ceo's patting each other on the back.

Funny that this "stuff" didn't happen from WWII until the reagan era, a period of strong corporate regulation and very progressive personal/corporate taxes. American corporations had unbelievable growth with manufacturing reaching it's peak in american history.

bob2356 says

What are you talking about? Corporations don't work that way. How could they? Are all the stockholders going to get together to vote on business decisions? That's what the directors are for, to provide guidance and make sure that risks are reasonable. Unfortunately boards have become a tangle of interlocking ceo's patting each other on the back.

I'm talking about exactly what you said. Directors are supposed to represent owners' interest and make sure executives are making decisions that are in the best interest of the corporation (and its owners). They no longer serve this function.

bob2356 says

Funny that this "stuff" didn't happen from WWII until the reagan era, a period of strong corporate regulation and very progressive personal/corporate taxes. American corporations had unbelievable growth with manufacturing reaching it's peak in american history.

Agreed.

bob2356 says

Funny that this "stuff" didn't happen from WWII until the reagan era, a period of strong corporate regulation and very progressive personal/corporate taxes.

Banks became centralized in the 80s with deregulation. The framers wanted banks to be decentralized because of their fear of banks getting too much power. But this made bank too prone to one market place as all of their loans would be dependant on one area. Centralizing the banks made them more stable.

Until that is that the Fed had to approve M & As. To achieve this the banks had to prove the were "good citizens", this was accomplished by social organizations vouching for their "character", in return the banks would donate lots of money to these organizations, IIRC around 2 something trillion dollars to them over the past few decades.

The perversion of the (under Clinton, AKA Captain Corruption) CRA was an offshoot of this process and helped to create this sort of thinking. Along with backstopping bad loans was persuasive in this mentality.

indigenous says

Until that is that the Fed had to approve M & As. To achieve this the banks had to prove the were "good citizens", this was accomplished by social organizations vouching for their "character", in return the banks would donate lots of money to these organizations, IIRC around 2 something trillion dollars to them over the past few decades.

The perversion of the (under Clinton, AKA Captain Corruption) CRA was an offshoot of this process and helped to create this sort of thinking. Along with backstopping bad loans was persuasive in this mentality.

I have to give you credit for tenacity. You won't give up on the CRA no matter what data and proof is shown that it had no bearing on the financial crisis, huh?

Although I will give you credit for creativity. Your theory is that charitable donations led to financial crisis? That's a new one.

tatupu70 says

You won't give up on the CRA no matter what data and proof is shown

That is a two way street.

indigenous says

That is a two way street.

OK great--I'm ready to see all of your data showing exactly how the very small % of loans made in CRA areas caused banks to make bad loans everywhere else.

tatupu70 says

OK great--I'm ready to see all of your data showing exactly how the very small % of loans made in CRA areas caused banks to make bad loans everywhere else.

Buy the book "Fragile by Design", and you will see all of the data.

tatupu70 says

To be clear--bailout = loan that must be repaid with interest. Is that a reward?

You are insolvent. Your credit rating is in the toilet. You are allowed to borrow at ridiculously low interest rates, essentially given a money machine. The head of your cartel keystrokes money into your account. The head of your cartel buys your toxic assets at face value. Neither you nor any of your cronies face criminal charges for massive fraud which brings down the economy.

Yes, that is how it works for every business.

indigenous says

Buy the book "Fragile by Design", and you will see all of the data.

If you have the book, why not just detail the relevant passages?

tatupu70 says

If you have the book, why not just detail the relevant passages?

I don't have it, I want you to buy it and read it and explain it to me. Besides you ask endless questions that are a nuisance.

indigenous says

Buy the book "Fragile by Design", and you will see all of the data.

Oh yes, fragile by design. I looked at that once in a bookstore, a brief peruse told me it was just crap. Here's what one of the really nice reviewers said about it, many other reviews were considerably less kind.

Fragile By Design: The Political Origins of Banking Crises and Scarce Credit is a tour de force, and not in a good way. The book’s history of U.S. banking is troubling. The narrative covering the period from the Civil War until the 1990s is highly selective and misleading. Worse, the section that covers U.S. banking over the past 25 years is a set of distortions and falsehoods that should be obvious to anyone with a basic knowledge of the recent financial crisis.

Yet you think it's up there with the holy grail. Amazing. Are you so brainwashed that objective thinking isn't possible at all or do you simply lack any basic knowledge? Maybe, just maybe everyone else isn't wrong.