patrick.net

my mind only looks tiny next to my enormous ..... ears.

And for the USPS haters....

UPS to raise rates next year.

Fedex & UPS losing billions, and getting special breaks to keep them afloat like all big corporations. Those of you who say USPS are just "pigs at the public trough" frankly I can't see any way in which the supposedly wonderful private delivery system is superior. Have several co-workers who in younger days worked for what they call "the Package Nazis" and are glad they moved on.

USPS,banks,wall street,home owners.....all needs money from taxpayers. If all of us wants to keep living American way of life get ready to pay heavy taxes in coming years. I don't see any way out of this mess other than heavy taxation.

America doesn't have an tax problem, we have a SPENDING problem. For politicians spending is always equal to or greater than income. No matter how much we are taxed it will NEVER be enough. Socipathic politicians always have new spending plans up their sleeve. They will never be able to satisfy the unlimited demand placed on them. The harder they try to satisfy everyone the quicker the money will run out.

The best cure for America's problems is not to further empower an already massive federal government beyond its constitutional limit, but to return to its founding principals. A free people working in self-interested cooperation and a government operating within the limits of its authority promote more prosperity, opportunity and happiness for more people than any other alternative.
[BTW, I wish I could take 100% credit for this post, however in the spirit of full disclosure I must say I plagerized this from various sources].

I believe that until our govt addresses the basic structural problems in our financial system of too much debt, we will not have a sustainable recovery. So while the stock market can stay irrational in the shorter term, in the long run I believe it will go back to reflecting the fundamentals of our boom and bust economy. And that's why I continue to feel that for long term investors a better portfolio allocation is in cash and gold. I think the gold price will continue to rise due to a lack of faith in central banks' policies and in fiat currencies. I recently saw a very interesting articles called Gold Price Up, Dollar Down - Does it Really Matter? which I think is particularly useful for investors to read to get a better sense of what's going on in the economy and the govt's role in influencing it.

Dependency (on Government) breeds bondage, bondage is slavery.

Geez, you folks still debating whether CRA caused the crash. Hasnt someone come up with an answer?...LOL

Nomograph .... I find it interesting that those on the left always cite as the source of all conservative thought "talk radio", i.e. Rush Limbaugh, et all. I also find it interesting that these very same people on the left almost never listen to any conservative talk radio and typically can't provide specific examples to back up their assertions. I'm a casual listener to talk radio, but enough so that I know the charges on the left are usually exagerated and unfounded. I personally don't like Limbaugh, but, have defended him on several occasions with those on the left that write him off as a "big fat liar". Whenever I have asked for specific examples of his "lies" I am met with blank, empty and silent stares as if they have been confronted with reality and don't know what to say or do. A typical example is the latest NFL controversy in which Limbaugh was supposed to have said over 10 years ago that "slavery was a good thing". The fact that this proved to be a complete, and total fabrication doesn't seem to change anything. They hate him, so therefore, it must be true. Whenever you have emotions that rule and facts are ignored, you typically have liberal "thought". I was a radical liberal myself but left that simple "touchy feely" thought process about the age of 16. If you can't back up your postitions by facts, it's time for you to grow up as well.

FINAL ANSWER: YUP.

elvis says

Let me spell it out. Here is what the left wants: LARGER government, MORE socialism, NEW government expenditures, NEW taxes, MORE government control, LESS freedom of choice, MORE abortion, LESS oil, MORE job killing laws, LESS free enterprise, MORE government bureaucracies, MORE government spending, MORE liberal judges, LESS Constitutional constraint, a WEAK dollar, LESS individual rights, MORE business regulation, MORE bad changes, have LESS - pay MORE.

This is a good example of the way AM talk radio distorts the issues and lies. The radio host will make a statement like yours above about what "liberals" want--"more job killing laws or more abortion" then argue why that is wrong. Their argument sounds great, and is actually true. The problem is that noone really wants those things. It's a false choice. That's AM talk radio 101.

Elvis--

Really? So, do you really believe what you wrote? The bills in CA are designed to kill jobs? That is their purpose? Because that seems to be what you are implying. You really believe that liberals want to kill jobs??

And I believe that Obama reinstated the foreign aid to family planning. Which is a whole lot different than abortion. Again--distortion and half truths. Do you really see the world in such black and white?

Sorry Elvis,

Thought you just wanted a final answer. As I pointed out in a prior post, the law (Yes the CRA law that actually has words, written words that anyone with a web browser can find) specifically states the credit needs of the community must be "consistent with the safe and sound operation of such institution." It is re-iterated in the Federal Regulations interpreting the law: Lending to low and moderate income is to be done in a "safe and sound manner." (More of those silly quotes from the actual Regulation.)

Sorry, I fail to see the provision in CRA or its Regs that says, "make bogus loans with no documentation of income or loans using teaser rates that will expire knowing full well the people will not have the income to pay off the loan." May be I missed it. But, that seems to be the opposite of "consistent with the safe and sound operation of such institution."

There was a failure of government to reign in the banks, but that still exists today. Goldman Sachs bonuses. :-(

Last time I left open the question of what happens if a bank gets a poor rating for serving their community. Are they shut down? No. Do they have to pay a fine? No. Are their CEOs carted off to jail? No. Then, what? Well, here is the big scary punishment:

Their rating (poor or otherwise) will be TAKEN INTO CONSIDERATION when the bank applies to open a new branch (limited to those that accept deposits and yes there are bank branches out there that do not accept deposits), wants to move their headquarters, want to do a merger or acquisition, or charter a new institution. OMG, nothing happens to them unless they want to grow and, if they want to grow, the poor rating will not necessarily stop them because it's only a "CONSIDERATION." Not an absolute denial, not a determining factor, not even a slap on the wrist. Read the law and weep for them. Or just frakin read the law.

So let's say own a bank making modest profits and you are happy with your profit margin and size. 1) You probably are serving your community as opposed to trying to drain them of every penny. But, 2) you could probably ignore the law altogether. In reality, CRA and its regulations treat small banks different than large, but that is another discussion.

Or we could stick with my short answer: Yup.

elvis says

I’m going to settle this once and for all. FINAL ANSWER. CRA was the root cause of the meltdown.
Big government wants to extinguish the possibility of independent thought, wants uniformity of opinion on all matters, and complete obedience to the state. Prosperity can not survive in a heavily regulated society where everyone moves in lock-step, where inequality is eliminated, and innovation is curtailed by government intervention.
I don’t think the far right are, as you say “almost identical” to the far left. Let me spell it out. Here is what the left wants: LARGER government, MORE socialism, NEW government expenditures, NEW taxes, MORE government control, LESS freedom of choice, MORE abortion, LESS oil, MORE job killing laws, LESS free enterprise, MORE government bureaucracies, MORE government spending, MORE liberal judges, LESS Constitutional constraint, a WEAK dollar, LESS individual rights, MORE business regulation, MORE bad changes, have LESS - pay MORE.
No, I don’t think many right wingers want these things, only liberals do. Am I wrong????

I think what you have done is summed up the ideals of both parties, they are one and the same today. Republicans are no longer conservative and Dems are no longer liberal.

Ronald Reagan removed regulations of the S&L banks which led to the crisis of 1989..he is a Republican
George Bush Sr. bailed out the banks during the S&L Crisis...he is Republican
George Bush Sr. drafted the GLB act in 1990...he is a Republican
Bill Clinton signed GLB into law...He is a Democrat
George Bush Jr. sent us to war with the use of our socialist military...He is a Republican
George Bush Jr. increased social spending by 30%...He is a Republican
George Bush Jr. signed no child left behind...He is a Republican
Obama bailed out the banks, auto industry...He is a Democrat
Obama signed the American Recovery act, which 5-10 Republicans voted for...he is democrat
Obama is pushing for universal healthcare...He is a Democrat
Congress approved an extention of the 8k tax credit....both parties

Both conservatives and liberal strategist agree that social programs are necessary part of government but they disagree on how much of it we need. I believe we need to get these programs reformed under Toyota's lean manufacturing concepts which mandate a reduction in the 7 wastes. However, it would be counter productive as the government employees only know one thing...spend as much as you can because if you dont, you wont get it next year.

Social programs are a necessary service that should be provided by every government. Let me know how many of the following programs you believe we could do without:

Social Security
• Medicare/Medicaid
• State Children’s Health Insurance Programs (SCHIP)
• Police, Fire, and Emergency Services
• US Postal Service
• Roads and Highways
• Air Travel (regulated by the socialist FAA)
• The US Railway System
• Public Subways and Metro Systems
• Public Bus and Lightrail Systems
• Rest Areas on Highways
• Sidewalks
• All Government-Funded Local/State Projects (e.g., see Iowa 2009 federal senate appropriations)
• Public Water and Sewer Services (goodbye socialist toilet, shower, dishwasher, kitchen sink, outdoor hose!)
• Public and State Universities and Colleges
• Public Primary and Secondary Schools
• Sesame Street
• Publicly Funded Anti-Drug Use Education for Children
• Public Museums
• Libraries
• Public Parks and Beaches
• State and National Parks
• Public Zoos
• Unemployment Insurance
• Municipal Garbage and Recycling Services
• Treatment at Any Hospital or Clinic That Ever Received Funding From Local, State or Federal Government (pretty much all of them)
• Medical Services and Medications That Were Created or Derived From Any Government Grant or Research Funding (again, pretty much all of them)
• Socialist Byproducts of Government Investment Such as Duct Tape and Velcro (Nazi-NASA Inventions)
• Use of the Internets, email, and networked computers, as the DoD’s ARPANET was the basis for subsequent computer networking
• Foodstuffs, Meats, Produce and Crops That Were Grown With, Fed With, Raised With or That Contain Inputs From Crops Grown With Government Subsidies
• Clothing Made from Crops (e.g. cotton) That Were Grown With or That Contain Inputs From Government Subsidies

Nomograph says

elvis says

I’m going to settle this once and for all. FINAL ANSWER. CRA was the root cause of the meltdown.

It sounds as if you are getting frustrated because your arguments are so easily discredited. Maybe you need to pack up your toys, get out of the sandbox, and go listen to a few hundred more hours of AM talk radio

I agree, but also believe that we should try not to engage each other negatively as both parties want us to infight against each other. This is how they get your vote, divide and conquer. In this case, liberals vs. conservatives.

This is not a conservative vs liberal issue..both parties vote for the same things that Elvis is speaking of.

E-man says

I think 4X is smart and articulate. I hope he owns a home, too.

I am waiting for home prices to show a steady 6mos to 1 year of stable prices before I move to purchase. Even then, I might wait it out because I will only lose 3-5% on the home price. I think this is better than buying now and risking a loss of 25-50% in equity, then having to wait it out 10 years because I cant rent the place out at the cost of the mortgage. I dont think CRA is the cause of the bubble, it was simply all the alt-A loans (interest only, second mortgages, etc.) that were floating around that allowed families to buy homes which they could not afford. Gramm-Leach-Bliley loosened the restrictions and allowed mergers to occur.

@everyone

Conservatives want to blame CRA because in their minds our countries issues are always the result of government attempting to help the poor. Both Liberals and Conservatives were eager to sign GLB because they thought it would create a ownership society, reverse the effects of the S&L crisis of 1989. Truly the root cause of the bubble is the S&L crisis of 1989...which resulted from Reagan removing restrictions on the S&L banks in the 1980's. Bush Sr. and Clinton cleaned up that mess by enacting Gramm-Leach-Bliley.

This bubble is actually the result of another failed attempt by Republicans to remove regulations on businesses. Here is how I see our political system:

1. Republicans = corporations/war = willing to eat their young for $$, more than willing to put the American worker out on the streets, and definitely willing to engage in senseless wars

2. Democrats = social welfare = anything goes (homosexuality, abortion, etc.) as long as you vote.

I am voting for the bull moose party during the next election cycle, I cant figure out which is worse: Corporations that want to do away with the American worker or sponsored abortion.

Let me in here! All laws have negative unintended consequences. Laws aren't DESIGNED to kill jobs - but many do as a result, not as the intention. Think about this: laws in general reduce freedom. More laws, less freedom - just a thought.

I really liked E-Man's view of American politics. Thanks for your simply stated observation of Dem's, Repub's, and Gov't in genreal. You got my vote.

Ryan, its a contradiction when CRA says "meet the needs" (of neighborhoods or people with NO money and NO credit) but "do it in a safe and sound way" HaHaHa. It can't be done. Its government double talk (newspeak). The threat was the INABILITY TO EXPAND INTO OTHER PROFITABLE LINES OF BUSINESS IN THE BIGGEST BOOM IN THE LAST 75 YEARS,,, thats all. Don't even mention they made up front money for doing bad loans, so why should they care? CRA was like any other law, it had unintended consequences - like in this case - a nationwide housing meltdown.

4X YES !!! Well stated. Putting together what you said with what E-Man said means AMERICA NEEDS A THIRD PARTY. America also needs SINGLE term limits, no more career politicians.

Honest Abe,

First, it can be done. Takes a little brain power, patience, sense of community, forbearance, self control (especially when it comes to greed). It has been done. There are plenty of small to medium banks that did not involve themselves in greedy gambling and, while still feeling the pain of recession, are still safe. Guess what, they too are governed by the CRA and its Regulations. It is not rocket science here. We are not trying to build a system to produce miniature point singularities (black holes) although we are on the cusp of being able to do so. If we can fly a man to the moon, split the protons and neutrons into quarks, create drugs vaccinate against swine flu, then we CAN meet the needs of the community in a way “consistent with the safe and sound operation of such institution.”

The ability to do something and the desire to do it are two different things. Large Banking institutions could have met the requirements of the CRA to maintain "outstanding" or "satisfactory" ratings had they been planning for long term stability and steady profit over time (interest over 30 years on vetted mortgages). At the same time, they could have kept their steady income stream to hedge their risk in providing loans for low to moderate rental housing. Instead, Large Banking institutions decided to go gambling for high short term profit by making their fees on the front end of loans over and over again.

The government failed to reign in banks and regulate mortgage backed securities (which essentially shifted risk from the loaning bank to investors, which included banks). But, no one, not even the government forced Large Banking institutions to go gambling. If the CRA had not existed, banks could still place short term profit over long term viability.

Your over generalization of the consequences of a poor CRA rating shows that you have failed to actually read the law and regulations. I summarized them for you in my prior post. There is no section that says banks would not be able to expand into other profitable lines of business (whatever you mean by that). You're most likely referring to the possibility that a merger, acquisition, or opening a new deposit branch POSSIBLY COULD be denied. Couple of questions for you:
1) Is it possible for a bank to grow a profitable line of business without merger, acquisition, or opening new deposit branches?
2) You make a lot out of the Clinton era "threat" to use the CRA penalties. How many times was the CRA penalties used before Clinton took office? How about after?

Please be a little more Honest Abe.

Ryan says

Honest Abe,
First, it can be done. Takes a little brain power, patience, sense of community, forbearance, self control (especially when it comes to greed). It has been done. There are plenty of small to medium banks that did not involve themselves in greedy gambling and, while still feeling the pain of recession, are still safe. Guess what, they too are governed by the CRA and its Regulations. It is not rocket science here. We are not trying to build a system to produce miniature point singularities (black holes) although we are on the cusp of being able to do so. If we can fly a man to the moon, split the protons and neutrons into quarks, create drugs vaccinate against swine flu, then we CAN meet the needs of the community in a way “consistent with the safe and sound operation of such institution.”
The ability to do something and the desire to do it are two different things. Large Banking institutions could have met the requirements of the CRA to maintain “outstanding” or “satisfactory” ratings had they been planning for long term stability and steady profit over time (interest over 30 years on vetted mortgages). At the same time, they could have kept their steady income stream to hedge their risk in providing loans for low to moderate rental housing. Instead, Large Banking institutions decided to go gambling for high short term profit by making their fees on the front end of loans over and over again.
The government failed to reign in banks and regulate mortgage backed securities (which essentially shifted risk from the loaning bank to investors, which included banks). But, no one, not even the government forced Large Banking institutions to go gambling. If the CRA had not existed, banks could still place short term profit over long term viability.
Your over generalization of the consequences of a poor CRA rating shows that you have failed to actually read the law and regulations. I summarized them for you in my prior post. There is no section that says banks would not be able to expand into other profitable lines of business (whatever you mean by that). You’re most likely referring to the possibility that a merger, acquisition, or opening a new deposit branch POSSIBLY COULD be denied. Couple of questions for you:
1) Is it possible for a bank to grow a profitable line of business without merger, acquisition, or opening new deposit branches?
2) You make a lot out of the Clinton era “threat” to use the CRA penalties. How many times was the CRA penalties used before Clinton took office? How about after?
Please be a little more Honest Abe.

Yeah abe, everyone needs to quit trying to blame everything on poor people. **SARCASM**

Its not their fault they bought more home than they could afford. Reinvestment back into lower economic communities had nothing to do with it, it was all the crooked alt-a loans that were given out to these people and the 3.5% interest rates given out by FHA that allowed these people to get in to far. I was poor at one time when I left my parents home, but with time I worked my way out of that situation with FHA, SALLIE MAE loans. I think I used the system the right way and didnt attempt to take advantage of the programs like most do. I also have never filed unemployment, but am looking forward to the day where I will need that cushion too! When I was poor, I felt the way to get out was with a college education, and guess what....it really worked!!!!

Smile when you type your response, we are all in this together! and have the same frustrations.

Ryan...the ONLY way to get low income people into a house is to manipulate how people "qualify". For example, create a loan with nothing down, next to nothing down or better yet, 105% financing. Low income generally do not have much savings, so that will help. Next, create "liar loan qualification"...thats where the borrower is simply asked what his income is - BUT NOT VERIFIED. Low income people generally do not have 3 X's income vs. mortgage payment to qualify. Next, create "teaser rates" - artifically low "introductory interest rates" because otherwise low income people couldn't make the payments, even though they were "qualified" for the loan. By making these type of loans the banks were in compliance with CRA and were happy to do so because they made money, up front, AND because they were in compliannce with CRA they were able to move into other lines of profitable businesses which they would not otherwise been able to do. EVERYBODY WINS (so far).

Because of these types of loans, and other manipulations of the normal mortgage process, low income people could now "afford" to buy a house. Now MILLIONS of people who were otherwise unqualifed could purchase a home. The law of supply and demand caused prices to skyrocket. Borrowers in higher priced areas began to take advantage of these loans and other types of "creative financing". Now even more buyers flooded the market pushing prices even higher. People's home equity artifically grew larger and larger. Many borrowed against their homes. Some took lavish vacations, others bought rental property, many invested in commercial property. EVERYTHING LOOKS GREAT (so far).

Prices finally got so high that they began to implode upon themselves (for the very reasons Patrick says now is not a good time to buy). Teaser rates begin to expire...many begin to struggle, some begin to miss making payments. The pain continues as a flood of forclosures hit the market. EVERYTHING DOESN'T LOOK SO ROSEY ANYMORE (another failed government experiment going down in flames). As millions of forclosures hit the market, prices take a nosedive. The pain is not confined to just to low income neighborhoods and low income people. The cancer which began as CRA had spread to all types of borrowers and neighborhoods, yes, even to commercial real estate.

NOW THINGS LOOK EVEN WORSE. Middle and high priced homes drop in value and forclosures begin to show up there. People's equity declines. People don't feel as well off as before. People stop spending so freely. Business sales slow down. Businesses begain to fail. Commercial real estate is now faultering as a direct result.

OH CRAP, NOW THINGS LOOK TERRIBLE, and the worse may still be ahead for us. How did this happen? Where did this all begin? Despite all of the wonderful arguments to the contrary - common sense and following the pain backwards....... leads RIGHT BACK TO CRA. The law of cause and effect still works.

Simply put this is a result of intrusive government interference into the free market, where it had no business being in the first place. Yet another clear example of the government "trying to help", with the result being exactly the opposite. Of course the government takes NO RESPONSIBILITY for the mess they created. They point their finger, and claim "it wasn't us".....IT WAS THOSE PREDITORY LENDERS!!!!!!! HaHaHa, how pathetic.

@Abe

That's a nice story and someone who doesn't know better might believe it. The problem is that people who come to Patrick do know better.

Again--if this all started because of the CRA, then why didn't the foreclosures start in CRA neighborhoods? If it was a "cancer" that spread out of the inner cities, wouldn't there be evidence of this with the foreclosure rates?

Ryan is 100% correct in his explanation. This was a "free market" breakdown, plain and simple.

Tatupu, I disagree with you, again. People who "don't know better" are the ones who blindly buy what ever government or the politicians are selling, along with their lies (might as well call it what it is) and their shadow statistics.

The free market never breaks down. Gravity doesn't "break down", water moving downhill doesn't "break down", electricity seeking the least resistent path never "breaks down". Just as there are laws of nature, there are laws in business. Things that "progressives" choose to ignore or discredit or interfer with.

The free market becomes disabled ONLY by government interference. Willing buyer, willing seller, supply and demand, people wanting to pay the lowest possible price, free competition between businesses forcing prices down, etc. That is the free market, and those are good things for both individuals as well as for America.

When politicians and their countless failed experiments, good intentioned laws, rules and regulations finally crush and collapse enough segments of the economy, guess what happens? A recession. A recession is that period of time it takes the FREE MARKET to correct the mistakes made by the politicians.

A current example, of course, is the price of houses. Through enough government manipulation and implementation of laws, rules, and regulations, the gutting of the normal safeguards of safe lending practices, etc. eventually CAUSED the real estate boom. Its the free market that stepped in (willing buyer-willing seller.....oops - no more willing buyers, the prices are too high). The free market is now correcting the mistakes make by CRA and all the other government mandated laws that interfered with the free market and normal business practices in the first place.

What is happening now is not a breakdown of the free market. Its a clear example of the free market exerting itself, and correcting prior (government) mistakes.

There is another good site, along with Patrick.net that you might want to check out, www.dollarcollapse.com You will find points of view from many credible sources that may help in your understanding of the governments role in our economy.

@tatupu,
I am sure you posted the link before, but would you mind putting up the link to the section of the CRA that shows it to only have effect inside of certian boundries, and how it will not have effect outside of those boundries. It may be that the CRA was "intended" to only be used under specific guidlines, but instead it infected all of the lending world. Is that at all possible, tatupu?

@Abe,
I am pretty sure that the gov intervention and nanny state attitude exibited by the CRA is EXACTLY what allowed the housing market to expand so rapidly. I have no idea why liberal minded (not a put down, just an expression) people defend the CRA so agressivly. Do you?

Honest Abe says

Ryan…the ONLY way to get low income people into a house is to manipulate how people “qualify”. For example, create a loan with nothing down, next to nothing down or better yet, 105% financing. Low income generally do not have much savings, so that will help. Next, create “liar loan qualification”…thats where the borrower is simply asked what his income is - BUT NOT VERIFIED. Low income people generally do not have 3 X’s income vs. mortgage payment to qualify. Next, create “teaser rates” - artifically low “introductory interest rates” because otherwise low income people couldn’t make the payments, even though they were “qualified” for the loan. By making these type of loans the banks were in compliance with CRA and were happy to do so because they made money, up front, AND because they were in compliannce with CRA they were able to move into other lines of profitable businesses which they would not otherwise been able to do. EVERYBODY WINS (so far).

That's just not what happened. You are confusing and Prime & Subprime borrowers and banks with Subprime pseudo lenders.

The vast majority of subprime loans leading up to and during the boom were not made by banks or through FHA, they were made by companies like New Century and Saxon Mortgage. Most of those companies didn't even exist until the late 90s. They got into the game (lending) because there was huge opportunity for profit. Subprime borrowers were sold on 2 year teaser rates (and weren't really given other options) because that virtually guaranteed lenders repeat business when rates started to adjust. The teaser rate subprime loans were a big factor in driving up values in the first place; they weren't made in response to higher values, they caused higher values.
There were some "liar loans" (stated income) made to self-employed subprime borrowers. But the vast majority (non self-employed) had to fully document their income. The abuses in the Alt-A (No Doc Loans) took place among prime borrowers, not low income sub-prime borrowers.

iggyman says

There were some “liar loans” (stated income) made to self-employed subprime borrowers. But the vast majority (non self-employed) had to fully document their income. The abuses in the Alt-A (No Doc Loans) took place among prime borrowers, not low income sub-prime borrowers.

wouldn't it be great if the IRS looked at the stated incomes of those now defaulting due to fibbing on thier loan docs and jailed all those that commited fraud? Or, made them pay the income tax that matched their stated income? That would be cool!!

@BAP

Here's a good site to learn about the CRA

http://www.ffiec.gov/cra/

excerpts:

"The Community Reinvestment Act (CRA), enacted by Congress in 1977 (12 U.S.C. 2901) and implemented by Regulations 12 CFR parts 25, 228, 345, and 563e, is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate"

or http://www.ffiec.gov/cra/pdf/cra_guide.pdf

Specifically, scroll to page 16 where it talks about MSAs(metropolitan statistical areas), CMSAs, PMSAs, etc. Lots of talk about geography. They even have a computer program that will help you determine if an area is covered by the CRA it looked like.

Hope that helps.

Honest Abe,

I see your diatribe fails to answer even the first question posed. You are hung up on "other profitable lines of business." A phrase that no one but you can put any meaning to since it is not in the CRA or its regulations. But, let me help you try to think about it. Can a bank begin to buy and sell mortgage backed securities (presumably a new line of profitable business) without opening up even one new deposit taking branch, without acquiring even one company, or merging with another bank? Hint: The answer is yes. It takes shifting existing resources from less profitable lines of business and beginning a new line of business. Sure it is not as quick to show paper profits as merging or acquiring, but it can be done and, it can be done while ignoring the rating under CRA. If you would like to explain what you mean by other lines of profitable business, I'll be more than happy to tell you if it can be done without worrying about the CRA rating. Of course, you may think being ubiquitous and vague works to prove your point. It doesn't, but I certainly don't begrudge people wanting to live in LaLa Land holding hands, singing Kumbaya and drinking Coca Cola.

Your first paragraph actually touches on the root of the problem. It was THE BANKS CREATING no-doc loans and sub-prime loans. The CRA did not require them to create these loans. CRA did allow them to be used in the government's evaluation and ranking, but then again Large Banks could use just about anything to influence the evaluation and ranking, including using credit loans that had absolutely squat to do with housing (rental or purchased). Again, try reading the law and it's regulations, they are available to the public. This brings us to the next point. Your continued focus on housing purchases shows that you simply do not want to acknowledge that banks, in providing for the credit needs of the low and moderate income did not have to make loans directly to the low and moderate income households. They could have made loans to big apartment complex investors so long as the housing included low to moderate income families. But, again greed, big bank greed, dictated there was more short term profit to be made in fees on loans directly to low and moderate households, especially when they could turn around and sell the mortgage to investors as an MBS.

But, the banking failure was not in making loans to low/moderate income households. It was in how they off set risk. Instead of off setting risk by balancing their portfolio of risky loans and less risk loans (prime), they transferred risk to investors. Realizing they could make even more in profits, they kept doing it.

Banks did not have to create this short sighted profit model. In fact, up until banks could simply dump their risk on to investors, they had every reason not to do this. And, this greed, which admittedly the government left unchecked, Honest Abe is the cause.

Oh yeah, free markets (as you know them) do not exist without government. There was a movie out a few years ago that came fairly close to capturing a snapshot of a free market. It was called Pirates of the Caribbean. The pirates, not the colonial government. Good luck to you if you think you can survive (and I mean not get killed) in a free market where there is no government. I'm a fairly good shot with .30-6 (30 yat 6), a bow, and even trained in Kendo and I wouldn't want to try to raise a family in a free market with no government intervention.

@Ryan,
what was the change that allowed/made banks lower borrower qualifications, in your opinion? And why did that change happen? Thanks.

@ bap

I know you asked Ryan, but I'll put in my two cents. Once mortgages were bundled into securities, then the craziness began. And greed took over

tatupu70 says

@ bap
I know you asked Ryan, but I’ll put in my two cents. Once mortgages were bundled into securities, then the craziness began. And greed took over

Precisely. As Ryan points out, securitization allowed lenders to transfer risk to investors, and get paid for it. This changed their fundamental incentive from making loans that would actually get paid back, to making as many loans as possible to sell to gullible investors.

The lenders knew how crappy the loans were, but the investors thought they were buying AAA rated securities.

iggyman says

The lenders knew how crappy the loans were, but the investors thought they were buying AAA rated securities.

This is the only thing I question because so many of the banks had so many bad loans on their books too. Was it just a timing issue that they couldn't unload them before the shoe dropped? Or did bankers also get swept up into the frenzy?

@ tatupu70
I think it was both, but mostly timing. When the music stopped lenders were stuck holding a bunch of bad loans. Remember how suddenly things came screeching to a halt. In Feb 07 New Century - then the biggest of the sub prime lenders - went under. From there it was a domino effect. Investors started to look more closely at the mortgage backed securities and realized they had absolutely no idea what it was they bought. They literally did not understand the business they had bought in to.

They caught cautious (smart) in a hurry, and lenders no longer had anyone to unload their paper to. By the end of 07, nearly all of the sub prime lenders were gone (hundreds of them) and the Alt A guys weren't far behind.

@tatupu,
I clicked, and I read. I also read your point about bundles. So far though, you have not pointed to something and said, "THIS right here is what allowed the loan makers to increase exposure of depositors without fear of legal action for reckless lending." You see, in my little mind, I can't help but see the connection between the gov (I say "forcing", you say "allowing") banks to expose depositor's funds to be handed out to less-than-qualified home debtors and the explosion in the number of how-much-a-month buyers .... and other bubble causers.

Tatupu (and anyone else who would like to) please, finish this sentence: The Bank's commonly expected loan standards were reduced from 20% down and 30% DTI ratio in the approx year (1)________ by way of (2) ______________ and this (allowed, incouraged, resulted in) more bad loans to be made. Before (2's answer) had happened, the banks did not give out bad loans because (3)__________________.

Please tatupu (and everyone else who wants), I would like your opinion by filling in the blanks of that plain, simple, sentence. Numbered 1,2,3. Thanks.

@ Bap33
First, many lenders, especially sub-prime lenders, were not banks. They didn't have depositors, only borrowers and investors. Second, there isn't really a single, easy answer. Part of it was 'financial engineering'. FANNIE & FREDDIE in particular started to rely on computerized underwriting and statistical modeling of risk instead of commonsense, tried and true underwriting practices. Investors were sold on 'collateralized debt obligations', another innovation by the financial engineers who thought they could make 2+2 equal 6, then 10, then whatever they wanted it to. People bought into it because they didn't want to admit they had no idea what the brilliant young Harvard (or Yale, or whatever) grads were talking about. But to answer your question in general terms:

1) 1998ish
2) secuitization and the ability to pass risk down the line
3) They didn't have the ability to pass risk along. They made their profit from interest earned from loans that they made. If the loans didn't get paid, they lost money.

@BAP--

It's not the government's job to check on bank's loans to make sure that they good. Banks are a private business and can be run however they like--within certain basic rules such as reserve requirement, etc. If a bank wants to make a reckless loan, then it is their perogative. Obviously the bank owners would prefer this not happen as they will stand to lose all of their investment.

I'm surprised you can't follow the scenario--Mortgages were securitized and sold to investors. This created huge demand. The lending standards were slowly eroded to try and meet the demand. It wasn't like there was a memo put out by all banks saying from this day forward lending standards are reduced. It happened over a period of time. As the crappy loans were bundled and able to be sold, more were made and lending standards were further reduced. etc, etc.

To answer your questions--1. probably standards kept getting looser from 2002 - 2006 ish. No data to back that up, just my guess. 2. securitization of mortgages 3. they couldn't sell them to investors.

I see your point. And Iggyman's differentiating banks and lenders is helpful too. And the date's can be argued, but they are pretty close ... I guessed about '98 something had to change in the loan creation world. So, the walstreet outlet removed the risk for returns based on re-paid loans to a "futures" based return based on walstreet style / junk bond games? I see what you are saying. But the ability to remove risk went father than just off the bank/loan creators backs to investors. B. Frank let the banks/lenders know that Fanny (ran by his lover at the time) would back everything they were writing in subprime loans, and this moved the risk unto taxpayers, leaving investors sitting pretty. Right?

Well, I have no problem with your position. I can easily say that CRA did not do the function it was intended to do, and thereby avoided being the catalyst for the bubble that it would have been, had it been more effective. But, I still have it in my hard head that gov fingers in the pie were hooked to left-hands, not right-hands, when it came to manipulating loan qualification guidlines. I agree, right-hand fingers went hunting the easy money too, but the first finger was on a left hand. lol. Does that make sense?

@ elvis

Actually, I said that most sub-prime borrowers were qualified with full income documentation. I didn't say anything at all about CRA. I will say this though, if you had asked 10 CEOs of the biggest sub-prime lenders in 2005 what they thought about CRA, 8 of them would have told you they had no idea what CRA was.

They lent to sub prime borrowers because there was profit in it. They used 2 year teaser rates because it increased their profit. They knew that after the two year teaser period was up, most borrowers would have to refi into another sub-prime loan. Lenders had borrowers on a tread mill, and they liked it that way. CRA had nothing to do with it.

@elvis--

That's the point. CRA loans weren't nothing down and artificially low teaser rates. Those loans were made primarily on new construction in wealthier areas.

elvis says

With CRA, banks were lending to people who normally would be rejected as poor credit risks.

Really--do you have any evidence to back that up? Because that's not what I've read.

elvis says

I heard today that blacks and latino’s were three times more likely to loose their homes. These are specifically the people that the government wanted to help (by creating the CRA).

You heard wrong.

elvis says

What will you say when one of them asks you “Grampa, did you try to stop the financial burden from falling on us?” “What did you do to help?”

I'll say I voted for the candidate who promised to stop the war in Iraq. And cut out the waste in the military industrial complex.

I think a huge factor is being missed here; and that is that the lenders and all involved thought their liberal underwriting, appraisals, etc. would be covered by a continuing appreciation in housing. Loans that were marginal would have equity infused IF properties continued to appreciate. Also, Fannie and Freddie KNEW the Federal Gov't would bail them out if things turned sour, and guess what? .... they did. Fannie & Freddie were processing an unbelievable 85% of all loans bundled and sold on the secondary market. The whole bubble burst when the appreciation ended and exposed the entire system for what it was, a system being fueled by hope and air. I still contend that Obama, et all are doing the very thing they shouldn't do, which is pumping more air into the bubble (via tax credits) which will only bring another huge phase of collapsing prices along with more foreclosures.

They don't see it that way. They see themselves as pilots gliding a dead aircraft down, and if they are clever about it the plane will land in the water without breaking up and everyone will get off. Seriously I think that's how they think. There's a large helping of "we are just doing this to make things stable for now, later we will FIX the system." Of course we will NEVER get around to fixing it, because the broken parts benefit people who don't want it fixed.