patrick.net

Loans to players owning multiple properties at the margins are what made, shall we say, an overheated market totally irrational. I'm willing to bet most of this mess could have been eliminated if there had not been a lot of "this will be my primary residence" fraud.

EBGuy says

I’m willing to bet most of this mess could have been eliminated if there had not been a lot of “this will be my primary residence” fraud.

It's possible. That would have at least made amateur investors' cost of capital higher. The problem is that if you look at contemporary accounts, the amateur investors didn't really care about cost of capital or potential returns -- they were focused on appreciation. A good example is the FatWallet thread I referenced on Patnet recently:

http://patrick.net/?p=816472

Acorn sued Citibank in Chicago (Obama was one of the lawyers) for not loaning enough to the poor. “Racism” was the typical charge. Citi settled and agreed to loan to anyone who could hold a pen.

Why did ACORN win? The Boston Fed published reports that there was discrimination in the MA housing market back in the early 90s. The data was flawed. The study was a crock.

It did not matter. The Fed published it. The banks know they cannot win a war against the Fed. They kneel and concede.

I do not consider the Fed to be the government. It's a private institution. Ergo, that is why I do not agree with a statement that "the government mandated that banks made bad loans". Banks dare not cross their liquidity golden parachute.

Like the CRA argument: It only makes sense if you think that redlining was a practice we should have kept, or that racial segregation was better for society, in a separate but equal kind of way.

This is the big problem with this whole topic. The presumption is that redlining WAS racial. The data does not prove that it was racial.

The data proves that bankers are still the same. They won't make moves their lender of last resort doesn't condone.

wtfcapinv says

This is the big problem with this whole topic. The presumption is that redlining WAS racial. The data does not prove that it was racial.

Do you have that data?

They deregulated the industry to a point where fraud was acceptable, in fact they encouraged it.

Teetering industries like banking or insurance have only one leg of support - get swallowed by a bigger fish. That rule hasn't changed since the 16th century.

Fraud was not encouraged. Risk taking was encouraged so long as their were still methods to roll the risk taking into further securitization.

tatupu70 says

wtfcapinv says

This is the big problem with this whole topic. The presumption is that redlining WAS racial. The data does not prove that it was racial.

Do you have that data?

http://www.becker-posner-blog.com/2011/06/capture-of-regulators-by-fannie-mae-and-freddie-mac-becker.html

There was no mandate to make out bad loans...at least from the government. But...
let's say a bad loan is made out..foreclosure and now the bank owns a house that it wouldn't have otherwise. It now bought a free house. Now in a market that goes up of course you can throw caution into the wind and lend money out because if they default you have something going up in value.

Now you don't..now the backlog can take years to sort out..now there's 19 million empty homes in the country.

There was a long article I remember reading that actually tried to link the dot com crash with housing. Basically that various firms wanted something solid to put their money in. That coupled with the whole cocoon effect after 9/11 aimed it right at housing.

There was a long article I remember reading that actually tried to link the dot com crash with housing. Basically that various firms wanted something solid to put their money in. That coupled with the whole cocoon effect after 9/11 aimed it right at housing.

You don't need an article. Here's the short short version. Or the Mel Brooks version.

Labor Bubble 1: Financial Deregulation, risk taking, credit expansion - 10 million jobs created

Labor Bubble 2: dot com, credit expansion with stock options, underwriting, IPOs, etc - 8 million jobs created

Labor Bubble 3: Construction, real estate speculation due to easy money credit expansion from the Fed depressing the US Dollar to expand export markets for US goods and services - 12 million jobs created

Labor Bubble 4: To be determined. Most likely profession will be health care services with labor supply controlled by government mandates in health policy with the passing of the PPACA.

The genesis of the great big bubble blowing machine is the addition of the Fed's 2nd mandate to achieve full employment by which they gave up secrecy and accepted congressional oversight.

wtfcapinv says

tatupu70 says

wtfcapinv says

This is the big problem with this whole topic. The presumption is that redlining WAS racial. The data does not prove that it was racial.

Do you have that data?

http://www.becker-posner-blog.com/2011/06/capture-of-regulators-by-fannie-mae-and-freddie-mac-becker.html

Just for future reference--an opinion piece on a blog does NOT qualify as data.

I'm looking for the actual data showing racial background by neighborhood with acceptance/refusal, credit score, loan to income ratios, etc. That is data.

https://litigation-essentials.lexisnexis.com/webcd/app?action=DocumentDisplay&crawlid=1&doctype=cite&docid=44+Syracuse+L.+Rev.+1197&srctype=smi&srcid=3B15&key=aadede1ea2c2bd110920d026b77ae950

Pay.

wtfcapinv says

https://litigation-essentials.lexisnexis.com/webcd/app?action=DocumentDisplay&crawlid=1&doctype=cite&docid=44+Syracuse+L.+Rev.+1197&srctype=smi&srcid=3B15&key=aadede1ea2c2bd110920d026b77ae950
Pay.

That article is 18 years old. Not sure how any data in that article could possibly relate to the CRA or recent housing bubble.

That article is 18 years old. Not sure how any data in that article could possibly relate to the CRA or recent housing bubble.

Do you remember your original question?

Because your statement is a strong indicator that you don't.

wtfcapinv says

That article is 18 years old. Not sure how any data in that article could possibly relate to the CRA or recent housing bubble.

Do you remember your original question?
Because your statement is a strong indicator that you don’t.

I asked if you had data to back your statment saying redlining wasn't racially motivated. The topic was the CRA, so I expected that the data was somewhat relevant, but perhaps I assumed too much.

I didn't say anything about CRA. I said the argument that loans were not being extended to borrowers based on racial criteria is not sound. There is no data to support it that is not rigged for a predetermined conclusion.

I linked you to the Posner blog for the free analysis. I linked you to "18 year old" data for the thorough analysis.

wtf--

Here's another take on the data.

http://archives.hud.gov/news/1999/newsconf/stage3.html

There is definitely data to support redlining. You may not agree with all of the interpretations, but the data is there.

tatupu70 says

I asked if you had data to back your statment saying redlining wasn’t racially motivated.

It seems Andrew Cuomo felt that way back in 1998 and slapped billions of fines on banks. Pick your poison fines using affermative action or defualting loans prejected into the future. See 3:00

"sub prime loans were a good idea" See 6:30

http://www.youtube.com/watch?v=ivmL-lXNy64

thomas.wong1986 says

tatupu70 says

I asked if you had data to back your statment saying redlining wasn’t racially motivated.

It seems Andrew Cuomo felt that way back in 1998 and slapped billions of fines on banks. Pick your poison fines using affermative action or defualting loans prejected into the future. See 3:00
“sub prime loans were a good idea” See 6:30
http://www.youtube.com/watch?v=ivmL-lXNy64

I think you are making some faulty assumptions. Redlining is completely different than subprime.

okie dokie! For andy cuomo its all the same...

thomas.wong1986 says

okie dokie! For andy cuomo its all the same…

That video cracks me up. Does whoever put that together realize that the loans made under CRA or "government mandated" loans failed at a lower percentage than those not under the CRA?

I know you like to give innuendo and "connect the dots" references, but that is the bottom line.

tatupu70 says

Does whoever put that together realize that the loans made under CRA or “government mandated” loans failed at a lower percentage than those not under the CRA?

Yeah, that's why people making the assertion are clueless. The CRA loans perform better because they had underwriting standards! The private non-agency loans didn't have underwriting standards.

The government-mandated loans were also government-guaranteed, weren't they? In that case, why would the banks suffer? The banks suffered because they made the loans on their own account.

"The banks frankly own the place" --Dick Durbin

It's really a question of power. Who holds the strings in this puppet show?

Does anyone here really think that Congress can powerfully mandate that the banks lend to the poor despite established lending criteria? And that the banking lobby wouldn't respond in kind by flooding the congress with their filthy lucre? Who evokes change on the Hill?

The banks write the laws, and they write them in their favor. Unless you believe that the downtrodden in America really have representatives, that those representatives are not simply paying lip-service to that constituency, and that these representatives are the most powerful members of congress, and that their numbers are large enough to even get a simple majority, much less a supermajority.

"The banks frankly own the place" They do. Witness the CPFB and Warren. Tell me how easy it is to get legislation passed that would force the banks to do what they believe to not be in their self-interest.

Piffle.