I've gotten a flurry of emails and have engaged in pretty much the same debate, with conservatives, over the last week or so regarding the current financial crisis. There have also been a few posts in comments that were of the same general theme so I thought I would bring this out front to really chew on it.
The basic conservative line is that our current financial crisis was caused by the Community Reinvestment Act of 1977 and by government quotas, place on Fannie Mae and Freddie Mac, to give loans to low income customers. Essentially, it's the fault of government, affirmative action, and poor people. All the people on Wall Street and the corporations in America were innocent and victims of "gubmint."
This is a complete load of shit.
The CRA was signed into law in 1977. How would a law 30 years old cause lending problems now? Yes, Clinton changed the law but that activity that resulted from those changes came to an end in 2001. The real thing they fail to see is that the CRA only applies to banks and thrifts. It's stated in the law.
The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as redlining. The purpose of the CRA is to provide credit, including home ownership opportunities to under served populations and commercial loans to small businesses.
The vast majority of the sub prime loans in the last 8 years did not originate from banks or thrifts. Half of them came from places beyond the reach of CRA. Another quarter came from subsidiaries. The final quarter of sub prime loans came from CRA and that kind of debt just doesn't seem to be enough to drive our economy off the cliff.
In regards to Fannie and Freddie, Freddie Mac Chairman and CEO Richard Syron recently said that the GSEs have been hit by a "100-year storm" in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets.
From Barrons.com
The latter contention is more than disingenuous. A substantial portion of Fannie's and Freddie's credit losses comes from $337 billion and $237 billion, respectively, of Alt-A mortgages that the agencies imprudently bought or guaranteed in recent years to boost their market share. These are mortgages for which little or no attempt was made to verify the borrowers' income or net worth. The principal balances were much higher than those of mortgages typically made to low-income borrowers. In short, Alt-A mortgages were a hallmark of real-estate speculation in the ex-urbs of Las Vegas or Los Angeles, not predatory lending to low-income folks in the inner cities.
Couple this with the fact that Rick Davies, McCain's campaign manager, was paid 30K a month by Fannie and Freddie , for five years, to remove government restrictions. Now either he did a terrible job (possible) or they are lying because they don't want everyone to know how much they fucked up (probable).
Bottom line? The government fell asleep on this one, winked and did nothing, or was completely incompetent at enforcing even the most basic of oversight. It was probably all three.
The information that I have listed above is completely ignored by the right and, hilariously, once again we see the "anti victim" culture behaving like victims. It's always someone else's fault...never the fault of any of their beliefs or actions because, of course, they are perfect and you are not allowed to question them nor is there any need for reflection.
Does anyone out there think it is possible to look at the actual causes of this crisis?
16 comments:
Until the right begins to own up to its responsibility in all of this, no, mark, we won't. And by owning up I don't mean admitting the President Bush spent too much or that the Republicans in Congress acted like Democrats. I mean a hard look at where the fundamentals of conservatism are flawed.
vheights are you ever going to add anything to a discussion on here?
Steve
You are quite right that Davies was a lobbyist for Fannie and Freddie. This does not disprove, however, the fact that republicans three times proposed legislation to bring Fannie Mae and Freddie Mac back to compliance with normal lending practices. The GSE's were allowed and encouraged to give out
loans without properly looking into the financial backgrounds and credit ratings of the applicants. The reason given by Barney Frank, Maxine Waters, Gregory Meeks, Lacy Clay, and Artur Davis (all democrats) for the lack of
sound lending practices is that it promotes minority home ownership.
If someone speaks out against giving loans to people merely because they are consuming oxygen (the democrat term for this is "affirmative action") they
are labeled a racist. I was labeled a racist by "liberals" at Metro State College for being against affirmative action back in 1995. The real question is, "Why do Americans vote for democrats who see every event in life through
the prism of race, class, and gender?"
Fly, the Democrats were no doubt part of the problem. But, again, I submit that it was not low income lendees that were the problem.
Check the barrons link I posted out front and look at the numbers yourself.
How soon we forget. The right is again trying to rewrite history again. Here's what's happened:
In the last couple of years, when the media finally admitted the real estate bubble was getting out of control, there were many stories in the news about people buying four and five houses with no money down. There were numerous incidents reported where unscrupulous loan officers would shop for buyers and get them to buy several houses with the intention of flipping them.
The subsequent resale of many of these bundled loans is what caused the collapse.
At that same time interest rates had been pushed to historically low values. You could get a mortgage for a few percent. It was nuts.
Now, when the speculators got involved the price of houses went way up, in much the same way that oil prices spiked this last summer. Middle-income people who owned a house thought that was great. "Now I can refinance and get a home equity loan," many people said. Poorer people also thought they should get into the act.
The lenders, not satisfied with the profits on regular loans, started making no-money down loans with adjustable rates that became usurious within a couple of years. But they would bundle and resell those loans long before those loans started failing. They made out like bandits.
The institutions that bought those bad loans are now failing. They were defrauded by the original lenders, and the federal regulators were completely ignoring the problem. Three years ago flipping was an obvious tactic, and the regulators should have know that such an environment is extremely conducive to fraud. If the profits are too good to be true, they aren't.
Those bad lenders were committing fraud and usury -- no law made them do it. The law required them to treat borrowers equally, not stick them with loans they can never pay back.
Now the Republicans are trying to duck the blame again. And, just like during the Reagan years, they're trying to blame "welfare queens" again. This is all really just racism at its heart, because "unqualified borrowers" is another code word for blacks, Hispanics and other undesirables.
I would wager that the same people who were selling the anti-immigrant hysteria a few months ago are now pushing this line of bull. Why? Well, John McCain was their arch-enemy, a traitor to the cause because he supported amnesty for illegal immigrants. And, damn him, he won the Republican nomination anyway! So, now they've got to find some way to play the race card yet again. And this is the best they've got. That and the lie that Obama is a Muslim.
Seriously, blk, I love you and want to have you children...many children so the earth can be filled with more people who can smell bullshit from a mile away.
In order to "stick" someone with a loan, how many documents must the welfare queen or unscrupulous house-flipper review & sign?
I wonder if the person STICKING people with bad loans was black? Would that still be racism blk??
The racism is blaming the victims -- the "unqualified borrowers" who are understood to be black or Hispanic -- as the scapegoats for the fraudulent actions of unscrupulous lenders and the regulators who stood by.
This problem has its roots in the actions of real estate flippers and their enablers -- the lenders and the regulators who blithely ignored all the signs of an overheated real estate market.
To wit: during this debacle "negative amortization" loans had become common. In these loans the principle becomes larger, not smaller. You can never pay this loan off with your monthly payment (and many such loans had onerous penalties for refinancing). Such home loans should be illegal, and the regulators are totally to blame for allowing this to happen.
Don't get me wrong -- many of the victims of these bad loans aren't totally innocent. Like most victims of a con game, they knew they were in a gray area. But a lot of people with good intentions who thought their income would increase, or their property values would continue to skyrocket, got screwed when the bubble burst.
But that's why we have the FBI, the FDIC, and the SEC. They're supposed to be on the watch for these scams.
All the signs that the real estate bubble would end badly have been evident for three years, and the Bush administration either looked the other away or just plain screwed up.
The reason this is important now is that John McCain has exactly the same kind of laissez-faire attitude about regulation that George Bush does. Remember, this same kind of thing happened in year 7 of the Reagan administration (the 777-point drop in the stock market this week was the largest since 1987, when Reagan's chickens came home to roost).
M et al, would you please try to remember that Fannie and Freddie are both govt sponsored entities (as mentioned in the Barron's article you quote from), not corporations (in the common sense). When you say there was a loosening of govt oversight - it was govt oversight of what is essentially a govt operation. Please stop saying that is some kind of example of the free market. It just isn't and it is incredibly stupid to say it is - repeatedly.
The racism is blaming the victims
So, is it racism or just classism to blame someone of your own ethnicity for being part of the problem?
I don't blame the low-income folks near as much as the get-rich-quick morons flipping houses, and many of them were [upper] middle class. They, and the idiots that lent to them should pay, and pay dearly. I should not.
Yawn…tired of finance. Arrest those who broke the law, help those who were legitimately cheated and let ‘em foreclose on those too stupid to know any better. “The world needs ditch diggers too.” – Judge Smails.
A big debate tonight w/ lots of side stories. Will Gwen Ifill prove to be an unbiased moderator despite her obvious leanings (ie her new book on Obama). Can Sarah Palin learn how to use a period and just complete a sentence before the bell rings. And at what point will Joe Biden inevitably put his foot in his mouth. It should have more interest than the lead ticket debates.
Dave’s Quote Of The Day:
Senator Biden, being interviewed by Katie Couric, "When the stock market crashed, Franklin D. Roosevelt got on the television and didn't just talk about the, you know, the princes of greed. He said, 'Look, here's what happened.'" - Senator Biden, 9/22/08
For those anal about little things like accuracy...Biden not only named the wrong president during the 1929 stock market crash (the correct answer would be Herbert Hoover), but claimed the incorrect president was on television before Americans even had televisions.
What? No follow up question from Katie?
http://www.cbsnews.com/stories/2008/09/22/eveningnews/main4470063.shtml
"vheights are you ever going to add anything to a discussion on here?"
Steve
Well, Steve, it seems that your sole contributions are the same kind of snotty and mean comments we have come to expect from the rest of the right-wing mouthpieces.
When are YOU going to add anything even remotely resembling a thoughtful and considerate comment?
Dan, for every sw I'll spot you a torch, eddie, downtown, truthgirl and a vheights.
You know why I (and many other conservatives) think the way we do? Because our judgment is informed by our principles. An ideology is simply a way of understanding how the world works. If it assumes earthly perfection, ignores contradictory data, and amounts to an article of faith rather than a set of empirical insights, such an ideology could indeed become a barrier to understanding and necessary action. But the market principles I subscribe to aren't abstract theory or religious dogma. They are based on decades of modern empirical research, hundreds of years of political practice, and thousands of years of human experience as well as the bitter experience had by many of a government controlled economy (example – the Soviet Union...remember them?). While communism "reads" nice, it forgets that people matter, and without some reason to work hard and become successful, you need a large police force to keep the people under control. If you have no chance, you have no care. The european economy is in worse shape than ours due to lack of high tech industry, weakening exports, liquidating hedge funds, a higher combined debt than the US, the rich nations tired of pumping money into the poor ones and the huge bureaucracy in decision making. Anyone here care to pin Europes problems on conservatism? Didn’t think so. Britain has their own housing bubble, a credit crisis, increased energy costs and out of this world fuel prices and that all came to be under the far left Labour party (which recently got voted out of office), not conservatism.
There are good reasons to doubt what Wall Street types and Fannie/Freddie apologists are saying about the crisis because they have strong incentives to spin us and avert our eyes from their own screw-ups.
Investors will respond rationally to the prospect of higher future returns on capital. They further understand that government bureaucrats are highly unlikely to possess superior understanding of and make better decisions about how to manage the nation's stock of mortgages and its banking and financial firms. I support this hiccup but this conservative realizes that one should rarely ever abandon his principles in a time of crisis. He should employ them. That's what makes them principles, not fashions.
Let’s see, what has gone on recently. The bill failed in the House on Monday and the sky didn't fall. Glad the bailout passed last night in the Senate though. Again, we have a liquidity crisis (many banks don’t have money) so if we bring back the liquidity then we really help ourselves out of this mess. Mortgage-backed securities of dubious value have spread so widely through the financial system that they have become a drag on credit generally. We are experiencing a liquidity crisis in which banks find it increasingly difficult to borrow from one another and credit generally is drying up. This is a world-wide phenomenon, not limited to the U.S. While it would be nice if all this was confined to a few select Wall Street bad apples, the reality is ordinary people will be hurt very badly as their investments deteriorate and the economic environment turns even more negative. Unemployment will likely spike sharply because the lack of available credit from banks will impair many small businesses that rely on credit lines to finance their operations. No doubt there were plenty of flaws in the house and senate bill but the consequences of not passing it, or something like it, are going to be far reaching. Clinging to the "small government" mantra I spoke about in my first paragraph as things collapse around us will probably not resonate well with the markets.
Has anyone else noticed that nobody is explaining this plan to the American people in English? Most of what we are hearing is Wall Street/Goldman Sachs gibberish. Here's what this plan is about: Keeping people in their homes. It is not about "liquidity." How about getting loans to send your kids to college, not "a freezing up of the credit markets." How about being able to buy a new car with a car loan instead of pontificating on freeing up of commercial paper. How about making sure unemployment does not skyrocket to 20% or 30% instead of talking about freeing up capital. They are all about trying to explain how illiquid assets could be valued. They are not about trying to explain how if you ever want to have a shot of getting cash next time to go to an ATM this thing better pass.
I’ve noticed some things from reading what the lefties on here type - there seems to be this persistent belief that "regulation" is this monolithic concept that you're either for or against. The idea that there are good regulations and bad ones hasn’t yet entered into the equation with y'all yet.
Anyone else notice that the biggest bank failure in the history of the United States happened last Thursday night and by Friday morning, it was business as usual. The only difference was the name on the door and the losses suffered by those unfortunate enough to invest in Washington Mutual bonds or stock. The taxpayers didn’t lose anything and depositors didn’t lose anything, only investors. That is how capitalism works in case everyone has forgotten. Anyone remember "When EF Hutton talks, people listen"? EF Hutton doesn’t exist anymore. Firms go under all the time, it’s nothing new.
The idea that politicians can assess risks better than people who've spent their whole careers doing so is so obviously absurd that no one should take it seriously. But the magic words "affordable housing" and the ugly word "redlining" led to politicians directing where loans and investments should go. Bad idea. You can all talk about lenders all you want but Fannie and Freddie are the elephants in your room because they are pretty much the epicenter of what happened. They bought trillions of dollars of mortgages and spread them throughout the system. They removed the Risk portion of the process.
You can talk about lobbyists all you want but look at which members of Congress were being paid the most by Fannie and Freddie to look the other way. People often agree on what's "true" and what's "working" despite overwhelming evidence to the contrary, and we're getting overwhelming evidence to the contrary these days. Will it change anything? Probably not. There's too much invested in the old way for things to change. Like Chuck Woodsy has said, civilizations have to fall or come very close before anyone wakes up, and that often takes hundreds of years. We're in for a fun ride no doubt.
So last week we had lunch with a law firm we are going to be doing some business with. One of the people in attendance was a family law attorney until recently. She said divorces are up and the one thing that is the most striking is that people no longer fight about who keeps the house but who is going to get stuck with the house. Most people have refied and either taken all the equity out of their homes OR have a second mortgage on the house so there was no equity left even before the house depreciated. All that being said, no one forced people to sign on the dotted line. She said credit card debt of anywhere from 25K to 60K as well as houses that are valued at about 300K and no equity left in the house because they took it out to pay for 2 luxury cars per family is all the norm. Also, these are not people in their late 40's and 50's but most are in their middle to late 30's, and some may be pushing early 40's. Many can't get out of their homes now because to sell the house they would have to pay 7% to a real estate agent and 3% for closing meaning they would have to bring 30K to the table to close...and they have no equity in the house and of course have no savings. So they let the house slip into foreclosure and live there rent free for 6 months while the bank takes over. Credit cards sue and get a judgment but they can only garnish a small amount of the paycheck and with no real estate to lien they lose lots of money that people like me pay for eventually.
When did the american dream became so expensive for people? What happened to a reasonable home, working car, furniture that was useful and spending wisely? Owning a home is a priviledge and not a right. When I bought my house there was something referred to as a 'debt ratio' which I took into account. Obviously those days are gone. In reality, the American dream is now just a prison but most people don't know they are trapped because everything around them is decorated so nicely. When you are looking for responsibility, the American citizenry has to look in the mirror and realize they are at fault. I am a proud capitalist; however, I now believe capitalism only really works where you have an enlightened society who know how to handle money and who don’t make financial decisions based on emotion.
People with "good intentions" blk? Haha, very fitting.
Once again, bringing it heavy:)
I won't agree with every last point l-in-l made, but if that didn't make you think, well, hell, probably nothing will.
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