Absolving the Community Reinvestment Act of responsibility has now entered into the liberal phraseology playbook of "everyone knows", "the debate is over", "thoroughly debunked", "poor souls who still believe it caused everything", on and on and soon we'll be hearing about the republican "deniers". Over at Barry Ritholtz' blog, he uses pretty much the whole playbook in telling us how he has "already" debunked the whole thing. Of course, in reality, he has debunked <b>nothing</b>. http://www.ritholtz.com/blog/2009/06/cra-thought-experiment/ He lends his (il)logic to the argument by informing all that if the CRA was responsible, then the banks that made them would have had far more serious problems than others who didn't. Makes sense, eh? <u>Not so much</U>. As John Carney points out, exonerating the CRA, <b>doesn't stand up to evidence</b>. http://www.businessinsider.com/why-i-changed-my-mind-on-the-community-reinvestment-act-2009-6 " Regulators charged with enforcing the CRA's required banks to adopt many of the loan practices that turned out to be toxic. Everything from 100 percent loan-to-value ratios to no down payment loans were part of the package that banks used to satisfy the demand of regulators. Could the banks have used other lending methods to meet CRA requirements? Perhaps. But no one can say for sure that these would have made regulators happy or have produced enough loans to low-income and minority borrowers. What worked was what the banks actually did, and so they kept doing it. The lax lending standards were a proven method of satisfying regulators, and they were fully approved by regulators. More than approved. The regulators lavishly praised banks that adopted these innovative lending strategies. The Federal Reserve Bank of Minnesota attempted to absolve the CRA by claiming that only a small percentage of subprime loans were related to the act. But <u><i>this is just academic hooey</i></u>. In reality, once banks lowered lending standards to attract CRA borrowers, they found that they had to lower lending standards across the board. It simply wasn't possible or legal (thanks to anti-discrimination laws) to offer the lax standard loans only to the targeted borrowers. In short, if a bank wanted to raise the number of CRA loans, it had to lower standards across the board. <b>The broader subprime market was basically a creation of the CRA</b>. The way the CRA was enforced guaranteed that the bad lending practicies would spread like wildfire across the country. Banks that were found to be in compliance with the CRA were granted permission to acquire other banks. Banks that were not in compliance could not make acquisitions, which often meant they couldn't grow at all. The only known method of compliance was lax lending standards. This means that banks that lowered their lending standards grew through acquisitions, while banks that kept their standards high got acquired or stayed small. This process went on for years, creating a kind of perverted financial Darwinism. It was survival of the lax-ist. The same dynamic operated on the levels of individuals. If you were a skeptic about the lax lending practices, you would find that you couldn't get a job at the bigger banks or lenders. Your career potential was limited. If you were an enthusiast for lax lending, you could move from Countrywide to Shawmut Bank to Fleet Financial to Bank of America. The entire system was rigged to reward those who truly believed there was little risk in making mortgages that required scarce income information and no money down. When market processes began to counter-act this regulatory Darwinism, the politicians stepped in to keep it going. The basic check on regulatory Darwinism was the riskiness of the loans, many of which couldn't be securitized because Fannie and Freddie wouldn't touch them. But once the proper political pressure was brought to bear, Fannie lowered its own standards and we got securitized subprime. Now banks could meet their CRA obligations while passing off much of the risk to others. These days I'm a bit embarrassed for people continue to deny the CRA encouraged crappy lending practices. The evidence is unequivocal." So go ahead and deny the obvious, in the face of all evidence, that the CRA and the people who pushed it, don't bear the blame. You probably believe in man made global warming, too.
Plus, Global Warming also cause the credit crisis. Higher temps made people run expensive air conditioning longer until they could not afford their mortgage payment. It's no coincidence that two of the biggest housing bubbles were in California and Florida. Also, torture at Gitmo was a major factor.
you neglected to answer the questions he posed that should have happened if cra were the cause. not surprising. Iâve already spilled too many pixels debunking Phil Grammâs attempt to shift blame from his radical deregulation to other parties (see partial list at bottom). Oh, and I dropped another 322 pages explaining the actual causes of the crisis. And yet, these attempts at misplaced fault continue. So this morning, I want to try a completely different approach â the opposite of our usual data driven, analytical framework. Rather than show more facts, data and specific details, instead, I want to do a little thought experiment. Imagine, if you will, that the discredited far right meme is actually correct: Assume that the CRA was a prime cause of the mortgage, credit and housing related crises. Yes, he typed, it was all the CRAâs fault. (Stay with me here). Assume arguendo that CRA legislation forced banks into making high risk, ill advised loans. And, letâs further assume a huge percentage of these government mandated mortgages have gone bad. The buyers who could not legitimately afford these homes or otherwise qualify for other mortgages have defaulted, and these houses are either in default, foreclosure or REOs. What would this alternative nation look like? Given the giant US housing boom and bust, this thought experiment would have several obvious and inevitable outcomes from CRA forced lending: 1) Home sales in CRA communities would have led the national home market higher, with sales gains (as a percentage) increasing even more than the national median; 2) Prices of CRA funded properties should have risen even more than the rest of the nation as sales ramped up. 3) After the market peaked and reversed, Distressed Sales in CRA regions should lead the national market downwards. Foreclosures and REOS should be much higher in CRA neighborhoods than the national median. 4) We should have reams of evidence detailing how CRA mandated loans have defaulted in vastly disproportionate numbers versus the national default rates; 5) CRA Banks that were funding these mortgages should be failing in ever greater numbers, far more than the average bank; 6) Portfolios of large national TARP banks should be strewn with toxic CRA defaults; securitizers that purchased these mortgages should have compiled list of defaulted CRA properties; 7) Bank execs likely would have been complaining to the Bush White House from 2002-08 about these CRA mandates; The many finance executives who testified to Congress, would also have spelled out that CRA was a direct cause, with compelling evidence backing their claims. So much for THAT thought experiment: None of these outcomes have occurred. Zero. In reality, the precise opposite of what a CRA-induced collapse should have looked like is what occurred. The 345 mortgage brokers that imploded were non-banks, not covered by the CRA legislation. The vast majority of CRA covered banks are actually healthy. The biggest foreclosure areas arenât Harlem or Chicagoâs South side or DC slums or inner city Philly; Rather, it hs been non-CRA regions â the Sand States â such as southern California, Las Vegas, Arizona, and South Florida. The closest thing to an inner city foreclosure story is Detroit â and maybe the bankruptcy of GM and Chrysler actually had something to do with that. ~~~ I spent a year of my life researching and writing in painstaking details what the actual causes of the crisis were. I put together all of the moving parts as to what the actual causes were â and wrote them up in Bailout Nation, to wit: Irresponsibly ultra-low rates that led to a huge housing boom; a failure by the Fed to supervise non-bank lenders; An abdication of lending standards by both banks and non-banks; Radical deregulation of financial markets; the now discredited belief that markets can self-regulate; a shadow derivative market allowed to operate unlike every other financial product; Compensation schemes that rewarded short term risk taking over long term profitibility; Increases in leverage to the major investment houses from 12-to-1 to 35-to-1; These were the causes of the collapse â not some 1977 legislation. Its not simply that the overwhelming amount of evidence points to many factors outside of the CRA, the actual results of CRA were minor. Relative to these other ginormous factors, the CRA impact is all but irrelevant. And to date, nobody has produced any data based evidence that the CRA was relevant to the crisis. Not one shred. Until that evidence is produced, the CRA remains a marker, one that separates proponents of intellectually honest debate versus the parrots of partisan talking points, not worthy of your time or effort. http://www.ritholtz.com/blog/
The thing about the left is that they have their agenda. It's completely irrational. So they fake logic after the damage is done.... they are a disaster that is much bigger than Katrina or Northridge quake or any natural disaster we have ever had, bigger than 9/11... speaking of natural disasters, they are the ones that advocate letting the national forests burn rather than letting us have the natural resources... and they enforce their will through the courts by suing everybody that wants to build a road to aid in firefighting on "environmental grounds".. anybody that thinks these irrational bastards have our well being in mind is nuts... Currently they are talking about Healthcare Reform... well, 77% of Americans are happy with their health care, so the reform is obviously not for those people, it's for Democrat voters that don't work and don't have healthcare... whatever.. not my biggest worry those folks, they should hit the library and the health food store to see if they can't actually get healthy or just do a Michael Jackson, I don't care much either way... as a back drop for the Healthcare Reform shit storm disaster that is coming our way is Medicare. Medicare went into a money losing state last year and is never expected to come out of it. It started taking in less than payout in 2008 and it's not a fluke of the economy, it's just made that way... I have liberal assclown neighbors that live on fixed incomes and sit here worrying about Mexicans taking over the neighborhood. Thirty years ago they were donating to the refugee movement to spite Reagan's efforts in Central America and now they still can't speak Spanish, LOL.. I'm not going to help them if inflation hits, buy their houses and rent them back to them maybe...
I was in the mortgage business for 9 years. I watched loan products develop over that span. I have sold just about all types of loans - except Option Arms, which I was never a big fan of. CRA loans could never compare in terms of risk, underwriting requirements and loan size to what the Investment banks (Goldman, Bear, Lehman, Merrill...) came up with. Their subprime loans made CRA loans look prime. Anyone in the biz will tell you that.
As the businessinsider article points out, it was impossible for the nothing down, no doc loans to exist for CRA and not drift into the rest of the system, making these problem loans proliferate throughout the banking system. If anyone would just read the article and at least try to understand what was going on, it is really not hard to follow the logic. Unless one is a liberal atheist whose head is closed to anything that doesn't fit his preconcieved notions. How's your previously disclosed "mission in life to close down Benny Hinn Mininstries" going? lol
benny hinn is alive and well doing a boxoffice business thanks to people like you. i dont know where you got that it is my mission in life to close down benny hinn. i never give him a second thought. he is only useful to demonstrate how gullible christians are.
http://www.econbrowser.com/archives/2008/10/cra_fannie_and.html Looks like private investment banks are not forced to make the subprime loan from CRA , but make alot of money from subprime loans. They do not have to make the loan, they want to make the loan because of huge profit, then sell the risk.
Given the giant US housing boom and bust, this thought experiment would have several obvious and inevitable outcomes from CRA forced lending: 1) Home sales in CRA communities would have led the national home market higher, with sales gains (as a percentage) increasing even more than the national median; 2) Prices of CRA funded properties should have risen even more than the rest of the nation as sales ramped up. 3) After the market peaked and reversed, Distressed Sales in CRA regions should lead the national market downwards. Foreclosures and REOS should be much higher in CRA neighborhoods than the national median. 4) We should have reams of evidence detailing how CRA mandated loans have defaulted in vastly disproportionate numbers versus the national default rates; 5) CRA Banks that were funding these mortgages should be failing in ever greater numbers, far more than the average bank; 6) Portfolios of large national TARP banks should be strewn with toxic CRA defaults; securitizers that purchased these mortgages should have compiled list of defaulted CRA properties; 7) Bank execs likely would have been complaining to the Bush White House from 2002-08 about these CRA mandates; The many finance executives who testified to Congress, would also have spelled out that CRA was a direct cause, with compelling evidence backing their claims. So much for THAT thought experiment: None of these outcomes have occurred. strawman... The problem with looking for direct initial evidence in something like this that it is long gone by the time the explosion occurs. It took a long time to create this bomb. Bernanke in a 2007 speech http://www.federalreserve.gov/newsevents/speech/Bernanke20070330a.htm Securitization of affordable housing loans expanded, as did the secondary market for those loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a percentage of their activities to meeting affordable housing goals (HUD, 2006). A generally strong economy and lower interest rates also helped improved access to credit by lower-income households. the subprime market was instigated by the left, then when it finally found the fuel to explode they blame it on the fuel. How about simply not starting it in the first place? The government also "streamlined" the regulatory requirements for CRA loans in 1995, allowing â and indeed pressuring â banks to make such loans without the benefit of many traditional credit-worthiness criteria, such as the size of the mortgage payment relative to income, savings history, and even income verification! Instead, the Fed told banks that participation in a credit-counseling program, many of which are federally funded, could be used as "proof" of a low-income applicant's ability to make his mortgage payments. In other words, federal bank regulators required banks to make bad loans based on nonexistent credit standards. Pressure banks, then blame people when they find a way to make a buck off a shitty liberal idea. Typical and oh so sad, because another, and the largest financial crime in history, is happening right under our noses in the name of liberal fairness- the $60 Trillion ripoff of young and unborn generations to finance the liberal utopia vote getting scheme known as social welfare.