Subprime Suspects
Dan Gross gets medieval on the wingbut meme that Fannie Mae and the CRA was responsible for the housing and credit mess:
"We've now entered a new stage of the financial crisis: the ritual assigning of blame...On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so. The thesis is laid out almost daily on The Wall Street Journal editorial page and in the National Review . . .
But none of these issues is the cause of the problem. Not by a long shot. From the beginning, subprime has been a symptom, not a cause. And the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd.
Here's why.
The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn't apply. There's much more. As Barry Ritholtz notes in this fine rant, the CRA didn't force mortgage companies to offer loans for no-money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on subprime debt."
Go read the entire piece . . .
>
Source:
Subprime Suspects
Daniel Gross
Newsweek, Oct 7, 2008
http://www.newsweek.com/id/162789
Tuesday, October 07, 2008 | 09:37 PM | Permalink
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Bill Gross, the Paul Revere of the Federal Bank--by "predicting" and approving of the Fed's next move, like Paul rode through the streets yelling the "British are comming", is attempting to save his soul. I hope it is not too little and/or too late for Mr. Gross. I recall Paul was captured and killed by the British.
Posted by: johnnyvee | Oct 7, 2008 9:48:55 PM
Johnnyvee, did you intend to talk about "Bill" Gross or "Dan" Gross?
Posted by: wunsacon | Oct 7, 2008 9:54:58 PM
BR -
I agree with you in that the blow off phase of jenna jameson type lending (ie loose) was done by the American Home Mortgage, etc, wasn't the bar of acceptable lending candidates "lowered" by the community reinvestment act? Wasn't this a form of moral hazard?
Posted by: Mike | Oct 7, 2008 10:01:10 PM
"I recall Paul was captured and killed by the British."
Or died at the age of 83...
Posted by: mikkel | Oct 7, 2008 10:09:07 PM
Not sure where it goes, but there's a "Heckuva job, Brownie" story on Bloomberg about the SEC's inaction on Bear:
Cox's SEC Censors Report on Bear Stearns Collapse
Posted by: Mike in NOLa | Oct 7, 2008 10:13:07 PM
nice, mikkel, the lobsterbacks never had their pleasure with the ol' Silversmith..
Paul Revere Industrialist - Post War Businesses
Revere expanded his business interests in the years following the Revolution. He imported goods from England and ran a small hardware store until 1789. By 1788 he had opened a foundry which supplied bolts, spikes and nails for North End shipyards (including brass fittings for the U.S.S. Constitution), produced cannons and, after 1792, cast bells. One of his largest bells still rings in Boston's Kings Chapel.
Concerned that the United States had to import sheet copper from England, Revere opened the first copper rolling mill in North America in 1801. He provided copper sheeting for the hull of the U.S.S. Constitution and the dome of the new Massachusetts State House in 1803. Revere Copper and Brass, Inc., the descendent of Revere's rolling mill is best known for "Revereware" copper-bottomed pots and pans. Revereware is now, however, manufactured by another company.
Revere's community and social involvements were extensive. He was a Freemason from 1760 to 1809 and held several offices in St. Andrew's and Rising States Lodges as well as the Massachusetts Grand Lodge. A member of the Massachusetts Charitable Mechanics Association, Revere also served as the association's first president. Founded in 1794, the group was an organization of artisans, and small businessmen who sought to improve the conditions under which their peers worked and aided members in "distressed" circumstances.
Last Years
In 1811, at the age of 76, Paul Revere retired and left his well-established copper business in the hand of his sons and grandsons. Revere seems to have remained healthy in his final years, despite the personal sorrow caused by the deaths of his wife Rachel and son Paul in 1813. Revere died of natural causes on May 10, 1818 at the age of 83, leaving five children, several grandchildren and great-grandchildren. The son of an immigrant artisan, not born to wealth or inheritance, Revere died a modestly well-to-do businessman and a popular local figure of some note. An obituary in the Boston Intelligence commented, "seldom has the tomb closed upon a life so honorable and useful." Paul Revere is buried in Boston's Granary Burying Ground.
http://www.paulreverehouse.org/bio/bio.shtml
Posted by: Mark E Hoffer | Oct 7, 2008 10:13:12 PM
Yeah,
It is a ritual: blame must be assigned. What boggles the mind is that all the politicos and talking heads continually say "nobody could have forseen the extent of the crisis." Now that is what really pisses me off.
Ok, on a positive note. Most of those that I read or listen to who did forsee the crisis all seem to be turning mildly bullish, or at least think we are nearing a bottom.
Or, maybe another 3,000 down won't be as painful as the first 4,500 down. Yes people, we will continue down but at a declining rate, therefore things are getting better.
Does anybody know what happened to Kudlow's Goldilocks? I am worried about that girl, I think that bad things could have befallen her given all the animosity towards him and his perpetual "there is no credit crisis" calls up until two months ago.
Barry, if you see Larry, ask him how Goldilocks is doing and if his producers might want to come up with another animation more fitting to the times.
Other than that, Iceland might be declaring bankruptcy-now that is something that nobody forsaw.
Have a good night.
Posted by: Rich Shinnick | Oct 7, 2008 10:13:56 PM
I recently completed a deep statistical analysis of the Dow since 1993. By enhancing normally hard to see background information I've come to a fairly certain conclusion we'll be hitting 5000 within the next six months.
http://debreuil.com/temp/bubble.png
Posted by: debreuil | Oct 7, 2008 10:14:08 PM
I meant Bill. Ha!
Posted by: johnnyvee | Oct 7, 2008 10:24:41 PM
Barry, I rarely question your judgement, but "wingbut meme?"
Is this a typo, or an attempt to coin a new term... perhaps related the "Wingbut Blues Band?"
http://video.google.com/videoplay?docid=-5753936667604275527
If so, maybe the phrase "white-hippy-funk-jam meme" would be more clear.
Posted by: Lisa | Oct 7, 2008 10:29:20 PM
According to McCain, Obama and his joyboy cronies enabled Fannie and Freddie to cause the mortgage crisis.
Is this guy for real?
Posted by: Steve Barry | Oct 7, 2008 10:38:02 PM
BTW, I cannot stand the word "meme" and it has no place in society.
Posted by: Steve Barry | Oct 7, 2008 10:39:44 PM
Widening the pool of minority applicants required lowering the lending standards. While CRA may not have explicitly advocated lowering the standards, it effectively did exactly that. There is a direct correlation between government sponsorship of home ownership (a pet project spawned and carefully tended by Democrats) and lowered lending standards. There is probably also a correlation between lower lending standards and securitization, since no lender wanted these obviously high risk, low return loans on their books. So they paid for insurance and packaged them up and every poor credit risk got their dream home. This whole blowup falls right into the lap of the American political left wing.
Posted by: fred | Oct 7, 2008 11:08:17 PM
fred i have a hard time believing the CRA was the primary culprit. remember it only covered depository institutions. last i checked the majority of the toxic loans were made by our now defunct IB and other pop up loan shark type institutions who were fleecing the sheep as the herd came in.
Posted by: Richard | Oct 7, 2008 11:11:50 PM
Richard, once the CRA made it clear that lending standards must be lowered in some cases, they were lowered across the board. Wouldn't want our lending institutions to be biased, now would we? Fannie and Freddie were part of the process, as Democrats pressed them to make ever more loans and violently opposed any suggestions that they were creating massive liability for the taxpayers.
Their is plenty of (non-political) blame to pass around for the implementation of this housing debacle, but the planning and initiation of the universal housing ideal came from the political left. That is the root cause of everything that ensued.
Posted by: fred | Oct 7, 2008 11:19:54 PM
CRA only established the philosophy that begat the studies that established the so-called "pattern of discrimination." It turns out that poor people don't have any money and can't afford a home and therefore banks don't want to loan money to them to buy a home. How dare they discriminate against poor folk. Duhhh! The real damage was done in legislation passed during the Clinton administration and prevention of attempts to reregulate Fannie & Freddie et al. since that time.
Posted by: rockitz | Oct 7, 2008 11:21:46 PM
@fred: Did you ever learn in school (assuming you went) that correlation does not imply causation?
Posted by: Jeff M. | Oct 7, 2008 11:24:11 PM
There is a direct correlation between removing the police from the streets and an increase in crime. Just because some of the crime was directed against poor minorities (and that will they share in the punishment like everyone else), doesn't make them the cause. Nor anyone helping them.
Just because you step in a barn turd, doesn't mean you have to screw a pig. You only find yourself on the wrong end of a pig if you don't have a problem with being that kind of a person.
Posted by: debreuil | Oct 7, 2008 11:30:44 PM
fred,
Yeah it is those darned colorful po folk, caused all your problems, hell they should be wealthy and edicated enough to blindly see what rockitz sees.
Real damage was not the fault of the sleeping cops, it was the crooks: incredible assessments, no income verification etc.......
It is as if the trend for predatory lending that the CRA fought against was okay and exemplary of good regulation.
It was not the lack of regulation it was the stupidity of the con artists.
In most cases minority borrowers were taken rather then took from the sharks.
Posted by: ilsm | Oct 7, 2008 11:32:53 PM
It has to be the case, otherwise how could McCain get elected? McCain must be elected, therefore it must be the democrats fault. It's called election logic.
Posted by: Lord | Oct 7, 2008 11:39:23 PM
Barry, you've done your best to expose the wingnuts. But some folks are just 20-watt bulbs confronting a 100-watt problem and blaming blacks & latinos is the best they can muster. Others are stuck in the Blame Stage of the Kubler-Ross cycle, where some choose Greenspan, Bush, et al, and others go for that inner urge to 'blame dem folks who dont look like me'. We never should forget that bigotry remains in our midst.
And finally, some are just politiking-as-usual andseeing CRA & blacks/latinos as road kill en route to running down democratic candidates.
Posted by: Greg Sills | Oct 7, 2008 11:41:30 PM
Enough of the poor, minority, level the playing field liberal rants! What about all the wannabe "old money," "its the new economy," "let the free markets rule," "skim the cream from the top and let a little trickle down to the masses" folks? I blame human frailty, a propensity to refuse to accept oneself and life on its own terms, and the refusal of those in key positions to throw themselves in front of the bus because they'd lose something meaningful. People should and hopefully will be marching soon, so as to further unravel the tangled web of private and public interests. Let those who have a conscience, now rise to prominence in executive, legislative, judicial, financial and corporate positions of influence and suck it up, own their part, get real and start slowly steering this ship back on course.
Posted by: EatPraySurf | Oct 7, 2008 11:44:20 PM
Richard, once the CRA made it clear that lending standards must be lowered in some cases, they were lowered across the board.
Horse shit.
Posted by: number2son | Oct 7, 2008 11:46:25 PM
I'm actually enjoying watching the wingnuts flail pathetically, desperately and violently because deep down they know the party is over and the people aren't buying what they're selling anymore.
The...party....is......over.......
That's all folks!
Posted by: Jeff M. | Oct 7, 2008 11:50:10 PM
"They were outfits such as Argent and American Home Mortgage..."...
exactly
And then there were also the countless lenders funded by...hmmm ?wall street? ... willing to loan the 20% part of the 80/20 zero down loan which had never existed previously in history and were now the norm.
Zero down folks. Zero down. No risk.
It brought millions of previously ineligible buyers into the market and created the bubble in prices!
Posted by: Bob A | Oct 8, 2008 12:00:11 AM
