Blame the CRA
The editors of National Review want you to know that just because conservatives have been running the government is no reason you can’t blame liberals for the crises that break out on their watch:
Much more problematic than Gramm-Leach-Bliley is the Community Reinvestment Act, a bit of legislative arm-twisting much beloved by Sen. Obama and his fellow Democrats. One of the reasons so many bad mortgage loans were made in the first place is that Barack Obama’s celebrated community organizers make their careers out of forcing banks to do so. ACORN, for which Obama worked, is one of many left-wing organizations that spent decades pressuring banks and bank regulators to do more to make mortgages available to people without much in the way of income, assets, or credit. These campaigns often were couched in racially inflammatory terms. The result was the Community Reinvestment Act. The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama’s fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands — which are political demands — have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime.
The technical term for this argument is “bullshit.”
For one thing, the timeline is ludicrous. The Community Reinvestment Act was passed in 1977. Are we supposed to believe that CRA was working smoothly throughout the Carter, Reagan, Bush I, and Clinton years and then only under Bush II did overzealous anti-”redlining” enforcement come into play, perhaps a result of Dubya’s legendarily close relationship with ACORN? Or maybe overzealous enforcement back in the late 1970s is somehow responsible for a real estate blowout that only materialized 30 years later? It doesn’t even come close to making sense.
Beyond that, the mere existence of “subprime” loans — i.e., mortgages given to less-creditworthy individuals at higher interest rates — isn’t the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays.
61 Responses to “Blame the CRA”
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September 22nd, 2008 at 2:27 pm
Have minorities & poor people recently acquired some $700 billion dollars’ worth of housing that they didn’t have before the past 5 years?
Because that would be an enormous social program, the likes of which we haven’t seen since the original Federal Home Loan program.
September 22nd, 2008 at 2:33 pm
Well if they can try to blame Clinton, or “comminity organizers” or play that race card, then why not?
Do they address this debunker??
http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
September 22nd, 2008 at 2:36 pm
The sneering of community organizers laid bare.
September 22nd, 2008 at 2:39 pm
Are we playing Blame the Victim? It should be interesting to many white homeowners who’ve lost their homes that they’re now considered minorities by Republicans.
September 22nd, 2008 at 2:40 pm
Nice find, rupert. Obviously, the NRO editorial did not address the Traiger study, else this nugget would have blown its entire argument out of the water:
“CRA Banks were more than twice as likely as other lenders to retain originated loans in their portfolio”
September 22nd, 2008 at 2:41 pm
The ‘blame Those People’ line has been bubbling through the wingnutosphere since the first signs of the housing bubble bursting.
It’s pure bullshit. Redlining is about withholding credit from people who’d get mortgages if they lived somewhere else. And 40-to-1 leveraging on potentially problematic CDOs to accumulate quarterly profits before the bubble bursts — as Krugman and others have noted, if those bets are priced at true risk, they don’t get made in the first place — is entirely the work of the Wall Street shitpile desks.
September 22nd, 2008 at 2:47 pm
It’s interesting to see how these memes were test-marketed among the wingnuts many months ago before they were allowed to hit the mainstream.
Talk radio has been all over this since last winter, apparently seeing if it could gain traction amongst the extreme wingnuts before testing the waters to see if it could serve as a plausible talking point among the mainstream right-wingers.
September 22nd, 2008 at 2:49 pm
Larry Kudlow tried this out on MSNBC last week and even Joe Scarborough laughed at him. But expect Newt and co. to repeat it anyway.
September 22nd, 2008 at 2:50 pm
The funny part is that this may be a great way for McCain and the Republicans to play the populist rebels voting against a “Bush / Pelosi” corporate handout plan.
Hee hee!
September 22nd, 2008 at 2:51 pm
Beyond that, the mere existence of “subprime” loans — i.e., mortgages given to less-creditworthy individuals at higher interest rates — isn’t the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays.
That’s not exactly right. The packaging into tradeable securities compounded the situation, but a huge part of the issue was the massive buildup in subprime lending that was predicated not on an ability for borrowers to pay back the loan, but on rising real estate prices making timely repayment beside the point.
September 22nd, 2008 at 2:58 pm
“right” is right. There are lots of problems, but the CORE problem is that there are too many of bad mortgages. In other words, too many people agreed to make mortgage payments that they are now unable or unwilling to make.
September 22nd, 2008 at 3:01 pm
Subprime loans are last year’s news. The mortgages that are starting to blow up now are the alt-a types. All those option ARM type things given to whitebreads so they could buy a $500k McMansion in farthest suburbia.
I do like the symmetry that both our domestic and foreign policies are all about blaming brown people.
September 22nd, 2008 at 3:05 pm
… is the use of essentializing rhetoric to prop up complete bullshit.
.
September 22nd, 2008 at 3:12 pm
Well, it seems to me the core problem was a system-wide failure to properly assess risk.
I’ve heard the CRA argument before–supposedly, Clinton was more active in enforcing it than were his predecessors, which “forced” these institutions to start offering riskier mortgages under fear of prosecution or simply being accused of racism. And, I dunno, there may be some truth to that. But it’s pretty obvious that the involved parties were all making scads of money off these loans, so it doesn’t really follow that the government would have twisted their arms into it.
September 22nd, 2008 at 3:17 pm
Agreed with what Matt D said.
The latest is this argument, though…
It isn’t the actual CRA-motivated loans that were the problem. It was that CRA-motivated loans created a new market for low-quality CDOs.
Um…yeah, that’s the ticket.
- g
September 22nd, 2008 at 3:17 pm
Well, I certainly think it’s true that the 1977 CRA is a big factor behind today’s crisis. Just took 30 years to have an impact…
But a bigger factor was FDR’s creation of FannieMae in 1932 or whenever.
And don’t forget the huge impact of the establishment of the Federal Reserve in 1913, Lincoln’s Civil War Greenbacks in 1862, and Hamilton’s inflationary policies in 1796.
But these were all just contributing factors. The true root cause was Columbus’ discovery of the New World in 1492! The Aztecs and Incas certainly never had these leveraging derivative-trading collapses…
September 22nd, 2008 at 3:21 pm
Wow, the word “banks” appears a lot in that paragraph from NRO.
Yup, the CRA applies to banks – not investment banks, not mortgage companies, but banks.
You know, the banks that are weather the storm better than the other, unregulated institutions to whom CRA doesn’t apply – those banks.
September 22nd, 2008 at 3:22 pm
All those option ARM type things given to whitebreads so they could buy a $500k McMansion in farthest suburbia.
Ding ding ding. After all, the kind of housing stock that falls into Alt-A / jumbo territory is either in areas where the market is stratospheric, or way above regional medians. We pretty much know the demographic profile of that sector: it’s like the white middle-aged guy in the commercial with his big house, pool and lawn tractor saying, with rictus grin, that he’s in debt up the wazoo.
The problem with what ‘right’ says is that it doesn’t acknowledge the other side of the vicious cycle: if you already know you’re going to be slicing, dicing and selling on your mortgage debt, and that the biggest commissions come from ‘liar loans’, then due diligence goes out of the window. If the bubble continues, it’s all good; if it doesn’t, it’s somebody else’s problem.
September 22nd, 2008 at 3:23 pm
I’m going from memory here, but I recall this being raised a few months ago as well and it was pointed out at the time, I forget by whom, that most CRA loans are perfectly well documented and collateralized, and the portion of CRA loans that are in “big shitpile” is smaller than the proportion of such loans emanating from regular banks. I also believe that the total number of CRA loans in this mess was reported to be quite small. Perhaps that situation has changed as more of the real estate market has gone into the crapper, but certainly this can easily be checked (by an enterprising blogger or commenter less lazy than me).
September 22nd, 2008 at 3:25 pm
When we propose helping people who agreed to by a house in Michigan worth $100,000 for $500,000, or a condo in Miami for $5 million that’s only worth $1 million, we’re told that’s socialism. Whereas rescuing Wall Street is only called ‘corporate welfare’ when it’s actually “national socialism” (aka Nat.Si-ism).
There must be another word we could use than simply “fascist.” Too many hitlerian connotations, and using the word ‘fascist’ -by pushing old emotional buttons – prevents people from geniune alarm.
I admit to being a fuzzy thinking liberal, and bad at math. But wouldn’t it make more sense to take over mortgages (worth less than they once were) than mortgage backed securities and derivitaves which are worth a hundred times (or 500 times? who knows?) less than it is claimed they are worth?
September 22nd, 2008 at 3:38 pm
This is ridiculous. There was a market failure here, but it wasn’t caused by the government or by poor people!
These horrific loans simply weren’t made over the past 5 years because George Bush teamed up with radical leftists and forced conservative banks to spend TRILLIONS breaking the harsh laws of capitalism. This is George Bush. The man whose mother looked at penniless refugees sleeping on cots and said “this is working out rather well for them.”
These loans were were made because Wall Street wanted them. Why did Wall Street want them? Because charlatans and fools on Wall Street thought they’d invented a magical riskless security that nonetheless had high returns.
These charlatans and idiots were turning a tidy profit selling bad loans because they’d figured out that if you put CDO lipstick on a bad loan, other Wall Streeters would buy them! And once they got the ratings agencies to certify the CDO with lipstick wasn’t a pig anymore but an investment-grade security, they were rolling in cash! And to keep this thing going, they needed more home loans–good loans, bad loans, impossible loans, who cared, they could CDO put lipstick on any home loan and it would move!
It wasn’t George Bailey making these loans, it was hotshots and their idiot followers.
It’s THESE guys who broke the laws of capitalism–they sold fools gold as real gold, and other idiots and liars certified that fools gold was real gold, and yet more idiots bought the fools gold because hey, everybody’s buying it, it must be worth something!
That’s not the fault of the poor bastards who dug up the fools gold and got silicosis for their troubles. It IS the fault of the guys who created a market in fool’s gold with a promise of “don’t worry, don’t regulate us, we know what we’re doing, look, everybody’s getting rich!”
September 22nd, 2008 at 3:57 pm
“The true root cause was Columbus’ discovery of the New World in 1492!”
Oh no it isn’t. We can blame this one on Muslims! Columbus would never have set sail had Mehmet II not captured Constantinople 50 years earlier. It’s all his fault.
September 22nd, 2008 at 4:01 pm
Let’s not all get too convenient. If you mix together all the ingredients you need for a cake, and someone says “your cake sucks”, you don’t usually immediately turn and say “It was the egg’s fault! The sugar and flour and butter and chocolate were all fine, so it must have been the eggs!”
The pile of crap that has been handed to us is partially the fault of well-meaning liberal support/pushing of Fannie Mae to offer high risk loans to poorer people (predicted by the NYT in 1999, of all things). It is partially the fault of an incredibly short-sighted Wall Street system that rewarded risky behavior far more than it should, and did not properly synchronize risk to individual incentives. It is partially the fault of everyone who bought stocks in the I-banks and AIG, etc, without taking some time to understand just what a foolish move they were making. It is partially the fault of overconfident smart people with Ivy League educations who believed that they could properly ‘analyze’ the complexities of the debt market and come up with risk-free money-making plans. We can all see the unintended consequences of believing you’re smart enough to properly understand the complexities of the market, large-scale human behavior or any other ‘big’ system with lots of moving parts. It is partially the fault of legislators of both parties, who were too much in bed with the Wall Street Elite to fuss about ‘The Great Bailout’.
The next couple of weeks will be very telling. If Paulson is able to push his plan through, despite the opposition of smart people on both sides of the ideological divide, it should provide pretty solid proof of exactly how corrupt our government is, both parties included.
September 22nd, 2008 at 4:02 pm
The real bullshit started to pile up in the mid-90s when Clinton/Reno blackmailed banks/mortgage companies into massive increases of loans to unqualified/high risk borrowers as a condition of allowing those companies to either expand geographically or merge with other companies.
The real bullshit built up behind the wall of Barney Frank, et al who loved the sweet deals of Fannie and Freddie and kept out independent auditors.
When the government itself encourages/incentivizes poor business decisions… which it does most of the time… can one be surprised when bad decisions are made? Given that unethical behavior seems to be the norm in politics, why be surprised that those who take advantage of the doors opened by government are unethical?
The solution for financial responsibility is “let the chips fall where they may.” That way, if you choose to participate in high risk behavior or elect government officials who think “fair lending” means disregarding sound business principles, you get what you deserve.
September 22nd, 2008 at 4:07 pm
Didn’t Acorn and other pro-CRA groups do big national and local campaigns against subprime loans, to which the banks and their politicians replied that they were helping the poor and creating an ownership society?
September 22nd, 2008 at 4:07 pm
“In other words, too many people agreed to make mortgage payments that they are now unable or unwilling to make.”
That’s only half of it. For every borrower, there is a lender. The lenders knew damn well the loans wouldn’t be paid back. But it didn’t matter because they could just bundle and dump them. As long as the loan was off their books, no problem! Someone else will take the loss. It turns out that the ’someone else’ is us. In the end though, I think the financial institutions deserve more of the blame. They should know better. Wasn’t that what that Harvard PhD was for? I mean let’s face it, if a guy is trying to get a subprime loan, it’s probably because he doesn’t know much about managing his finances. Conservatives seem to expect that these borrowers should somehow know more about finance than the lenders who were trained in the field. Granted, the training received at our top schools doesn’t seem to be good enough to result in good decision making, but still….
September 22nd, 2008 at 4:29 pm
I don’t think it’s Jimmy Carter’s CRA that’s at fault, it’s Jimmy Carter’s Habitat for Humanity that’s to blame. I mean, besides black people and dirty hippies.
September 22nd, 2008 at 4:29 pm
There are lots of problems, but the CORE problem is that there are too many of bad mortgages.
It depends on what you mean by CORE. If by CORE you mean the problem that’s lowest to the ground so to speak — the initial cause — then, yes, too many bad mortgages is what has started the dominos moving. But if by CORE you mean the efficient cause that has sent the economy in a death spiral, then that’s wrong. The value of the financial sector’s liabilities is many, many multples of the value of the actual bad mortgages because of all the synthetic derivative trades referencing morgage backed securities. If all we were dealing with were a truckload of bad mortgages, Bear Stearnes, Merrill and Lehman would still be around.
September 22nd, 2008 at 4:48 pm
Are we supposed to believe that CRA was working smoothly throughout the Carter, Reagan, Bush I, and Clinton years and then only under Bush II did overzealous anti-”redlining” enforcement come into play
Almost right. It started in 1997, under Clinton and Bush II continued it. See this prescient article from Winter 2000.
http://www.city-journal.org/html/10_1_the_trillion_dollar.html
The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities
Howard Husock
[From Winter 2000] The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.
September 22nd, 2008 at 4:55 pm
The banks for forced — FORCED! — to engage in poor assessment of mortgage security bond risk and bond insurers were forced — FORCED! — to make massive mistakes in pricing the bond insurance by the CRA.
And don’t forget about how all of the McMansions and Condos in Phoenix, Florida, and Las Vegas were forced on flippers and speculators by the CRA’s requirements. And those investment banks and Hedge funds were forced — FORCED! — by the CRA to speculate on all of those ill-created financial instruments.
September 22nd, 2008 at 5:00 pm
“The value of the financial sector’s liabilities is many, many multples of the value of the actual bad mortgages because of all the synthetic derivative trades referencing morgage backed securities.”
Yes, but the problem is not the total gross value of the liabilities, it’s the NET difference between the value of the liabilities and the assets. And the reason the value of the assets has gone down is because people aren’t paying their mortgages and have no equity in their homes.
I agree that the problem is in Alt-A as much or more than subprime, and that this is a failure of the market more than the government. But the root problem is still the same: people who can’t or won’t make the mortgage payments that underlie the value of the mortgage securities. It’s important not to lose sight of this fact. This isn’t “blaming” anyone, it’s just the way it is.
It would be nice to blame derivatives, Phil Gram, etc., but although they have exacerbated the problem, the root problem is the non-performance of a bunch of mortgages that never should have been issued in the first place. So the biggest blame should probably go to those who made these mortgage loans in the first place.
September 22nd, 2008 at 5:01 pm
You can post all the (right-wing) City Journal articles you want, but it won’t change the fact that ultimately, without mislabeling bundled securities as something much less risky than they actually were, the collapse we are currently experiencing never would have happened. People would have taken hits, and we can debate whether that is a good or bad thing, but the hits would have been distributed extremely broadly to institutions making the loans and/or to buyers who were intentionally buying risky debt (small to medium entities), instead of to buyers who were theoretically buying “safe” debt but who were really buying incredibly risky debt in massive quantities (and who were and are the titans of the financial sector).
September 22nd, 2008 at 5:12 pm
CRA loans were less risky, lower cost and more likely to be retained by the originator. In addition, they only made up about twenty percent of the total.
http://www.reuters.com/article/pressRelease/idUS135259+07-Jan-2008+BW20080107
September 22nd, 2008 at 5:19 pm
Agreed to mortgages with whom? The people doing the lending are supposed to know better. The lendee is most likely an idiot. The lender knew he was going to sell the loan and not be on the hook for repayment so he abdicated his duty to determine if the lendee can repay. People were sitting in chairs at banks getting mortgage advice from people who were detached from the repayment process.
How sound is the advice in this case?
Is a lendee wrong to think the bank won’t make a loan they don’t think you can repay so he’s safe to listen to the bank lender?
September 22nd, 2008 at 5:24 pm
I agreee…the lenders were overwhelmingly at fault here, along with the system that allowed them to package and re-sell on the loans with nobody asking the hard questions about how risky the mortgages really were.
(Although I believe that this shoddy system led to a lot of outright lender fraud as well.)
September 22nd, 2008 at 5:27 pm
I agreee…the lenders were overwhelmingly at fault here, along with the system that allowed them to package and re-sell on the loans with nobody asking the hard questions about how risky the mortgages really were.
As the saying goes, if I owe you $10,000, it’s my problem. If I owe you $1m, it’s yours.
September 22nd, 2008 at 5:32 pm
Beyond that, the mere existence of “subprime” loans — i.e., mortgages given to less-creditworthy individuals at higher interest rates — isn’t the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays.
I disagree. The problem was predatory lending where “mortgages given to less-creditworthy individuals” did not result in higher interest rates but low introductory rates with a step up that was beyond their capabilities once it kicked in. The following article describes the role of the Bush administration in ensuring that predatory practices would not be subject to prosecution.
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
The packaging as such would not have been a problem if the mortgages were all of acceptable quality.
September 22nd, 2008 at 5:35 pm
The CRA was just the opening gambit way back when. There was a bipartisan push from roughly 1992-2007 to raise the homeownership rate above the 64% point, where it had been stuck since the late 1960s, largely due to the fracturing of families, the decline of unions, and the import of less-skilled laborers. All the players publicly stated that this required boosting minority home-ownership massively, since minorities were a rapidly growing segment of the population, and that would require lowering credit standards. Bush, for instance, campaigned for zero down loans in 2004 under the guise of minority empowerment. The Clinton Administration had started out with a 21% quota for for minority and low income areas at Fannie and Freddie, but Bush II raised the quota all the way to 39%.
Much of the financial industry was of course wildly happy about this government push to debauch traditional standards of credit, since they’d always wanted to do that themselves and now they were being encouraged by the Great and the Good to do just that.
For details, see http://www.takimag.com/site/article/the_diversity_recession_or_how_affirmative_action_helped_cause_the_housing/
September 22nd, 2008 at 5:38 pm
ed:
I agreee…the lenders were overwhelmingly at fault here, along with the system that allowed them to package and re-sell on the loans with nobody asking the hard questions about how risky the mortgages really were.
(Although I believe that this shoddy system led to a lot of outright lender fraud as well.)
And everyone was leveraged up the ass. You failed to mention that.
Seems to me you are fundamentally wrong. You want to blame the poor people who were applying for the morgages and the people giving them the mortgages. Seems like a lot more was going that caused the global economy to come very close to collapsing, something that requires a $700 billion bailout of not just bad morgages but other bad financial instruments as well.
The main thing is that CEOs at financial institutions no longer TRUSTED other CEOs at other financial institutions, b/c they don’t believe the others knew what was on their books. Hence no credit or liquidity and hence these OVER-leveraged firms were going to fail. Liquidity = trust and trust evaporated.
People who try to blame this on poor people and on liberals are scum.
Dodd and Frank should play brinkmanship. If the system fails we’ll see how tough these rightwing hardasses talk then.
September 22nd, 2008 at 5:53 pm
The Wall Street Wing of the GOP is in full scapegoating mode now. First they tried to blame it on short sellers, now the CRA. There’s plenty of blame to go around, but neither shortselling nor CRA is the problem here
There was never anything in the CRA that forced banks to make bad loans.
Stop the Bailout!
September 22nd, 2008 at 6:39 pm
The Wall Street Wing of the GOP is in full scapegoating mode now.
Indeed: Mitt Romney was busily blaming Those Poor People on MSNBC at the top of the hour. Gotta love uber-capitalist bullshit merchants.
Here’s the study that inthewoods cited. Its most interesting conclusion, beyond the headline trends, is that the presence of bricks-and-mortar banks correlates with lower foreclosure rates:
Whoda thunk it? It also notes that Cato was calling back in 2000 for the CRA to be dismantled because there were lots of subprime lenders out there. Nice one, Cato.
September 22nd, 2008 at 7:49 pm
Ed: I don’t understand what you mean by “NET difference between the value of the liabilities and the assets.” Parties to CDS don’t own the assets referenced in the swap. They are straight up prop bets. Like betting whether the Super Bowl coin flip is heads or tails. Except the bets are for billions of dollars for which no capital has been allocated.
If I bet $5 million dollars that the Patriots win the Super Bowl and I lose my house because Brady got hurt and the Pats miss the playoffs, there’s a sense in which the root cause of my homelessness is Tom Brady’s injured knee ligaments. But sensible people would say the reason I lost my house is because I made a big f’ing bet that looked really good at the time without enough money to pay if I lost.
September 22nd, 2008 at 8:14 pm
The CRA covers only depository institutions, who were not responsible for the overwhelming majority of subprime originations. Moreover, CRA does not have enough teeth to force lenders to make $650 billion dollars in subprime loans in 2005 (up from $35 billion in 1994), to expand subprime originations to over 23% of the market in 2005 (up from 5% a decade earlier). The motive for making predatory loans to low-income, elderly, and minority homeowners and home purchasers was simple: profit. If increased minority homeownership was the problem, then with such a dramatic increase in subprime originations, you would see an equally dramatic rise in minority homeownership — the connection isn’t there.
One important but unfortunately overlooked fact is that the subprime market is not dominated by purchase money mortgages, but by REFINANCE mortgages, i.e., loans made to people who already own their home (around 2/3 of the market last I checked). The segment of the market that is failing to perform is, quite predictably, the large predatory sector. That’s not to say purchase money mortgages are performing well, because they aren’t. But the market for predatory refinance products offered existing homeowners little or no value, and in fact lead to financial catastrophe for thousands of families. People who shout about greedy borrowers putting society at large on the hook for their risky gambits are showing their ignorance of the fact that the products that brought on this crisis were products that took wealth in the form of equity from existing homeowners while extending little value in return. The bubble burst because lenders kept gnawing at illusory equity long after they had picked homeowners clean to the bone, and property values stopped rising and replenishing the meat. It is totally inappropriate to talk about homeowner greed when most borrowers who received these defective products got nothing of benefit, and lost plenty.
September 22nd, 2008 at 8:31 pm
StJoe is good at showing what bullshit this is. But we should go back in the history of housing, for one of the great ways American whites of the Steven Sailor pursuasion robbed black people is by robbing them of the opportunities opened up for cheap government backed loans after WWII. Back then, the politicians decided to given GIs cheap home loans, kickstarting the Levitowns that have now become our ubiquitous suburbs. Most of those suburbs had housing associations forbidding sale of homes to blacks. Plus, of course, black veterans, following the Nazi like policies of the States, were denied the benefits accruing to white veterans. This Affirmative action for the obviously IQ challenged white class – you know those people couldn’t tie their shoe strings on their own – is the root of postwar income inequality between blacks and whites. It was the crucial advantage of having an home asset upon which middle class white prosperity grew.
Of course, NRO isn’t going to go back that far in history. Although they might want to, to find out what their own mag used to say about the colored people. Affirmative action for whites – the curse of these here states.
September 22nd, 2008 at 8:31 pm
Also not mentioned here is that increasing homeownership was very much a bipartisan goal, not just some liberal idea. For conservatives, giving the poor a chance to become property owners at no cost to the government seemed a good way to inculate financial responsibility, rescue blighted neighborhoods (the “No one washes a rental car” argument) and maybe even attract new voters to the GOP.
September 22nd, 2008 at 9:10 pm
So Matt’s essential point here is to take the conservative critiism of the liberal desire to expand loans to miorities who were not able to pay them back, and to cherry-pick just one element of that in order to prove them false. As Steve Sailer pointed out, it’s not just one piece of legislation that is the issue here.
And there are, of course, other problems as well. Fractional reserve fiat banking, for one. The expansion of credit for the purpose of shoring up the market after the dot-com collapse, for another. The money spent in Iraq, for yet another.
September 22nd, 2008 at 10:07 pm
Of course, even if it is true, the best solution to the “problem” conservatives cite – giving loans to people who don’t deserve them – is…regulation. The details are complicated, but the basic policy is not. If American taxpayers people are going to be forced to bail out companies for making bad loans, the solution is to create regulations that prevent lenders from making really bad loans.
September 22nd, 2008 at 11:35 pm
Trying to get these very pertinent direct quotes from White House Press releases into the discussions about this:
http://www.washingtonmonthly.com/archives/individual/2008_09/014833.php#1361298
If these are being brought into all the discussion over who to blame, I’ve not been seeing it.
September 23rd, 2008 at 12:42 am
Glaivester: if you suck up to Sailer a bit more, I’m sure he’ll let you wear his white sheet.
September 23rd, 2008 at 5:03 pm
Yes, the CRA was passed in the 70’s, but it was a provision of Gramm – Bliley that made it possible to “blackmail” the banks into making these loans. And why was that provision in there? Because the Democrats DEMANDED it in order for the bill to pass.
And Wall Street did not make the loans. They bought them, (from lenders only too happy to get the junk off their books) securitized them, securitized the securitizations (CDO’s made up of CDO’s), leveraged them, amd swapped them. All the while this debt was “insured.” Let’s not even talk about the dropped balls and S&P, Moody’s, etc.
Yes, Wall Street got greedy and leveraged toxic debt and it blew up. But the toxic debt would NOT have been there but for the CRA. I worked in the banking industry. Trust me – we did not think these debts were proper, but we HAD to pass that CRA audit, right?
September 28th, 2008 at 8:00 am
If you make a product available, no matter how good the intent people rich & poor will exploit it. Who pays the responsible tax payers. No bail out let the chips fall this country will recover it always has it always will.
October 4th, 2008 at 7:18 pm
21:anonymiss::
Beautiful point about the ratings agencies; I think they were the linchpin of the whole mess, enabling it through stupidity or simple corruption.
I would take issue with the idea that the brokers broke the laws of capitalism: the only law is to make money. If that involves breaking the law but you’ll profit more than you’ll probably have to pay, do it. If that involves profitting from others’ inability to be paranoid enough about the apparent value of what you’re selling, so be it. Anything, be it a coat, your life, or your freedom, is ultimately monetisable and its value can be determined only by The Market [Choir:Aaahhhh!]. If people are willing to pay $150 for a roll of singles with a twenty dollar bill on top, that’s what it’s worth. If people had only got stupider, they might have never cottoned to the fact that these things weren’t worth their weight in tulips, or maybe not until Pres. McCain would have got a _real_ chance at extending his F.D.R. impression beyond the “my friends”.
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I am from Malta and too poorly know English, tell me right I wrote the following sentence: “Cheap flights and airline tickets available for discount travel.”