How do You “Overhaul” a Lack of Regulatory Will?
Greg Ip explains that Alan Greenspan could have avoided that housing bubble-born financial crisis, contrary to his protestations otherwise. Felix Salmon concurs in part:
Alternatively, says Ip, Greenspan could have taken the regulatory approach: requiring 20% downpayments or mortgage insurance for all mortgages, for instance, or requiring stricter underwriting at the originator level. But of course, these moves, as Ip says, would never have been implemented by Greenspan, the great deregulator. [...] But I certainly agree that if the US had followed the lead of pretty much every other country in the world and simply regulated its lenders, a lot of the worst excesses of the bubble could have been avoided. I don’t know where major regulatory overhaul stands on the Obama administration’s list of priorities, but I do hope that by the end of this administration, we will no longer be in a position where lenders can lend out billions of dollars to homeowners with essentially no regulatory oversight whatsoever.
I think there’s a bit of a contradiction between the two highlighted sentences and it speaks to the core paradox underlying a lot of the discussion over financial regulatory reform, namely that it seems that regulators largely already had enough authority to avoid this problem. Looking back with 20/20 hindsight the issue isn’t so much that we needed better “rules” as it is that we needed regulators we took seriously the idea that cracking down on private sector funny business is their job. Instead, we seem to have mostly had regulators who regarded the laws on the books as an unfortunate and anachronistic departure from a pure laissez faire ideal. So you got things like the SEC prosecuting celebrities on tenuous charges, but no real oversight of a mortgage sector run amok. When you look back at the trajectory leading up to the crisis, the problem of “deregulation” isn’t so much that there’s some particular rule that was removed during the Greenspan Era that could have saved us as it is that the mindset that drove the legislative agenda of deregulation ultimately proved paralyzing to policymakers. If you decide that, in theory, minimal regulation is desirable because rational self-interest will create a self-policing market then this theory will color your perception of a bubble—specifically, you won’t see the bubble (this is, as they say in the philosophy departments, the interdependence of fact and theory). I’m not really sure what kind of overhaul prevents that problem. What you need are better people—people less in thrall to a heroic Randian vision of capitalism.
44 Responses to “How do You “Overhaul” a Lack of Regulatory Will?”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
March 16th, 2009 at 2:48 pm
What you need are better people—people less in thrall to a heroic Randian vision of capitalism.
Let me edit that for you: “What you need are better people—people less in thrall to $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.”
It wasn’t Ayn’s brilliant arguments that won over throngs of acolytes, nor was it her silky legs.
March 16th, 2009 at 3:09 pm
We see this happening right now, with the whole bonus mishegas.
UAW workers had a contract with automakers. But there was no problem whatsoever breaking that open and taking our pound of flesh from the guys who weld autos for a living. Now we’re in a situation where the guys responsible from bringing down their company (and who bear no small responsibility for shrinking the paychecks of auto welders in Michigan) can’t be touched because they are magically protected by a contract. Contract law morphed from being an inconvenience so trivial it wasn’t worthy of mention to being an impenetrable force field.
Really, the biggest problem we have is that we’ve allowed these guys to become aristocracy. As a society, we seem to believe we must never, ever leave them holding the bag. Even when we have the tools and every reason to use them, we don’t, because the greater good is synonymous with their good. It’s nuts.
I don’t know what this is, but it’s not capitalism.
March 16th, 2009 at 3:10 pm
Not exactly. We do need more regulations, not just better regulators. A lot of the real complicated risky (and shitty) products are not traded on regular exchanges. Hedge funds and private equity funds are not regulated. These guys can take huge risky positions without any regulatory oversight whatsoever (resulting in overall systemic risks).
The goal of regulations should be that their effectiveness should not depend on who is currently doing the regulating. While I agree that basic competence (of regulators) matters, trying to rely exclusively on “good guys” is not a long term solution. Regulation should be smart and sufficiently self-policing that the regulator becomes less important. Therein lies the challenge.
March 16th, 2009 at 3:29 pm
The “contract” defense was put forth by AIG’s lawyers I believe. What would you expect them to say? They get paid ( a lot)to spin BS for their clients.
But we have lawyers too…one of them is the President. There are excellent counter-arguments — the union contract re-negotiation is one of the best. And the jury is the American public. We’ll see how it comes out over the next few months. I can see the DNC and the DNSC salivating. not to mention the AFL.
March 16th, 2009 at 3:32 pm
“Alternatively, says Ip, Greenspan could have taken the regulatory approach: requiring 20% downpayments or mortgage insurance for all mortgages, for instance, or requiring stricter underwriting at the originator level”
Matt:
You are totaling missing the point of mortgage regulation in the 1995 to 2007 period, which was to encourage more loans to marginal people living in “lower income and minority” communities. Everybody who was anybody defended easing credit standards in the name of fighting redlining:
Barney Frank, George W. Bush, Chris Dodd, Agnelo Mozilo, Henry Cisneros, Franklin Raines, Barack Obama, Bill Clinton, Roland Arnall, Bruce Marks — everybody who was anybody.
It was all a fraud, of course: massive collusion between the business community, the politicians, and leftist “community organizers” to defraud taxpayers and savers.
March 16th, 2009 at 3:37 pm
The National Community Reinvestment Coalition, “the nation’s social justice trade association,” trumpets almost $4 trillion in Community Reinvestment Act pledges between 1997 and 2004. This was a racket where lenders who wanted to make more cruddy loans (which they could bundle up and resell) won themselves protection from regulators against predatory lending by signing deals with leftist “community groups” about how they were going to lend not less but even more to “lower income and minority communities.”
How could the regulators objects when Left and Right had come together in sweet harmony?
March 16th, 2009 at 3:38 pm
So that is the “overhaul” of the rules Matt doesn’t seem to understand is possible: Cpngress can make some rules, and the Obama Administration can help put in place people to make better rules as well. But we definitely do need better rules, not just people who have whatever Matt would consider to be a better vision of capitalism.
Yes we need all of the above. Better rules, more rules, better and more regulators. Bernanke has been saying this and Rahm Emanuel has said regulatory reform will be done this year.
Past mistakes:
The Commodities Futures Modernization Act (2000) allowed unregulated derivatives to run wild.
The repeal of Glass-Steagall (1999) allowed depository banks to become far more intertwined with Wall Street.
Thanks Bill Clinton. Good leadership. Was this the fabled bridge to tomorrow?
In 2004 the SEC allowed the five big investment banks to leverage up from 12-to-1 to 35-to-1 or more.
And the “shadow” banking system – which has grown exponentially – is unregulated. Basically if a firm is “too-big-to-fail” it should be regulated up the butt.
I think Larry Summers has learned the right lessons. He gave a good speech at the Brooking institution about a list of recent economic crises: “Savings and Loan crisis of the ’80s, East Asia, Long-Term Capital Management, Enron, etc.”
March 16th, 2009 at 3:47 pm
Almost all the regulation and deregulation involving mortgage lending in the Clinton and Bush Administrations pushed in the exact same direction: it was all justified, whether more regulation or deregulation, as increasing lending to “lower income and minority” communities, per the Community Reinvestment Act. That was just a cover for a lot of self-interested operators, but the mantra of diversity is so strong these days that con men use it. Bush’s public goal was to drive up minority homeownership by 5.5 million households by 2010, which would have made a lot of money for Countrywide and Lehman Bros, but was obviously headed for trouble due to the much higher default rates seen among blacks and Hispanics, especially marginal ones. But political correctness makes us stupid, especially stupid about seeing how we are being lied to by conmen who know all the right PC jargon to intimidate people into not protesting.
March 16th, 2009 at 3:48 pm
Something to keep in mind is how Boiler Room operators like Roland Arnall of Ameriquest and Angelo Mozilo of Countrywide used political correctness to keep regulators off their backs. Is it any surprise that having made the concept of diversity sacred and above question, it gets exploited by the Boiler Room Boys?
I’ve quoted before from Mozilo’s prestigious 2003 Harvard address in which he promised to lend $600 billion to low income and minority borrowers over seven years. Mozilo’s big speech is very similar to Bush’s speeches of the same era about how America must create 5.5 million more minority homeowners. Here’s a part I didn’t get to, in which Mozilo repeatedly invokes the mantra from the Community Reinvestment Act about increasing lending to “low-income and minority borrowers” to argue against anti-predatory lending regulations. It all makes sense if you assume that a big problem in America in the 2000s is racist financial institutions not lending enough money to minorities.
“The next structural obstacle I would like to address is predatory mania, or to be more exact, the predatory lending legislation that is causing regulatory mania. From my perspective, there is absolutely no question that lending abuses have and are taking place relative to loans to low-income and minority borrowers. These abuses – whether they are loan flipping, the bait and switch, packing of fees, or any other unfair practice – must be addressed so that all Americans who desire to become homeowners will be treated equitably.
“There is also no doubt, in my opinion, that we’ve worked together to make progress in this area – exposing many of the worst predators feeding in the sub-prime markets. And at Countrywide, we’re proud to have been the first lender to sign the Declaration of Fair Lending Principles and Practices with HUD in 1994 and the first lender to renew that Declaration in the year 2000. But now we are running the real risk, as the saying goes, of throwing the baby out with the bathwater. During 2001 and 2002, approximately 145 predatory lending bills were introduced by states, cities and various municipalities. …
“I don’t mind the attention, nor do I question the intention. These laws were allegedly enacted to protect borrowers from lenders who abuse the unsophisticated, low-income, elderly and minority communities by charging high interest rates and fees and fraudulently imposing unfair terms. These lenders deserve unwavering scrutiny and, when found guilty, an unforgiving punishment. But while there is a formal definition of what constitutes sub-prime lending, there is currently no formal definition of predatory lending. Thus, the Federal Government, not to mention each state, city, and county, is left to its own interpretation. Lenders are then left with a patchwork of legislation and a pile of regulation that is sometimes contradictory, often confusing, and increasingly, as new evidence is suggesting, counter-productive.
“A clear example of this counter-productive phenomenon is the state of Georgia. The anti-predatory lending measure that became law in Georgia last October is so complex, and the consequences of a violation – intended or otherwise – are so severe, that lenders and the secondary market have been forced to stop making or buying so-called highcost loans. As a result, the availability of credit to many families has been curtailed out of the fear of possible lawsuits or other intended or unintended consequences. The immediate result of this unfortunate legislation is that Freddie Mac, a company chartered by the Federal Government, has “seriously” curtailed its mortgage purchase activities in Georgia, and Fannie Mae has promptly followed suit. Their obvious concerns are related to the egregious consequences to lenders and investors who are involved with loans that are traditionally made to low income borrowers, many of whom are minorities. I don’t blame Freddie Mac or Fannie Mae; I blame a system that is spiraling out of control.
“North Carolina, the birthplace of predatory lending laws, is another example. It was originally believed by the author of the North Carolina predatory legislation that there was no adverse impact on lending in their state resulting from the passage of the law. But two recent studies – one conducted by Georgetown University’s Credit Research Center, the other by Keith Harvey of Boise State and Peter Nigro of the Treasury Department – show that sub-prime lending in North Carolina is decreasing, not just in the number of loans, but in the number of low-income and minority families applying for those loans. …
“The conclusion we can draw from these examples is that all lenders, and the entire sub-prime lending market for that matter, cannot be brushed with one broad stroke. Sub-prime lending is not the same thing as predatory lending. And there is no way that a reputable, national lender – whether it is Countrywide, Washington Mutual, Wells Fargo, or Chase – can operate under hundreds of laws that bear no similarity to one another apart from the fact that they all contain the word “predatory.” In the end, this patchwork of legislation, or “zoo” as one of the Governors on the Federal Reserve Board described it, will only inhibit lending by major, mainstream lenders, not encourage it. That, in turn, will leave the door open for the true predatory lenders.
“And it will ultimately shut the door to homeownership for hard-working, low-income and minority families. If mortgage credit dries up in Georgia, in North Carolina and elsewhere, not only will the reasonable parity in homeownership rates [among the races] become a pipedream, but there will be an inevitable slowdown in other sectors of our industry because of the sequential nature of the homebuying cycle. We cannot allow that to happen. To make sure it doesn’t, we must work together – politicians, lenders, and community groups alike – to encourage preemptive Federal legislation that clearly defines predatory lending by addressing the real, rather than the imagined abuses. We must, in other words, keep our eyes on the prize: helping the American people – all the people – move along the road to homeownership at the lowest possible cost. Plainly put, we should be removing barriers, not creating new ones. ”
There’s a Kabuki theatre aspect to these ritual controversies over predatory lending. Community reinvestment activists complain about predatory lending to low income and minority borrowers until such time as they all agree that low income and minority borrowers will get even more money loaned to them. To the Man from Mars, this “solution” of more lending sounds like the exact opposite of what was being complained about (too much lending).
March 16th, 2009 at 3:53 pm
The second sentence is right, the first I think is a bit misleading: Greenspan would have needed to build something of a new regulatory infrastructure himself if he wanted to reign in non-bank lenders.
March 16th, 2009 at 3:56 pm
Felix—Rein in. Like a horse. Pull back on the reins.
March 16th, 2009 at 3:56 pm
The big banks are currently enduring “stress tests” – aka proctology examines – and it was interesting to see Bernanke as relatively optimistic last night on 60 Minutes.
He said the “stress tests” are designed to find out if the banks can withstand an even tougher environment than the one they currently face, which I didn’t realize. I thought they were just looking to find out which ones were and weren’t solvent.
March 16th, 2009 at 4:24 pm
For Hispanics, mortgages originated for home purchases went up in dollar value 691% between 1999 and 2006.
For blacks, 397%
For Asians, only 218%.
For non-Hispanic whites, about 100% (there was a methodological change between 1999 and 2006 in federal Home Mortgage Disclosure Act database so it can only be approximated.)
The point was was to use the war against discrimination to lower credit standards for everybody, including deadbeat whites.
Some regulators in states tried to fight back against the boiler room tactics being used by lenders to talk fools into taking out mortgages they never had a chance of paying off, but at the federal level, the diversity crusade against redlining, the holy cause of minorities getting their fair share of the American Dream, steamrollered over almost all opposition.
March 16th, 2009 at 4:30 pm
The usual Left-Right paradigm does not fit at all what happened in the Mortgage Meltdown. More like fake competition between Left and Right interest groups leading to collusion to defraud taxpayers and savers.
March 16th, 2009 at 4:30 pm
Gee, I wonder how many of those low-income and minority borrowers had ever heard of credit default swaps. One? Two?
March 16th, 2009 at 4:32 pm
Or structured finance? Or “senior tranches”?
March 16th, 2009 at 4:44 pm
Steve Sailer,
You keep pushing the idea that the crisis resulted from pressures placed on banks to make loans to poor black people. I don’t care whether this argument is “politically correct” or not, but I think it’s a bad argument for two reasons.
First, banks didn’t need to be pressured into making bad loans. You’re assuming the banks had an interest in ensuring that the mortgages they originated were paid back, but they didn’t. Banks didn’t make their money by holding mortgages and collecting the interest payments. They made their money off origination fees and then sold the mortgages on the secondary market. It was of no concern to them whether the mortgage eventually defaulted or not. That’s why banks encouraged people to lie about their income. Given their incentives, you don’t need political correctness to explain why they made bad loans.
Second, the financial crisis goes way deeper than just subprime mortgages. You had trillions of dollars of derivative contracts. White guilt doesn’t explain credit default swaps. The forces of political correctness weren’t pressuring investment banks to purchase mortgage backed securities. I just don’t think your racial hypothesis has a lot of explanatory power.
March 16th, 2009 at 4:47 pm
What you need are better people
This is the liberal fallacy, writ small: the problem was not with the system, we just needed better people. Ever and anon. Of course, Greenspan was (re)appointed by Clinton, who also signed off on the repeal of Glass-Steagall; and was widely regarded as some sort of monetary übermensch just five years ago. The call for better people would ring more true if there actually had been some large contingent of Democrats or liberals, five years ago, agitating for stricter lending standards. You seem to want to rewrite history and pretend that this was some rightwing agenda that was pushed through over the objections of more sensible progressives, instead of a very bipartisan rush into folly.
I also think Ip’s prescription for Greenspan is naive. He suggests ‘requiring 20% downpayments or mortgage insurance for all mortgages’. Well, we got mortgage insurance on a bunch of mortgages that turned out to be backed by parties with no ability to pay. And let’s think for a moment about requiring 20% downpayments: would Dodd have signed on to this idea? Barney Frank? George Bush? No, they were all in love with the homeownership society; and requiring 20% down frankly would have had such a disparate racial impact that it would have been politically DOA. Hell, try it now, after the bubble has made us wiser; will the idea fly?
If you decide that, in theory, minimal regulation is desirable because rational self-interest will create a self-policing market then this theory will color your perception of a bubble—specifically, you won’t see the bubble
Only someone ignorant of history would claim that unregulated markets can’t create bubbles. But at least under laissez faire the uninvolved are not called on to pay off the debts of foolish speculators.
March 16th, 2009 at 4:50 pm
DTM,
Sailer’s not a troll. He’s entirely sincere in what he says. I don’t think you need to ignore him.
March 16th, 2009 at 4:56 pm
Better regulations or better regulators?
Two words: Harvey Pitt.
March 16th, 2009 at 4:59 pm
This ignores the fact that we wanted, we intended, the housing bubble. The recession of 2001 was used as an excuse by Bush to make the biggest transfer of money to the wealthiest 1 percent the nation had ever seen – of course, that was before he outdid himself last year. Given the decline of the stock market, and given the unwillingness of a Bush white house to consider any government stimulus that wasn’t a war – which was not a great sitimulus – the assets bubble was the way to go. It was the conservative answer to Keynes. Instead of government borrowing money, in the ownership society, your householding gets that equity loan to strip out value of an asset that is going in a linear direction up, up up. What this did was political: it relieved the pressure on the administration that would normally have resulted from the shortfall in incomes. An astonishing shortfall, considering the profits companies were making.
So: the housing bubble solved that problem. The right worked intentionally and overtly to pump up the price of houses. The Gramm Commodities future bill, which deregulated mortgage lending, and the Greenspan easy money regime, were the matrix in which the bubble was nourished. The unregulated securities market provided the feedback – because nothing can happen without the rich taking their vig.
To think this structure came together by accident, or that it was a mistake, is simply forgetting our recent history.
Rightwing political economy will always, always involve increasing the volatility of the business cycle, since it always, always involves cheesy, unregulated schemes by the leading kleptocrats.
This is the kind of “accident” that THE Edward G. Robinson character in Double Indemnity would sniff out in a minute.
March 16th, 2009 at 5:23 pm
And you’re doing such a great job!
March 16th, 2009 at 5:49 pm
The authority for the Federal Reserve to regulate standards throughout the mortgage process is contained in the Home Owners Equity Preservation Act, one of the last bills passed by the Banking Committee’s Democratic leadership in 1994 before they went into the minority for 12 years. It allows the Fed to set standards at all points throughout the mortgage lending process. Greenspan chose never to issue regulations under that authority.
March 16th, 2009 at 6:10 pm
Also, I believe that HOEPA applies not just to all banks and thrifts (regardless of whether federally or state chartered), but even to mortgage brokers and other non-bank institutions that originate or securitize mortgages.
March 16th, 2009 at 6:21 pm
DTM,
After googling his various contributions I’m persuaded of the wisdom of your approach. The guy just posts the same crazy shit over and over again and doesn’t respond to obvious criticisms. There’s no sense reasoning with racist people like Steve Sailer and Julian Elson.
March 17th, 2009 at 12:51 am
You know, I read through all of these comments, and unless I missed something not once has anyone even hinted that people who took out mortgages they could not pay might bear any responsibility for them. Lost count of the mentions of ‘predatory lending’.
Y’all got a bit of a blind spot.
March 17th, 2009 at 2:43 am
Paulie Carbone:
“You keep pushing the idea that the crisis resulted from pressures placed on banks to make loans to poor black people. I don’t care whether this argument is “politically correct” or not, but I think it’s a bad argument for two reasons.
First, banks didn’t need to be pressured into making bad loans.”
What happened is actually more subtle than that.
Consider noted sleazeball Angelo Mozilo, who ran the biggest boiler room mortgage originator operation, Countrywide. Repeatedly, Mozilo pre-emptively went on the attack against states thinking about regulating his kind of predatory lending by making agreements with leftist community organizations and the federal government to lend more mortgage money to minorities and lower income borrowers. His repeated proclamations that Countrywide stood in the frontline in the war between the Good People of America and racist redlining gave an aura of Politically Correct sanctity to his pump and dump business.
Take a look at this Countrywide press release of March 15, 2001:
“Angelo Mozilo, chairman and chief executive officer of Countrywide Home Loans, Inc., a national leader in residential finance, announced the company’s One Hundred Billion Dollar Challenge, a new $100 billion commitment to increasing homeownership among low income and minority home buyers over the next five years. The announcement was made last evening at The Greenlining Institute’s Economic Development Summit in Sacramento, CA.
“”I am honored to be able to renew our commitment to under-served Americans and share Countrywide’s core values of lowering the barriers to homeownership,” Mozilo said. “It’s particularly important to announce our One Hundred Billion Dollar Challenge to The Greenlining Institute, a group dedicated to protecting the interests of lower income and minority individuals.”
“Mozilo said homeownership strengthens the very fabric of society, as new homeowners gain a stake in their community, contribute to the economy, and build their own financial worth. “That is why Countrywide takes so seriously its own long-term commitment to fair lending, affordable housing and lending to under-served communities. And while we are proud of our three-decade record in this arena, we’re not ready to rest yet.”
“In 1992, Mozilo formalized Countrywide’s commitment to affordable lending by launching House America, an initiative to provide increased homeownership opportunities for all Americans. Also that year, Countrywide developed a low down payment home loan that would appeal to lower-income borrowers, setting a goal of originating $1.25 billion in such loans. The commitment to affordable lending was raised to $5 billion the next year.
“In 1994, the commitment to fair lending and affordable housing was again increased. Countrywide was the first lender to voluntarily sign an ambitious document entitled “A Declaration of Fair Lending Principles and Practices” with the U.S. Department of Housing and Urban Development.
“In 1998, Countrywide announced its We House America campaign — a five-year commitment to originate $50 billion to minority and lower-income families and communities. In 1999, that commitment was raised to $80 billion.”
March 17th, 2009 at 2:50 am
For sheer shameless promotion of the reigning conventional wisdom about the need to close racial gaps in home ownership rates, Mozilo’s showcase Harvard speech in 2003 compares to George W. Bush’s speeches of the same vintage:
The American Dream of Homeownership: From Cliché to Mission
Presentation by Angelo R. Mozilo Chairman
President and Chief Executive Officer, Countrywide Financial Corporation & Chairman, Countrywide Home Loans, Inc.
The Joint Center for Housing Studies of Harvard University
John T. Dunlop Lecture
Sponsored by The National Housing Endowment Washington, DC
February 4, 2003
” It’s a personal honor because over 34 years ago my partner and I founded Countrywide with the objective to lower the barriers and open the doors to homeownership. …
“Lower interest rates, the push for greater diversity in homeownership, and massive immigration into the U.S. have created both challenges and opportunities. However, despite the fact that approximately $2.5 trillion in mortgage loans were made in 2002, the gap between low income and minority homeownership, and what is classified as white homeownership, remains intolerably too wide. Therefore, expanding the American Dream of Homeownership must continue to be our mission, not solely for the purpose of benefiting corporate America, but more importantly, to make our Country a better place.
” It started with the New Deal, and now, we’re in a new century. But through it all, one thing has remained, more or less, constant. This constant is our challenge. And this challenge is to increase the access to affordable housing. And in order to do this, we must close the homeownership gap that still exists. …
” As President Bush said last October: “Two thirds of all Americans own their homes, yet we have a problem here in America because fewer than half of the Hispanics and half of the African Americans own their home. That’s a homeownership gap. It’s a gap that we’ve got to work together to close for the good of our Country, for the sake of a more hopeful future. We’ve got to work to knock down the barriers…”
” While the number of minority homeowners has advanced recently, climbing from 9.5 million in 1994 to 13.3 million in 2001 – an increase of 40 percent – the fact remains that it is still not at a level equal to that of white homeownership. And as President Bush pointed out, the homeownership rate for African Americans is 47 percent and for Hispanic Americans it is 48 percent, a stark contrast to the homeownership rate of 75 percent for white American households. That means there is currently a homeownership gap of over 25 points when comparing white households with African Americans and Hispanics. My friends, that gap is obviously far too wide. It has been far too wide for far too long. And when adding new factors into the equation – like an influx of new immigrants or continued reduction in the supply of affordable housing – it has the potential to become far worse….
” One of the more obvious resolutions to the Money Gap is the elimination of down payment requirements for low-income and minority borrowers. Current down payment requirements of 10 percent or less add absolutely no value to the quality of the loan. It is the willingness and the ability of a borrower to make monthly payments that are the determinants of loan quality. Over the past 50 years, I have personally interviewed thousands of potential homebuyers and in the vast majority of cases, the barrier standing in between them and the house of their dreams was the down payment. That barrier must be eliminated by offering customized programs to those borrowers who cannot meet the current down payment requirements.
” Equally important, we must reduce the documentation required to make any and all loans; we should be able to approve loans in minutes, rather than days, and close loans in days, rather than weeks.
” So I’d like to use this forum this evening to say that Countrywide is once again re-dedicating itself to expanding the dream of homeownership. Tonight, I am announcing the extension and expansion of our current 5-year, $100 billion challenge through the year 2010, with the commitment to fund a total of $600 billion in home loans for previously underserved Americans in this decade.”
March 17th, 2009 at 2:57 am
Immediately after promising $600 billion in mortgages to “previously underserved Americans” in his Harvard speech, Countrywide’s Mozilo went on the attack against anti-predatory lending laws in Georgia and North Carolina, with constant references to how restrictions on his Glengarry Glen Ross-style boiler rooms would hurt “low income and minority families:”
“The anti-predatory lending measure that became law in Georgia last October is so complex, and the consequences of a violation – intended or otherwise – are so severe, that lenders and the secondary market have been forced to stop making or buying so-called highcost loans. As a result, the availability of credit to many families has been curtailed out of the fear of possible lawsuits or other intended or unintended consequences. The immediate result of this unfortunate legislation is that Freddie Mac, a company chartered by the Federal Government, has “seriously” curtailed its mortgage purchase activities in Georgia, and Fannie Mae has promptly followed suit. Their obvious concerns are related to the egregious consequences to lenders and investors who are involved with loans that are traditionally made to low income borrowers, many of whom are minorities. I don’t blame Freddie Mac or Fannie Mae; I blame a system that is spiraling out of control.
“North Carolina, the birthplace of predatory lending laws, is another example. It was originally believed by the author of the North Carolina predatory legislation that there was no adverse impact on lending in their state resulting from the passage of the law. But two recent studies – one conducted by Georgetown University’s Credit Research Center, the other by Keith Harvey of Boise State and Peter Nigro of the Treasury Department – show that sub-prime lending in North Carolina is decreasing, not just in the number of loans, but in the number of low-income and minority families applying for those loans. …
“The conclusion we can draw from these examples is that all lenders, and the entire sub-prime lending market for that matter, cannot be brushed with one broad stroke. Sub-prime lending is not the same thing as predatory lending. And there is no way that a reputable, national lender – whether it is Countrywide, Washington Mutual, Wells Fargo, or Chase – can operate under hundreds of laws that bear no similarity to one another apart from the fact that they all contain the word “predatory.” In the end, this patchwork of legislation, or “zoo” as one of the Governors on the Federal Reserve Board described it, will only inhibit lending by major, mainstream lenders, not encourage it. That, in turn, will leave the door open for the true predatory lenders.
“And it will ultimately shut the door to homeownership for hard-working, low-income and minority families. If mortgage credit dries up in Georgia, in North Carolina and elsewhere, not only will the reasonable parity in homeownership rates [among the races] become a pipedream, but there will be an inevitable slowdown in other sectors of our industry because of the sequential nature of the homebuying cycle. We cannot allow that to happen. To make sure it doesn’t, we must work together – politicians, lenders, and community groups alike – to encourage preemptive Federal legislation that clearly defines predatory lending by addressing the real, rather than the imagined abuses. We must, in other words, keep our eyes on the prize: helping the American people – all the people – move along the road to homeownership at the lowest possible cost. Plainly put, we should be removing barriers, not creating new ones.”
http://www.jchs.harvard.edu/publications/homeownership/M03-1_mozilo.pdf
March 17th, 2009 at 3:17 am
Are you starting to see how Angelo Mozilo’s scam worked, now? It took me forever to figure it out, so don’t feel bad if you haven’t got it yet.
Mozilo, the boss of Countrywide, was basically like the Alec Baldwin character in David Mamet’s Glengarry Glen Ross, motivating a bunch of high pressure mortgage salesmen to give huge zero down payment liar loans to a bunch of fools who couldn’t begin to understand all the numbers in the contracts they were signing. In turn, Countrywide would bundle up these dubious mortgages and sell them as Mortgage-Backed Securities to Fannie Mae or to investment banks, who would unload them on Arabs, Chinese, Europeans, American banks, and any other poor dumb suckers who didn’t realize they were garbage or who thought they could find an even bigger fool than themselves.
Alec Baldwin was not the hero of Glengarry Glen Ross. People don’t always like a guy like that. So, Mozilo was vulnerable to various kinds of regulations on the mortgage industry, such as minimum down payment rules, rules requiring documentation of income, and so forth.
So, what Mozilo did was wrap Countrywide in the sacred flag of Diversity! These weren’t crap loans to idiots who could never pay them back, this was the frontline in the war on racism! He was fighting redlining! Look, the leftist Greenlining Institute said so. He’d signed a pledge with the Greenlining Institute not to lend less to lower income and minority borrowers, but to lend even more! Would the Greenlining Institute sell out lower income and minority borrowers??? Of course not! Would Franklin Raines’s Fannie Mae betray minority borrowers by endorsing Countrywide as a “paragon” of diversity sensititivity?
In reality, of course the Greenlining Institute and Fannie Mae would sell out anybody in return for their cut of the action.
There’s a kabuki ritual aspect to many leftist “community reinvestment” groups. They make their living giving “regulatory cover” to big financial institutions that want to make riskier loans. Then the media writes it up as a heartwarming example of the White Male Capitalist Power Structure and the Righteous Voice of the Community coming together and finding a win-win solution. What they don’t tell you is that it’s a win-win-lose solution, with the third party being the general public.
Do you see how it worked?
March 17th, 2009 at 9:42 am
Steve,
I understand the point you’re trying to make, and I have no interest in defending Mozilo. But don’t you think you’re attaching a little more causal weight to this diversity factor than the evidence would warrant. More to the point, you don’t really address the role of securitization, derivatives, credit default swaps, etc. The people buying these weren’t just Arabs, Chinese, and “other poor suckers.” I also don’t think you need to invoke diversity-based regulatory-cover because there was no inclination to regulate in the first place. In short, your theory explains things that don’t need explaining –why banks made bad loans, why the government didn’t regulate the financial industry– but doesn’t explain the things that do need explaining why Goldman Sachs (hardly an ACORN type outfit) would wasted billions on credit default swaps.
March 17th, 2009 at 9:46 am
What Stever Sailer doesn’t tell you is that anti-predatory lending laws were sponsored by the very same lefty groups he wrongly claims were cooperating with Countrywide.
In point of fact, ACORN and community development corporations all across American, in addition to running anti-redlining campaigns, ran anti-predatory lending programs, pushing for regulation while operating “Don’t Borrow Trouble” seminars for first-time homebuyers, immigrants, and other groups most commonly targeted by predatory lenders.
The fact that predatory lenders wrapped their practices in pretty language often used by the left demonstrates social-justice organizations support for predatory lending about as much as the fact that neoconservatives prettying up their imperialist ambitions in democratic language demonstrated leftist support for the Iraq War; that is, not at all.
It was a scam intended to produce a false impression of cooperation where there was actually conflict. I guess it was enough to fool Steve Sailer.
Google “Don’t Borrow Trouble.”
March 17th, 2009 at 6:40 pm
“What you need are better people—people less in thrall to a heroic Randian vision of capitalism.”
The solution is simple. Pay half the regulator’s salary in derivatives linked to the performance of the broader economy (with, of course, some sort of time-lag)!
After all, if options are what motivates CEOs to do a wonderful job, they can’t help but do the same for regulators.
March 18th, 2009 at 3:27 pm
There should be more content on this
March 18th, 2009 at 9:37 pm
Want to see more of this
March 22nd, 2009 at 9:35 pm
bookmark it
March 22nd, 2009 at 9:47 pm
hello
just thanks
March 22nd, 2009 at 9:54 pm
i’ll reed it againn
March 22nd, 2009 at 9:58 pm
bookmark it
March 22nd, 2009 at 10:12 pm
hello
just thanks
March 22nd, 2009 at 10:12 pm
i’ll reed it againn
March 30th, 2009 at 6:15 pm
Great stuff, thanks.
April 7th, 2009 at 4:12 am
I found your blog on google and read a few of your other posts. You’ve Got some Great thoughts.
I have been involved in a bunch of JV’s recently gather MANY marketing tools.
Check out the biggest Internet Marketing Tool Give-away
- Affiliate.Solutions
Make money Blogging: Blogging to make money
April 16th, 2009 at 10:12 pm
Very nice site. Will sure visit again.
I am from Poland and also now am reading in English, please tell me right I wrote the following sentence: “Book cheap airplane tickets, flights, cheap airline tickets from uk.”
Best regards
, Aure.