We've now entered a new stage of the financial crisis: the ritual assigning of blame. It began in earnest with Monday's congressional roasting of Lehman Brothers CEO Richard Fuld, and continued on Tuesday with Capitol Hill solons delving into the failure of AIG. 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.Washington Post columnist Charles Krauthammer provides an excellent example, writingthat "much of this crisis was brought upon us by the good intentions of good people." He continues: "For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity." The subtext: if only Congress didn't force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel's Neil Cavuto put it: "I don't remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."
Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?
These arguments are generally made by people who read the editorial page of The Wall Street Journal, and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice. Let's be honest. Fannie and Freddie, which didn't make subprime loans but did buy subprime loans made by others, were part of the problem. Poor congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem. 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 Actapplies 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.
Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), filed for bankruptcy in August. Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities. The multi-year plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least subprime housing markets in the nation.
Third, lending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all. That's what we've learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as The New York Timesrecently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent.
On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Brothers, or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity. And, here, again, it's difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33:1, that instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients money, and that required its septuagenarian CEO to play bridgewhile his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Brothers to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can't find it. Did AIG plunge into the credit-default swaps business with abandon because ACORN members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton's fault?
Look. There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb lending virus originated in Greenwich, Ct., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.
At Monday's hearing, Republican Rep. John Mica of Florida gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions to Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "de minimis."
Lending money to poor people doesn't make you poor. Lending money poorly to rich people does.
__________________
Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with sturdy alliances and enduring convictions. They understood that our power alone cannot protect us, nor does it entitle us to do as we please. Instead, they knew that our power grows through its prudent use; our security emanates from the justness of our cause, the force of our example, the tempering qualities of humility and restraint.
It is sad that anyone would try to blame poor people and minorities for this crisis.
Greedy Americans feeding of Greedy Americans, they are both sluts rich and poor.
It's really simple, if you haven't the funds to buy a house or a car, then your rent and walk. If you do borrow money from any source, you pay it back. Which part of self responsibility can't these fucking dumb fucks understand ? is all a game of shifting responsibility on all fronts, fucking pathetic.
Greedy Americans feeding of Greedy Americans, they are both sluts rich and poor.
It's really simple, if you haven't the funds to buy a house or a car, then your rent and walk. If you do borrow money from any source, you pay it back. Which part of self responsibility can't these fucking dumb fucks understand ? is all a game of shifting responsibility on all fronts, fucking pathetic.
But we are Americans, we are Gods and we own the world, how dare you? I want my Escalade now, thank you
Who's responsible for this mess are the dumb asses who made the high risk loans to begin with. When John X sees his neighbor, Bill Q buy a big screen TV, he thinks he has to compete by buying one, as well, whether he has the money or not. Mr. Banker man will help him out. That is middle class philosophy, which I do not subscribe to. You've got to remember that many who got these sub prime loans were in no position, financially, to pay them back, but, got them anyway. I used to look at the guy who owned a big house and driving a new Lexus or BMW as 'rich'. Now, I shake my head, knowing he's most likely working 2 jobs and struggling to make payments, just to try to impress people.
^^
Ha, it's like looking at a parking lot here in the DC burbs, most cars are new but I know that 99% of them are a depreciating debt on the poor soles that left them while they are working their ass off and biting their nails to a pulp thinking about how they are going to pay for those McMansions they had moved in in the last five years.
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Quote:
Originally Posted by cmitch
Who's responsible for this mess are the dumb asses who made the high risk loans to begin with. When John X sees his neighbor, Bill Q buy a big screen TV, he thinks he has to compete by buying one, as well, whether he has the money or not. Mr. Banker man will help him out. That is middle class philosophy, which I do not subscribe to. You've got to remember that many who got these sub prime loans were in no position, financially, to pay them back, but, got them anyway. I used to look at the guy who owned a big house and driving a new Lexus or BMW as 'rich'. Now, I shake my head, knowing he's most likely working 2 jobs and struggling to make payments, just to try to impress people.
Oh how I miss that game of keeping up with the Jones's, what a fucked up little head game that is.........
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Quote:
Originally Posted by drewprof
^^
Ha, it's like looking at a parking lot here in the DC burbs, most cars are new but I know that 99% of them are a depreciating debt on the poor soles that left them while they are working their ass off and biting their nails to a pulp thinking about how they are going to pay for those McMansions they had moved in in the last five years.
My new Touareg is produced and waiting for the sea ride over from Europe. I paid 65k USD for the 50% Dp and the other 50% is sitting in IDR locked in and earning 13% today. It matures a month from tomorrow and I'll roll it over for another week or 2 and pay the thing off 100% once the bitch hits my driveway. Fuck I love this country and how it has made me pay for what I want........
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But what if one
IS
"the Jones"
I hasten to add we are NOT (quite)
However a wee anecdote
Coming from a farming background ie father actually worked the land, no debt, say and pay for etc etc.
Stupid bitch of a no good spendthrift sister-in-law was comparing notes with one of her friends when I dropped in to visit the brother one day.
the gist of it was they were discussing a mutual acquaintenance.
New house
new furniture
New Cars
New clothes
Endless eating out
Two holidays
etc
etc
Then Yer woman says
"I dont see how they can afford it"
Having sat mute to this point
I interjected
"They cant afford it"
Boy o boy was I frozen out for that remark.
Sheesh!!
Alternalely
the local multi millionare travelled in a decrepit old car , dungarees & car covered in shit as he pottered about farming.
sound man that, by my standards
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