A growing 'amnesia' of the Economic Crisis

[ShaklesOfBigGov]

My other question shady.

Why are you going back to 1995? There were no crazy sub prime loans being made yet. They didn't really start until after 1999.

You know what happened in 1999 that set the whole thing in motion to collapse? Look it up.
Start with Grahm Leach.

You really need to read the government document on CRA regulations with banks I previously included, several changes to CRA have been made since that point.

 

[zeke]

Hey Shady. You believe what ever floats your boat. I think I will go with the facts. CRA was not the culprit that you and others claim.

Sub prime loans made by lenders not under CRA requirement were the biggest problem.

But what the hell. Rewrites of history are a part of American folklore. No reason to stop now. Carry on.

 

[editec]

My other question shady.

Why are you going back to 1995? There were no crazy sub prime loans being made yet. They didn't really start until after 1999.

You know what happened in 1999 that set the whole thing in motion to collapse? Look it up.
Start with Grahm Leach.

You really need to read the government document on CRA regulations with banks I previously included, several changes to CRA have been made since that point.

Yeah, I agree.'


CSA underwent many change since inception.

But the argument that CSA -- even with those changes -- caused the meltdown is wildly overstated.

MOST of the loans that went down had absolutely NOTHING to do with CSA.

Most of the bad paper was not created under that system, and most of the people who got sub prime loans did NOT buy property in formerly RED LINED neighborhoods.

THE SUN BELT and CALIFORNIA were where most of these bad loans happened.

And it wasn't crappy houses in slummy neighborhoods, it was MC MANSIONS in new developments that are the majority of bad loans.

And THOSE were given to RE FLIPPERS more than po' folk.

 

[ShaklesOfBigGov]

Hey Shady. You believe what ever floats your boat. I think I will go with the facts. CRA was not the culprit that you and others claim.

Sub prime loans made by lenders not under CRA requirement were the biggest problem.

But what the hell. Rewrites of history are a part of American folklore. No reason to stop now. Carry on.

Based on what facts exactly? Where are these sources that you base your opinions on..... links please?

 

[Toro]

CRA didn't cause the crisis.

 

[ShaklesOfBigGov]

My other question shady.

Why are you going back to 1995? There were no crazy sub prime loans being made yet. They didn't really start until after 1999.

You know what happened in 1999 that set the whole thing in motion to collapse? Look it up.
Start with Grahm Leach.

You really need to read the government document on CRA regulations with banks I previously included, several changes to CRA have been made since that point.

Yeah, I agree.'


CSA underwent many change since inception.

But the argument that CSA -- even with those changes -- caused the meltdown is wildly overstated.

MOST of the loans that went down had absolutely NOTHING to do with CSA.

Most of the bad paper was not created under that system, and most of the people who got sub prime loans did NOT buy property in formerly RED LINED neighborhoods.

THE SUN BELT and CALIFORNIA were where most of these bad loans happened.

And it wasn't crappy houses in slummy neighborhoods, it was MC MANSIONS in new developments that are the majority of bad loans.

And THOSE were given to RE FLIPPERS more than po' folk.

Yes there may have been mortgage foreclosures due to house flipping. However the regulators under the Clinton administration DID stress great importance upon "scoring" banks achievements and performances STRICTLY and SOLY based on their CRA Rating. A Bank's desiring to merge, since the new regulation enforcements in 1995, would be allowed to have their applications processed only after "great weight" was given FIRST over an institution's high performance CRA rating. Banks had their hands directly tied to these new CRA performance ratings government regulators sought after, that Fannie Mae (according to the New York Times) helped loosened mortgage standards so that these institutions could meet with these stricter CRA demands that the regulators wanted from them.


My point I'm trying to make is..... I don't see ANY separation between a banks performance lending standards on home mortgages, and the government regulator's demands of enforcing banks to meet with these CRA standards.

Why did Fannie Mae lower mortgage lending standards on banks, according to the New York Times? Can you give me a reason for this policy decision? It's an honest question I would like to have answered, as I did site a source from a LEFT leaning paper.

 

[ShaklesOfBigGov]

CRA didn't cause the crisis.

Based on...... ? Where are your facts that prove this?

I keep having to ask for these sources you all base this "opinion" on, yet absolutely nothing can be provided on this thread. I find that in itself to be rather interesting for all this supposed VAST "knowledge" that's out there on the issue.

If you are going to convince me of your argument, then I need proof of your resources that contradicts what I have already provided. I have provided my resources to back up my end of the discussion, let's see if you are truly able to back up yours.

 

[jwoodie]

CRA didn't cause the crisis.

Then why did all of these subprime mortgages suddenly appear?

 

[ShaklesOfBigGov]

Michael Bloomberg states the American people need to look to Congress for creating this mortgage crisis, not banks.

"It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that."

"But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."

Bloomberg: 'Plain and simple,' Congress caused the mortgage crisis, not the banks | Capital New York

 

[Toro]

CRA didn't cause the crisis.

Then why did all of these subprime mortgages suddenly appear?

Because they were highly profitable to underwrite.

Subprime had been around for decades. However, underwriters didn't go Full Retard until the 00s.

CEOs of subprime lenders made hundreds of millions of dollars. They had tremendous incentive to push as much product out the door. When the market collapsed, they all walked away extremely rich people.

 

[Toro]

CRA didn't cause the crisis.

Based on...... ? Where are your facts that prove this?

I keep having to ask for these sources you all base this "opinion" on, yet absolutely nothing can be provided on this thread. I find that in itself to be rather interesting for all this supposed VAST "knowledge" that's out there on the issue.

If you are going to convince me of your argument, then I need proof of your resources that contradicts what I have already provided. I have provided my resources to back up my end of the discussion, let's see if you are truly able to back up yours.

It's a reasonable request. That's why I started this thread a while back.

http://www.usmessageboard.com/economy/70006-cra-not-to-blame-for-housing-debacle.html

I have seen little, if any, empirical evidence to suggest that the CRA was the cause of the Financial Crisis. There have been narratives and arguments but not much hard data to back it up.

 

[ShaklesOfBigGov]

CRA didn't cause the crisis.

Based on...... ? Where are your facts that prove this?

I keep having to ask for these sources you all base this "opinion" on, yet absolutely nothing can be provided on this thread. I find that in itself to be rather interesting for all this supposed VAST "knowledge" that's out there on the issue.

If you are going to convince me of your argument, then I need proof of your resources that contradicts what I have already provided. I have provided my resources to back up my end of the discussion, let's see if you are truly able to back up yours.

It's a reasonable request. That's why I started this thread a while back.

http://www.usmessageboard.com/economy/70006-cra-not-to-blame-for-housing-debacle.html

I have seen little, if any, empirical evidence to suggest that the CRA was the cause of the Financial Crisis. There have been narratives and arguments but not much hard data to back it up.

Here is some of the proof you need, if you choose to take the time to read and care to follow the dots, there is a lot to digest. They actually flow quite nicely, from one article to the next, piecing together the BIG picture. Oh and I used government websites for two of the three sources.

Federal Reserve Board: Merger Process Needs Guidelines for Community Reinvestment Issues
( letter report 9/24/1999 GAO/GGD-99-180 )

In 1993, the Clinton Administration instructed the federal bank regulators to revise the CRA regulations by moving from a process- and paperwork-based system to a performance-based system focusing on results, especially the results in LMI areas of an institution's communities. Based on these instructions, the federal banking agencies replaced the qualitative CRA examination system with a more quantitative system that is based on actual performance.

(PAGE 4)




After the performance-based CRA regulations were issued in 1995, FFIEC published Interagency Questions and Answers regarding Community Reinvestment in 1997 and 1999. The 1989 statement was withdrawn effective April 5, 1999, and replaced by the Interagency Questions and Answers regarding Community Reinvestment.13 The 1989 Statement, which was in effect during the mergers contained in our study, including guidance on the following issues: * the basic components of an effective CRA policy, * the role of examination reports on CRA performance in reviewing applications, * the need for periodic review and documentation by financial institutions of their CRA performance, and * the role of commitments in assessing and institution's performance. Most notably, the regulators concluded in the Statement that the CRA record of the institution, as reflected in its examination reports, would be given great weight in the application process. In the Interagency Questions and Answers for 1999, the regulators continued to stress the significants of the CRA examination in the application process, and they stated the examination is an important, and often controlling, factor in the consideration of an institution's record. 14 According to the 1989 Statement, the CRA examination is not conclusive evidence in the face of significant and supported allegations from a commenter. Moreover, the balance may be shifted further when the examination is not recent or the particular issue raised in the 13 Questions and Answers regarding Community Reinvestment, 64 Fed. Reg. 23618-23648 (1999). 14 64 Fed. Reg. at 23641.
GAO/GGD-99-180

( PAGE 9 )




Guidelines for Community of Reinvestment Issues B-280468 application preceding was not addressed in the examination. During the development of the performance-based CRA regulations, a number of commenters expressed concern that the regulators may provide a "safe harbor" to depository institutions from challenges to their CRA performance record in the application process if they achieved an outstanding CRA rating. However, in the preamble of the 1995 final rule on the CRA regulations, the regulators reconfirmed the importance of the public comments in the applications process by acknowledging that materials related to CRA performance received during the applications process can and do provide relevant and valuable information.

Federal Reserve Board: Merger Process Needs Guidelines for

Fannie Mae Eases Credit To Aid Mortgage Lending

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com

Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market
CBO - CONGRESSIONAL BUDGET OFFICE
December 22, 2010


Fannie Mae and Freddie Mac are required to provide support for affordable housing by meeting certain goals set by regulators. Those goals specify the percentage of the GSEs’ mortgage guarantees and purchases that must involve loans used to finance rental housing for, or home purchases by, people with low or moderate income.

Despite the potential beneficial effects of federal involvement in the secondary mortgage market, the rules and market structure under which Fannie Mae and Freddie Mac operated before conservatorship--referred to in this study as the precrisis model--had numerous weaknesses. Those weaknesses included the following:

Adverse effects from the implicit federal guarantee of the two GSEs (such as a concentration of market power, risks to the stability of the larger financial system, incentives for excessive risk taking, and a lack of transparency about costs and risks to the government);
Limited effects on affordable housing:

Lax regulation; and

Tensions in trying to balance competing public and private goals.
The implicit federal guarantee concentrated market power in Fannie Mae and Freddie Mac by giving them lower funding costs than potential competitors in the secondary market. As a consequence, the GSEs grew to dominate the segments of the market in which they were allowed to operate. Because of their size and interconnectedness with other financial institutions, they posed substantial systemic risk--the risk that their failure could impose very high costs on the financial system and the economy. The GSEs’ market power also allowed them to use their profits partly to benefit their other stakeholders rather than exclusively to benefit mortgage borrowers.

The implicit guarantee created an incentive for the GSEs to take excessive risks: Stakeholders would benefit when gambles paid off, but taxpayers would absorb the losses when they did not. (Financial institutions that lack the benefit of a federal guarantee have less incentive to take risks because doing so can increase their financing costs, although some still act imprudently at times.) One way that Fannie Mae and Freddie Mac increased risk was by expanding the volume of mortgages and MBSs held in their portfolios, which exposed them to the risk of losses from changes in interest or prepayment rates. Over the past decade, the two GSEs also increased their exposure to default losses by investing in lower-quality mortgages, such as subprime and Alt-A loans.

Because the federal guarantee was implicit rather than explicit, the costs and risks to taxpayers did not appear in the federal budget. That lack of transparency made it more difficult for policymakers to assess and control the GSEs’ costs and risks. Lack of transparency also made it difficult for policymakers to evaluate whether the GSEs were effectively and efficiently meeting their affordable-housing goals; several studies have questioned the effectiveness of the GSEs’ affordable-housing activities.

 

[Toro]

Based on...... ? Where are your facts that prove this?

I keep having to ask for these sources you all base this "opinion" on, yet absolutely nothing can be provided on this thread. I find that in itself to be rather interesting for all this supposed VAST "knowledge" that's out there on the issue.

If you are going to convince me of your argument, then I need proof of your resources that contradicts what I have already provided. I have provided my resources to back up my end of the discussion, let's see if you are truly able to back up yours.

It's a reasonable request. That's why I started this thread a while back.

http://www.usmessageboard.com/economy/70006-cra-not-to-blame-for-housing-debacle.html

I have seen little, if any, empirical evidence to suggest that the CRA was the cause of the Financial Crisis. There have been narratives and arguments but not much hard data to back it up.

Here is some of the proof you need, if you choose to take the time to read and care to follow the dots, there is a lot to digest. They actually flow quite nicely, from one article to the next, piecing together the BIG picture. Oh and I used government websites for two of the three sources.

Yeah, I get all that. But that's what I mean when I say "narratives and arguments but not much hard data to back it up." Back it up with some data. The data, thus far, doesn't really support the view that the CRA was a big cause of the financial crisis.

For example, if you believe markets work - and most of the people arguing that the CRA was the cause are free market ideologues - then what should have happened was that the homes with the CRA mortgages would have seen the highest price appreciation and then the hardest collapses. But neither happened. The homes that saw the biggest price increases and collapses had nothing to do with the CRA. They were in traditional sunbelt states in neighborhoods that were middle and upper middle class, weren't subject to CRA and usually not with jumbo (non-agency) loans. Places like Florida, Arizona and California have a history of housing bubbles then collapses that go back a century or more. CRA loans were a mere fraction of the loans in the hottest markets, and even in most cold markets.

There are many other such arguments backed up by data in the link I provided.

 

[Toro]

There are a lot of things that those who push the CRA argument either can't or don't answer. For example

1. There was a parallel bubble in commercial real estate lending. Commercial lending has none of the affordable housing laws. There is no Freddie and Fannie for commercial real estate lending. Yet we had just as big of a bubble and bust in CRE as we did in residential real estate. Given that both occurred at the same time, it is extremely unlikely that there were different causes, i.e. CRA/GSE for residential but something else for CRE. That's not how financial markets usually work.

2. The real estate bubble was a global bubble. It didn't happen in all countries, but it happened in 15-20. Canada, the UK, Ireland, Spain, Singapore, Australia, New Zealand, Holland, Norway, China, Hungary, Lithuania, amongst others, all experienced housing bubbles, some greater than others. This has never happened on this scale in the history of the world before. It is extremely unlikely that the CRA or the GSEs caused home prices in Dublin or London or Sydney to soar.

3. It doesn't explain the discrepancies within the United States. Texas was barely touched by the crisis. Home prices did not skyrocket nor crash as much as they did in Florida or Arizona. Yet, the CRA and the GSEs were just as active there as elsewhere. Nor does it explain how Georgia had one of the highest rate of bank failures even though home prices did not rise as much as in the hottest markets but more than in some like Texas.

4. As stated above, the areas most affected by the Housing Bubble in the US had nothing to do with the CRA or often the GSEs. The argument that the GSEs and CRA were the cause is akin to Chaos Theory, i.e. a butterfly flapping its wings in Brazil causes a hurricane in Florida. That may be, but it speaks poorly about the market. Free market doctrine states that agents rationally process information and act accordingly to risk/reward parameters. They don't lose their heads and act irrationally. If the market is acting rationally, then price discovery will cause agents to move towards the equilibrium price. Thus, if there is an irrational actor moving prices, i.e. the government, then the market should act in an opposite manner since the market will not irrationally allocate capital away from the equilibrium price. But the exact opposite happened. Even if you believe the government was distorting the market, pushing prices higher, then rational economic agents should have withdrawn from the market, putting pressure on prices. But the exact opposite happened. Instead, irrational investors stampeded into the market, playing the Greater Fool Game in the most massive display of momentum investing regardless of value this nation has ever seen.

I could go on, but I'm getting bored. It's all in the link I provided.

 

[francoHFW]

The GOP's pals showed bankers around the world how to copy their "success". Lehman showed the Greeks how to hide problems, etc etc etc.

 

[ShaklesOfBigGov]

It's a reasonable request. That's why I started this thread a while back.

http://www.usmessageboard.com/economy/70006-cra-not-to-blame-for-housing-debacle.html

I have seen little, if any, empirical evidence to suggest that the CRA was the cause of the Financial Crisis. There have been narratives and arguments but not much hard data to back it up.

Here is some of the proof you need, if you choose to take the time to read and care to follow the dots, there is a lot to digest. They actually flow quite nicely, from one article to the next, piecing together the BIG picture. Oh and I used government websites for two of the three sources.

Yeah, I get all that. But that's what I mean when I say "narratives and arguments but not much hard data to back it up." Back it up with some data. The data, thus far, doesn't really support the view that the CRA was a big cause of the financial crisis.

Yes, I'll try to remember that presenting actual pieces of government regulations (like those requirements on banks from regulators) or quoting from a government CBO investigation, is really speculative and not really a reliable source of information on facts. I'll just stick with your "dated" newspaper links on the subject as they must be a more reliable source of information with regard to concrete "facts". Right?

If you honestly believe the CRA and Fannie Mae played absolutely no part in this economic housing mess, then you are simply choosing to be blinded by your big government ideology.

 

[ShaklesOfBigGov]

Sorry, I actually did leave out some data along with that CBO investigation from the last post.. See the link below.

New Study Blames Community Reinvestment Act For Mortgage Defaults - Investors.com

 

[zeke]

Well hell shady. All you have to do to convince me is show how many loans were made under what you call CRA guidelines and how many of those loans defaulted. And the totol dollar amount of mortgages involved. As compared to the number of sub prime loans and the amount of those mortgages.

Should be a piece of cake for a man like you with such a fine grasp of how the Community ReInvestment Act caused all the housing problems.

It was all those poor people and their 40k mortgages.

 

[ShaklesOfBigGov]

Well hell shady. All you have to do to convince me is show how many loans were made under what you call CRA guidelines and how many of those loans defaulted. And the totol dollar amount of mortgages involved. As compared to the number of sub prime loans and the amount of those mortgages.

Should be a piece of cake for a man like you with such a fine grasp of how the Community ReInvestment Act caused all the housing problems.

It was all those poor people and their 40k mortgages.

I actually HAD expected that from someone who still refrains from presenting me with any facts or links themselves, we all know you would rather be a resource of public opinion.

 

[Rozman]

This "blame Republicans" appears to be just rooted in opinions by those who share an overall hatred of the right, as they just happen to be the party that stands in the way of further government entitlement programs that the left loves so much.

I just love when people get right to the point....I only wish we didn't have members trying to win people over by trying to be like Democrats.