CRA Did Not Cause Financial Crisis - Fed

Discussion in 'Economy' started by Toro, Dec 6, 2008.

  1. Toro
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    Toro Diamond Member

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    FRB: Speech--Kroszner, The Community Reinvestment Act and the Recent Mortgage Crisis--December 3, 2008

    In other words, 8% of subprime loan losses were CRA-covered.

    So for all those who are blaming the CRA for the financial melt-down, you will have to find another culprit.
     
  2. editec
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    editec Mr. Forgot-it-All

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    They won't, though.

    It's too convenient a scapegoat to give it up for a greater and much harder to understand truth.

    It's a wonderful smokescreen and diversion from the much much more complex set of actions and inactions which caused this mess.

    Simple minds demand simple explanations for complex events. They want white hats and black hats and that's all they want.

    We see this happening on this board every damned day, and of course television is DESIGNED to supply the simple minded with soundbyte explanations for the news, too.
     
  3. Ravi
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    Ravi Diamond Member

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    I thought from the beginning that blaming the financial meltdown on low-income people was an idiot's game. And yet this is what most Republican pols said and probably still believe all evidence to the contrary.
     
  4. dilloduck
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    dilloduck Diamond Member

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    I wouldn't trust anything that the Fed says. Period.
     
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  5. Gord
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    Gord Active Member

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    In 1992 Clinton along with the Democrat congress passed the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 which directed Freddie Mac and Fannie Mae, each known as a government sponsored enterprise (GSE) to purchase what were then known as subprime mortgages from banks and repackage them as mortgage-backed securities, selling them to the broader financial market. This was the tipping point for the CRA which was originally enacted by Carter and another Democrat congress. In 1995 and again in 1999 Clinton ordered HUD (who were charged with setting the qualifications) to expand the CRA requirements for bank compliance. This evolved into the credit crisis we are experiencing now. Just because many of the problem loans today were not directly covered by the CRA in no way dispels the blame from the CRA as the root cause.
     
  6. Toro
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    Toro Diamond Member

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    empiricism > ideology
     
  7. Paulie
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    Paulie Platinum Member

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    It's simple cause/effect.

    The Fed started it all off by offering artificially low rates which caused way more people to borrow then normally would have. Everything after that, which may have contributed to the problem, is an afterthought.

    The ultra-cheap, abundant credit caused the mess in the first place. The effect was that too many people borrowed, and too many banks gambled with toxic debt that wouldn't have existed without the enticing interest rates being dangled in front of hungry would-be homeowners like meat to a starving lion.

    Stop enabling the debt problem, and stop injecting so much new money into the system, and we will not see these kinds of problems anymore.
     
  8. dilloduck
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    dilloduck Diamond Member

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    Criminally low interest rates IMHO.
     
  9. Paulie
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    Paulie Platinum Member

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    As far as I'm concerned, whatever rate is set by the Fed is criminal, because the Fed ITSELF is criminal.

    But had the market decided those rates on its own without the Fed, or any other entity, setting a "target rate", I would be fine with it.

    I seriously doubt the market would ever set a rate that low on its own, though. Without the Fed manipulating the money supply and the credit markets, we most likely wouldn't have these boom and busts where new money is needed to "jumpstart" things, therefore banks would never offer a subprime rate that low.
     
  10. dilloduck
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    dilloduck Diamond Member

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    Exactly---now since we know the fed knew what it was doing the question is WHY WERE THEY DOING IT ?
     

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