CRA had little or nothing to do with financial meltdown

[snjmom]

If you can't recognize that securitization and AIG's complete idiocy of insuring investment bets were the cause of the problem, you are willfully ignorant. CRA is community investment, not First Time Home Buyers. CRA states that if you were pulling profits from an area, you need to be investing in it using the SAME criteria you would use to assess a borrower from a more prosperous area. Much of the funds are used for development, new businesses, etc.

Take a look at Ft. Lauderdale's programs. CRA Projects

Any of that look like banks forced to hand over money to irresponsible borrowers? It's a red herring, designed to make you look away from the real perps, the ones selling bad loans as AAA securities, suitable for municipal pension funds, that needed to feed the maw seeking to improve on the artificially lowered returns generated my Greenspan's interest vise grip.

 

[Care4all]

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

At the risk of repeating myself.

I ask this question: Would the housing bubble and financial crisis have occurred had the CRA never existed? This is another way of asking if the CRA caused the crisis, which is the point of this thread. And this is what we know;

- The housing bubble was global. It wasn't just national. The CRA could not possibly have caused housing bubbles in other countries, of which many were relatively bigger than in America. How did the CRA cause an explosion of lending in Norway?

- The housing bubble followed the tech bubble. That is not a coincidence. We experienced one of the biggest financial bubbles of all time, only to be followed by an even bigger financial bubble a mere few years later. This was in big part a result of government, i.e. monetary, policy. Easy monetary policy was a reaction to the tech bubble as the Fed was trying to avoid a repeat of the 1930s. That easy money was channeled into the housing market. The tech bubble was not caused by the CRA, nor did the CRA cause the subsequent monetary response.

- The emergence of China, along with deflation in Japan, created a vast pool of savings in Asia looking for a safe home in dollars. That massive pool of capital was re-cycled into the US bond market, via purchases of Treasuries and agency mortgages, lowering interest rates across the curve. The economic condition of Asia had nothing to do with the CRA.

- Securitization exploded. Low interest rates caused asset/liability problems as pension plans and insurance companies which relied on bonds to generate their actuarial return, were falling short. Securitization created "AAA" products out garbage, which fed the Wall Street machine, as garbage in / garbage out created alchemy that investors swallowed whole. This is why Wall Street firms such as Merrill Lynch bought mortgage origination companies, so they had a steady supply of inventory to feed investors "AAA" rated product 20 to 30 basis points above Treasuries. Wall Street also created other products such as synthetic CDOs and CDO-squareds as financial alchemy to flog to investors. This explosion in financial "technology" happened independent of the CRA, and the demand for shitty subprime and alt-A loans was happening outside of the CRA. This was the dynamic that created all the crap mortgages, not the CRA. Had the CRA not existed, crappy liar's loans would have been created anyways.

- This housing bubble is not unique. Almost all housing bubbles throughout time look pretty much the same. The only difference this time was the scale, which was massive. Housing bubbles, as well as other asset bubbles such as the tech bubble, follow a pretty well-defined pattern. They are always a function of the excess creation of credit, they are usually followed by some period of prosperity, and there is usually some exogenous shock or change from outside the system. The CRA is so small relative to the forces that were and still are buffeting the global economy.

So I look at those factors and conclude that the CRA was inconsequential to the Financial Crisis. I'm not being dogmatic about it. If someone could provide evidence, I would change my mind. Nor am I arguing that the CRA was wise policy. I have no opinion on whether it was or not. But I do know that it didn't cause the Financial Crisis.

I do not think anyone is arguing that the CRA caused the global financial crisis. However, the idea behind the CRA, that it is a good idea to take potential risks in the name of making society better, is at least partially responsible for excabereting the problem here in the United States.

BUT the CRA had been around for over 30 years Quantum, and this had not happened before, so what made this decade special? Did regulation changes?

 

[Quantum Windbag]

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

At the risk of repeating myself.

I do not think anyone is arguing that the CRA caused the global financial crisis. However, the idea behind the CRA, that it is a good idea to take potential risks in the name of making society better, is at least partially responsible for excabereting the problem here in the United States.

BUT the CRA had been around for over 30 years Quantum, and this had not happened before, so what made this decade special? Did regulation changes?

No, but political pressure did. The market responded by increasing risky behavior, and developing a way to diversify the risk. This wax encouraged by Fannie and Freddie buying up the risky loans, and rating them higher than they should have been.

The mistake I see many people make (including me) is focusing the blame on the group that meets their expectations for being "evil." the truth is that everyone shares the blame, including the taxpayers who ignored the warnings of the sensible voices from both parties, preferring to listen to the people in both parties that were promising more homes from Americans.

 

[Londoner]

BUT the CRA had been around for over 30 years Quantum, and this had not happened before, so what made this decade special? Did regulation changes?

Bingo. The CRA was intended to work within the vast postwar regulatory structure initiated by FDR. There were layers of oversight and redundant safeguards designed to reduce the level of risk these loans presented. This is why they didn't cause major losses for banks prior to the wild west years, starting in 2000. The war on the CRA is part of a larger war on the middle class. They are getting rid of every impediment to concentrated wealth and concentrated political power, including the labor, regulatory, and tax policies which created broadly shared prosperity and upward mobility. Hence the war on Labor, Acorn and everything government does for the non-wealthy. We are witnessing the final stages of a 30 year coup on the political and media organs of the state. Welcome to 3rd world America: we now have a wealthy elite surrounded by massive poverty a.k.a. cheap labor.

 

[WillowTree]

http://ezinearticles.com/?How-Did-We-Get-Into-This-Housing-Mess,-and-Are-We-Out-Yet?&id=5294658


I beg to differ...

I'm with you,, they keep saying it had nothing to do with it, but it did and it's still happening, Fannie and Freddie are worse off now than they were then and it just keeps going and going and going and going.

 

[Ravi]

Why does the right always pick the wrong scapegoat? Everything, in their minds, is the fault of liberals, gays, Jews or the poor.

Stupid people.

 

[editec]

Why does the right always pick the wrong scapegoat? Everything, in their minds, is the fault of liberals, gays, Jews or the poor.

Stupid people.

Because they're scapegoating, obviously.

They (both Dems and Reps) cannot admit that the system was broken because they SET IT UP TO BREAK.

 

[Toro]

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

At the risk of repeating myself.

I ask this question: Would the housing bubble and financial crisis have occurred had the CRA never existed? This is another way of asking if the CRA caused the crisis, which is the point of this thread. And this is what we know;

- The housing bubble was global. It wasn't just national. The CRA could not possibly have caused housing bubbles in other countries, of which many were relatively bigger than in America. How did the CRA cause an explosion of lending in Norway?

- The housing bubble followed the tech bubble. That is not a coincidence. We experienced one of the biggest financial bubbles of all time, only to be followed by an even bigger financial bubble a mere few years later. This was in big part a result of government, i.e. monetary, policy. Easy monetary policy was a reaction to the tech bubble as the Fed was trying to avoid a repeat of the 1930s. That easy money was channeled into the housing market. The tech bubble was not caused by the CRA, nor did the CRA cause the subsequent monetary response.

- The emergence of China, along with deflation in Japan, created a vast pool of savings in Asia looking for a safe home in dollars. That massive pool of capital was re-cycled into the US bond market, via purchases of Treasuries and agency mortgages, lowering interest rates across the curve. The economic condition of Asia had nothing to do with the CRA.

- Securitization exploded. Low interest rates caused asset/liability problems as pension plans and insurance companies which relied on bonds to generate their actuarial return, were falling short. Securitization created "AAA" products out garbage, which fed the Wall Street machine, as garbage in / garbage out created alchemy that investors swallowed whole. This is why Wall Street firms such as Merrill Lynch bought mortgage origination companies, so they had a steady supply of inventory to feed investors "AAA" rated product 20 to 30 basis points above Treasuries. Wall Street also created other products such as synthetic CDOs and CDO-squareds as financial alchemy to flog to investors. This explosion in financial "technology" happened independent of the CRA, and the demand for shitty subprime and alt-A loans was happening outside of the CRA. This was the dynamic that created all the crap mortgages, not the CRA. Had the CRA not existed, crappy liar's loans would have been created anyways.

- This housing bubble is not unique. Almost all housing bubbles throughout time look pretty much the same. The only difference this time was the scale, which was massive. Housing bubbles, as well as other asset bubbles such as the tech bubble, follow a pretty well-defined pattern. They are always a function of the excess creation of credit, they are usually followed by some period of prosperity, and there is usually some exogenous shock or change from outside the system. The CRA is so small relative to the forces that were and still are buffeting the global economy.

So I look at those factors and conclude that the CRA was inconsequential to the Financial Crisis. I'm not being dogmatic about it. If someone could provide evidence, I would change my mind. Nor am I arguing that the CRA was wise policy. I have no opinion on whether it was or not. But I do know that it didn't cause the Financial Crisis.

You keep posting the same stuff, Toro. It's all or nothing to you. Oh well. I've provided several links in the past, but I'll just leave everyone with this one from a few years ago.

The Government-Created Subprime Mortgage Meltdown by Thomas DiLorenzo

What's really surprising, though, is that you claim to have been a follower of Ayn Rand's beliefs at one time, although so was Alan Greenspan. Wait a second. Maybe it does make sense after all.

I keep posting the same stuff and I keep waiting for someone to rebut those points. The link you posted - "ACORN is bad" - answers none of them. It's a constant meme from highly ideological sources such as mises.org and somewhat better organizations such as the CATO Institute. Yet none of them have answers to market dynamics, which you'd think those who worship at the alter of free markets would have.

 

[8537]

Second.

http://www.youtube.com/watch?v=v_2wmwNAGlw&feature=player_embedded#at=12

Get the Report : Financial Crisis Inquiry Commission

Try some facts over the talking heads.

The report is not facts. The report is a collection of opinions of various experts, AKA talking heads. The dissenters in the report actually point out roughly the same thing I do, that the CRA, and the continued efforts to expand it to all banks, contributed to the problem by encouraging banks to make loans to sub prime borrowers in an public affairs effort to undermine the effort to expand the CRA.

Which set of "facts" should I pay attention to?

Where in the dissenting opinion's 20 pages or so do they place blame on the CRA?

 

[8537]

It does, however, show the result of it. Think about it for a little bit and you might understand.

I've thought about it. Housing market foreclosures in Bradenton Beach and Naples Florida, Las Vegas Nevada and SFO, Ca we're not caused by poor people taking loans.

Fannie and Freddie only bought conforming loans. The loans with the highest failure rates were outside of their reach, being bought and sold in the private market.

Just to be obvious here, foreclosures are never caused by loans, they are caused when people fail to pay loans. Are you trying to claim that only rich people defaulted on their loans, and that all the poor people are still making their payments?

No, people of all stripes defaulted on their loans. The largest defaulters were speculators in wealthy areas like Bradenton Beach and Naples - not exactly hotbeds of poor minority folks.

As for Fannie and Freddie only buying conforming loans, it seems history disagrees with you.

No, that's just silly. FM and FM only buy conforming loans. Bush relaxed conforming standards, but they were still statutorily prevented from buying the most toxic loans.

 

[8537]

The biggest problem that everyone fails to see is that the securitization market created incentives whereby loan quality was irrelevant. As the securitizations and synthetic swaps began to dominate the market, they became the driving force - and the upstream mortgages were just a way to feed that market. investment banks would offer 500,000 loans to unemployed carpenters in southern California because it allowed them to stuff some mortgages into "A" rated traunches.

The driver was the securities, not the mortgages. The people taking those bad mortgages were just the fodder for the securities machine.

 

[Toro]

The biggest problem that everyone fails to see is that the securitization market created incentives whereby loan quality was irrelevant. As the securitizations and synthetic swaps began to dominate the market, they became the driving force - and the upstream mortgages were just a way to feed that market. investment banks would offer 500,000 loans to unemployed carpenters in southern California because it allowed them to stuff some mortgages into "A" rated traunches.

The driver was the securities, not the mortgages. The people taking those bad mortgages were just the fodder for the securities machine.

Exactly. Wall Street needed product to feed the machine. That's why investment banks such as Bear Stearns and Merrill Lynch bought mortgage origination companies.

 

[editec]

The biggest problem that everyone fails to see is that the securitization market created incentives whereby loan quality was irrelevant. As the securitizations and synthetic swaps began to dominate the market, they became the driving force - and the upstream mortgages were just a way to feed that market. investment banks would offer 500,000 loans to unemployed carpenters in southern California because it allowed them to stuff some mortgages into "A" rated traunches.

The driver was the securities, not the mortgages. The people taking those bad mortgages were just the fodder for the securities machine.

BINGO!

And more it was a series of economic woes leading up the meltdown that also set us up for this event.

People want simple answers to complex problems.

There's always some partisan simpleton out there ready willing and able to provide one for them.

CRA was part of the mix of our banking fiasco (so was FDIC but so what?).

CRA was not one of the prime -- or even the minor factors! -- leading up to the meltdown.

 

[Gadawg73]

Get the Report : Financial Crisis Inquiry Commission

Try some facts over the talking heads.

The report is not facts. The report is a collection of opinions of various experts, AKA talking heads. The dissenters in the report actually point out roughly the same thing I do, that the CRA, and the continued efforts to expand it to all banks, contributed to the problem by encouraging banks to make loans to sub prime borrowers in an public affairs effort to undermine the effort to expand the CRA.

Which set of "facts" should I pay attention to?

Where in the dissenting opinion's 20 pages or so do they place blame on the CRA?

It doesn't matter to them. Rush and Sean said it, it was repeated as fact and that is all they know.
Real conservatives, not those that follow talking head enteratiners and wear ditto head T shirts, KNOW BETTER.

 

[Gadawg73]

Second.

http://www.youtube.com/watch?v=v_2wmwNAGlw&feature=player_embedded#at=12

Get the Report : Financial Crisis Inquiry Commission

Try some facts over the talking heads.

The report is not facts. The report is a collection of opinions of various experts, AKA talking heads. The dissenters in the report actually point out roughly the same thing I do, that the CRA, and the continued efforts to expand it to all banks, contributed to the problem by encouraging banks to make loans to sub prime borrowers in an public affairs effort to undermine the effort to expand the CRA.

Which set of "facts" should I pay attention to?

Show me ANY OTHER report ANYWHERE that is as comprehensive as this report.
Something, anything, someplace, SOMEWHERE. Where is it?
Sure it contributed to the problem.
CONTRIBUTED TO THE PROBLEM.
It was NOT THE PROBLEM.
You know it wasn't so admit it and move on.
Anyone that believes CRA, a stupid law that affected less than 10% OF ALL DOLLARS LOANED, caused the financial meltdown is a dumb ass.
I don't believe YOU believe it caused it. You are an ideologue first and this report does not match your ideology. So you ignore it.
And listen to your own set of talking heads that are not trained in the financial sector.
Rush and Sean are ENTERTAINER talking heads.
And QW, how about the FACT that CRA loans WERE ONE HALF as likely to fail in low income areas as A REGULAR LOAN?
Guess why that has to be fact? Take a long long look at the facts QW. Take off the blinders and put on a real helmet (preferably a red one with a G), tighten that chin strap and answer that question.
Answer: CRA loans were LESS THAN 10% OF THE MARKET DOLLAR WISE.
And you claim small loans caused the meltdown?
CONTRIBUTED yes, BUT WERE NOT THE PROBLEM.
Personal accountability. People NOT PAYING THEIR PROMISES caused it. Banks loaning speculative real estate-you know? THE OTHER 90% which were high end loans.
Conservatives never blame others when they do not pay their bills. That is a liberal trait.

 

[Gadawg73]

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

At the risk of repeating myself.

I ask this question: Would the housing bubble and financial crisis have occurred had the CRA never existed? This is another way of asking if the CRA caused the crisis, which is the point of this thread. And this is what we know;

- The housing bubble was global. It wasn't just national. The CRA could not possibly have caused housing bubbles in other countries, of which many were relatively bigger than in America. How did the CRA cause an explosion of lending in Norway?

- The housing bubble followed the tech bubble. That is not a coincidence. We experienced one of the biggest financial bubbles of all time, only to be followed by an even bigger financial bubble a mere few years later. This was in big part a result of government, i.e. monetary, policy. Easy monetary policy was a reaction to the tech bubble as the Fed was trying to avoid a repeat of the 1930s. That easy money was channeled into the housing market. The tech bubble was not caused by the CRA, nor did the CRA cause the subsequent monetary response.

- The emergence of China, along with deflation in Japan, created a vast pool of savings in Asia looking for a safe home in dollars. That massive pool of capital was re-cycled into the US bond market, via purchases of Treasuries and agency mortgages, lowering interest rates across the curve. The economic condition of Asia had nothing to do with the CRA.

- Securitization exploded. Low interest rates caused asset/liability problems as pension plans and insurance companies which relied on bonds to generate their actuarial return, were falling short. Securitization created "AAA" products out garbage, which fed the Wall Street machine, as garbage in / garbage out created alchemy that investors swallowed whole. This is why Wall Street firms such as Merrill Lynch bought mortgage origination companies, so they had a steady supply of inventory to feed investors "AAA" rated product 20 to 30 basis points above Treasuries. Wall Street also created other products such as synthetic CDOs and CDO-squareds as financial alchemy to flog to investors. This explosion in financial "technology" happened independent of the CRA, and the demand for shitty subprime and alt-A loans was happening outside of the CRA. This was the dynamic that created all the crap mortgages, not the CRA. Had the CRA not existed, crappy liar's loans would have been created anyways.

- This housing bubble is not unique. Almost all housing bubbles throughout time look pretty much the same. The only difference this time was the scale, which was massive. Housing bubbles, as well as other asset bubbles such as the tech bubble, follow a pretty well-defined pattern. They are always a function of the excess creation of credit, they are usually followed by some period of prosperity, and there is usually some exogenous shock or change from outside the system. The CRA is so small relative to the forces that were and still are buffeting the global economy.

So I look at those factors and conclude that the CRA was inconsequential to the Financial Crisis. I'm not being dogmatic about it. If someone could provide evidence, I would change my mind. Nor am I arguing that the CRA was wise policy. I have no opinion on whether it was or not. But I do know that it didn't cause the Financial Crisis.

You keep posting the same stuff, Toro. It's all or nothing to you. Oh well. I've provided several links in the past, but I'll just leave everyone with this one from a few years ago.

The Government-Created Subprime Mortgage Meltdown by Thomas DiLorenzo

What's really surprising, though, is that you claim to have been a follower of Ayn Rand's beliefs at one time, although so was Alan Greenspan. Wait a second. Maybe it does make sense after all.

How did the government force people not to pay for their loans?
How did the government force people to take out loans?
How did the government force the banks to loan 22 million dollars to a developer for commercial real estate before the zoning changed on the land?
How did the government force appraisers to provide bogus appraisals to the banks?
How did the government force private entities to make up bogus and fraudulent formulas to rate the derivative securities being sold?
How did government force Congress to pass Gramm, Leach, Bliley Act?
What law, bill, politician, American, martian, ghost or anyone ever forced any American to go out, buy a house, obtain a loan, sign the documents that they would pay for the loan, force them to default on the loan and force them to have the bank foreclose on the loan?
Explain how that works. That is real world. NOT BS from a hack from the Ludwig Von Mises Society mumbo jumbo.
Conservatives know better. Pay your bills and grow up. No cry babies.
Liberals blame and depend on government.

 

[BlindBoo]

in the housing market.
Been telling you this for years now.
The Financial Crisis Inquiry Commission report stated correctly, Community Reinvestment Act had little or nothing to do with the meltdown in the housing market.
That does not go well with Rush and Sean because they are facts and not ideology.
Lack of financial regulation, excessive risk and borrowing in high end loans, no corporate governance and a lcak of ethics in the financial market caused 90%+.
Commisssion was heavily Republican with Keith Hennessy, former chief economic adviser to The Bush Administration.
Personal responsiblity, NOT SOME GOVERNMENT PROGRAM OR LAW, was the cause.
Imagine that.
DUH.

Personal Responsibility? The banks were give incentives by the government to give people those loans, People who could not afford the loans and who would otherwise not have received those loans. Those banks knew that Fannie and Freddie would back most of the loans and the government would bail them out anyway, Big government is the problem always has been, they screw up the free market and create crony capitalism. How can you have a Goldwater avatar and want more big government regs?

Not only that, but if banks didn't give out enough of these loans they would get a low rating from bank regulators. This was caused by the government, but people don't want to admit it.

And rightly so if the banks were not loaning money to their depositing customers, that was the whole purpose of the CRA. Fact is the CRA loans did not have a significant forclosuser rate. It was investors and finnacial institutes (other than banks) that were speculating that the prices of home would alway increase. They that had the highest forclosurer rates. They made the bubble go "Pop".

 

[Quantum Windbag]

Get the Report : Financial Crisis Inquiry Commission

Try some facts over the talking heads.

The report is not facts. The report is a collection of opinions of various experts, AKA talking heads. The dissenters in the report actually point out roughly the same thing I do, that the CRA, and the continued efforts to expand it to all banks, contributed to the problem by encouraging banks to make loans to sub prime borrowers in an public affairs effort to undermine the effort to expand the CRA.

Which set of "facts" should I pay attention to?

Where in the dissenting opinion's 20 pages or so do they place blame on the CRA?

I had to read it to find it, why should I make your life easier? Why do youngsters expect other people do all the work for them.

By the way, if you download the PDF and search it, the way I did, it will not even take very long to find it.

 

[Quantum Windbag]

I've thought about it. Housing market foreclosures in Bradenton Beach and Naples Florida, Las Vegas Nevada and SFO, Ca we're not caused by poor people taking loans.

Fannie and Freddie only bought conforming loans. The loans with the highest failure rates were outside of their reach, being bought and sold in the private market.

Just to be obvious here, foreclosures are never caused by loans, they are caused when people fail to pay loans. Are you trying to claim that only rich people defaulted on their loans, and that all the poor people are still making their payments?

No, people of all stripes defaulted on their loans. The largest defaulters were speculators in wealthy areas like Bradenton Beach and Naples - not exactly hotbeds of poor minority folks.

As for Fannie and Freddie only buying conforming loans, it seems history disagrees with you.

No, that's just silly. FM and FM only buy conforming loans. Bush relaxed conforming standards, but they were still statutorily prevented from buying the most toxic loans.

Funny thing, I provided a link to a 2007 article where they were buying sub prime loans as part of a policy to help expand the availability of them, and you insist that what they really did was reclassify those loans as conforming, and then purchased them.

Exactly what makes you think that you are making some type of point here?

 

[Quantum Windbag]

The biggest problem that everyone fails to see is that the securitization market created incentives whereby loan quality was irrelevant. As the securitizations and synthetic swaps began to dominate the market, they became the driving force - and the upstream mortgages were just a way to feed that market. investment banks would offer 500,000 loans to unemployed carpenters in southern California because it allowed them to stuff some mortgages into "A" rated traunches.

The driver was the securities, not the mortgages. The people taking those bad mortgages were just the fodder for the securities machine.

Fannie and Freddie, by your own admission, helped fuel that securities market by re rating the loans they were buying and selling. Like I keep saying, there is plenty of blame to go around.