New Study Finds Democrats Fully to Blame for Subprime Mortgage Crisis that Caused 200

[Nika2013]

The post is interesting, but I disagree.

"The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street." (you stated)

Democrats...not even in office in 2004-2006 are not responsible for financial corporations issuing trash loans that they knew would default, then dumping these on the international market to avoid foreclosures within their own institutions. Disclosure did not exist and foreign corporations believed that these loans were good and were ensured as such by US banks. Every single book that I have read on the subject from liberal authors to conservative blame the problem on deregulation by Republicans. The bail-outs were to save our economy, but also to prevent a financial domino effect throughout the global market. If you want to find the truth...just look at the savings and loan debacle of the 1980's...same actors...grabbing as much $$$ as possible before their administration left office...It repeats itself each time the Republicans are in office, but Americans have short memories.

 

[Decus]

It seems that the National Bureau of Economic Research is a well respected institution. Here is the research paper "Did the Community Reinvestment Act (CRA) Lead to Risky Lending?", from their own website:

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Are these people idiots?

I already linked to that report and quoted from it.

The only idiots are those who have not read it and swallow the piss poured by Investors.com about what it says and means.

Did the Act lead to risky lending? Without a doubt. Did the Act contribute to our economic difficulties? Absolutely.

An interesting fact in the report is that they were able to quantify the effect of the CRA:

"We find that adherence to the act leads to riskier lending by banks: in the six quarters surrounding the CRA exams, lending is elevated on average by about 5 percent and these loans default about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming."

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Was the CRA the most important factor in the economic downturn? There are several studies underway that may answer that question in the coming months.

 

[Lakhota]

 

[Nika2013]

Here are some opposing views from Richard A. Posner,a federal judge and Matt Taibbi, a reporter for Rolling Stone Magazine:

Posner: "The movement to deregulate the financial industry went too far by exaggerating the self-healing power of laissez-faire capitalism." p. xii. A Failure of Capitalism

Taibbi: "The banks and the mortgage lenders had a symbiotic relationship. Instead of banks making home loans and sitting on them until maturity, securitization allowed banks to put mortgages into giant pools, where they would be diced-up and sold off to secondary investors. Prior to securitization, you couldn't turn a hundred mortgages into instant money. Instead of making $3 million over thirty years,maybe you could make $1.8 million today. And just like that, a traditionally long-term business turned into short-term cash." Griftopia

 

[Nika2013]

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?
Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru

NBER Working Paper No. 18609
Issued in December 2012
NBER Program(s): AP CF

"Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming. "
.................................................................................................................................................

"Riskier loans may have been elevated during these periods, 2004-2006 but it was the deregulation allowing securitization and the dicing of loans plus resale that spread the risk across the world and prevented the market from absorbing losses...and moving to equilibrium..." Nika2013

 

[g5000]

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?
Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru

NBER Working Paper No. 18609
Issued in December 2012
NBER Program(s): AP CF

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming. "

The report also says:

This is also the period when private securitization boomed and might therefore reflect an unexplored channel through which this market induced risky lending in the economy.
In other words, there was increased risky lending across the board, and the increased CRA lending may have been just another channel of that trend.

And it sure as shit does not say it was "fully to blame for subprime mortgage crisis" and whatever was left unfinished in this topic's title.

 

[francoHFW]

Yup, the CRA did it, just waited 23 years until deregulation mad neocons put in Wall St. crony regulators to "enforce" law...

 

[Flopper]

A simple mortgage, an agreement to pay a fixed amount for a fixed time period to your local bank was a great idea. Banks knew their customers and only granted loans to those they felt could pay them back. Then things changed. Banks began selling the mortgages. They were packaged in such a way that the people that bought them had no idea of the credit worthiness of the borrowers. The banks didn't care because they weren't at risk. Even the buyers of the mortgages became less interested because they were selling them. Everyone profited except the homeowner and those that got stuck with a lot of worthless paper when the bubble burst.