CRA had little or nothing to do with financial meltdown

[Gadawg73]

TBH

I don't put much stock in the Financial Commission's report. It was bound to be political no matter what.

Plus, I don't think they even mentioned the Fed's low interest rate policy, which is absolutely staggering.

It's in the dissenting opinion.
Try reading it.

Yeah, I knew that.

But it wasn't in the original report, no? If not, why not?

Let me appeal to your common sense and reason. Respectfully, I believe you will get it.
WHO opposed low interest rates? WHO supported low interest rates.
The business sector, banks, financials, Bush administration, ALL POLITICIANS and most citizens. ALL supported low interest rates.
So how was that "the Fed's low interest rates"?
It was EVERYONE supporting low interest rates.
If that is hard for you to KNOW AS FACT where in the hell were you the last 10 years?

 

[Gadawg73]

Shit, no wonder we get our ass kicked by this clown Obama in '08. Simplistic blame and little or no comprehehsion of what happened allowed an administration to now set policy worse than the last bunch of clowns we had.
8 years of Slick Willie Boom, Boy George and now this moron. And you folks blame CRA .
It all adds up now.

 

[Toro]

Let me appeal to your common sense and reason. Respectfully, I believe you will get it.
WHO opposed low interest rates? WHO supported low interest rates.
The business sector, banks, financials, Bush administration, ALL POLITICIANS and most citizens. ALL supported low interest rates.
So how was that "the Fed's low interest rates"?
It was EVERYONE supporting low interest rates.
If that is hard for you to KNOW AS FACT where in the hell were you the last 10 years?

Yeah, I get that too.

But the Federal Reserve Open Market committee are the ones who set interest rates. They are responsible for monetary policy, no one else. They are the ones who are supposed to take away the punch bowl when things get out of hand. Instead, they were spiking it with 80 proof.

Don't get me wrong. It's not that I believe everything in those reports are wrong. Most are probably correct. The only thing that I'm saying is that I don't expect to get an unbiased answer from a political group since political groups have a vested interest in skewing things to benefit themselves. That was pretty apparent in both the main report and the dissenting report. I'd say that about most reports signed off by politicians. It's the nature of the beast.

 

[Quantum Windbag]

No, I always like dissent.
How many dissenting opinions were made public, much less written as part of an official record, during the Bush administration?
Dissent is as American as apple pie.
Dissent is OBJECTIVITY and this report reflects that. Sorry that you don't see that.

Excuse me? How am I supposed to know how many dissents there were during the Bush administration? Do you expect me to defend Bush for some obscure reason? Why even mention him at all?

I notice that you still have not actually answered my original question to you, so let me rephrase it and ask again.

Given the fact that the report you linked to contains a dissenting opinion that places a significant portion of the blame on the Community Reinvestment Act, which "set of facts" am I supposed to use as a guide?

Your mistake is that you are pointing to the conclusions of a panel of experts and claiming they are facts. What they actually are well informed opinions.

Dissenting opinion which you never read concerning CRA:
"Neither the Community Reinvestment Act nor removal of the Glass-Stegall firewall WAS A SIGNINFICANT CAUSE. The ciris can be explained without resorting to those factors".

So your claim that the dissenting opinion "places a significant portion of the blame on the Community Reinvestment Act" is bull shit.

You have not even read what you claim. It makes NO mention of that anywhere in the dissent. Damn, do you make it up as you go?

Did you bother to read it?

To avoid the next financial crisis, we must understand what caused the one from which we are now slowly emerging, and take action to avoid the same mistakes in the future. If there is doubt that these lessons are important, consider the ongoing efforts to amend the Community Reinvestment Act of 1977 (CRA). Late in the last
session of the 111th Congress, a group of Democratic congressmembers introduced HR 6334. This bill, which was lauded by House Financial Services Committee Chairman Barney Frank as his “top priority” in the lame duck session of that Congress, would have extended the CRA to all “U.S. nonbank financial companies,” and thus would apply, to even more of the national economy, the same government social policy mandates responsible for the mortgage meltdown and the financial
crisis.

The Community Reinvestment Act. In 1995, the regulations under the Community Reinvestment Act (CRA)10 were tightened. As initially adopted in 1977, the CRA and its associated regulations required only that insured banks and S&Ls reach out to low-income borrowers in communities they served. The new regulations, made effective in 1995, for the fi rst time required insured banks and S&Ls to demonstrate that they were actually making loans in low-income communities and to low-income borrowers.11 A qualifying CRA loan was one made
to a borrower at or below 80 percent of the AMI, and thus was similar to the loans that Fannie and Freddie were required to buy under HUD’s AH goals.

I not only read it, I kept reading past the one sentence that reinforced your pet theory that the CRA is not at fault.

Like I said, the report is not a fact, it is an opinion of experts, and other experts have different opinions.

 

[Quantum Windbag]

It's in the dissenting opinion.
Try reading it.

Yeah, I knew that.

But it wasn't in the original report, no? If not, why not?

Let me appeal to your common sense and reason. Respectfully, I believe you will get it.
WHO opposed low interest rates? WHO supported low interest rates.
The business sector, banks, financials, Bush administration, ALL POLITICIANS and most citizens. ALL supported low interest rates.
So how was that "the Fed's low interest rates"?
It was EVERYONE supporting low interest rates.
If that is hard for you to KNOW AS FACT where in the hell were you the last 10 years?

The Fed is supposed to be independent, and make decisions based on sound logic and financial savvy, not on what everyone wants.

 

[Gadawg73]

The next loan I get I am going to default on it and blame the Community Reinvestment Act, Fannie, Freddie and government.
It is always the government or someone else's fault. I signed the loan documents, received the $ and failed to make the payments but it is not my fault. It is the government's fault.
You guys are closet liberals.

 

[8537]

Let me appeal to your common sense and reason. Respectfully, I believe you will get it.
WHO opposed low interest rates? WHO supported low interest rates.
The business sector, banks, financials, Bush administration, ALL POLITICIANS and most citizens. ALL supported low interest rates.
So how was that "the Fed's low interest rates"?
It was EVERYONE supporting low interest rates.
If that is hard for you to KNOW AS FACT where in the hell were you the last 10 years?

Yeah, I get that too.

But the Federal Reserve Open Market committee are the ones who set interest rates. They are responsible for monetary policy, no one else. They are the ones who are supposed to take away the punch bowl when things get out of hand. Instead, they were spiking it with 80 proof.

Don't get me wrong. It's not that I believe everything in those reports are wrong. Most are probably correct. The only thing that I'm saying is that I don't expect to get an unbiased answer from a political group since political groups have a vested interest in skewing things to benefit themselves. That was pretty apparent in both the main report and the dissenting report. I'd say that about most reports signed off by politicians. It's the nature of the beast.

Personally, I can find a lot of blame to place at the Feds doorstep - but I don't see the low interest rate environment they encouraged as one of the major causes. Money was cheap every where, with or without fed intervention; driving up the cost of overnight lending just would have made it more difficult for investment banks to roll over their debts.

 

[skookerasbil]

Seen alot of absurd threads on the forum in the last 2 years. This one is definately up there for nomination for TOP k00k THREAD of the year!!!

Read Thomas Sowell's THe Housing Boom and Bust............its all there. Has ALL to do with CRA............

 

[editec]

The junk bonds created from JUNK mortgages were all NON CONFORMING loans, folks.

CRA has zero point doodlesquat to do with any of that.

You ideaolgues are so zealously defending your ideologies that you refuse to even read the truth that is set out before you in such LEFT LEANING publications as Wall Street Journal, Barrons, The Economist and so forth.

Its not possible to rational discuss issues with people who refuse to acknowledge any fact that refutes their FAITH BASED beliefs.

Believe what you want, but you people are just flat out WRONG.

 

[Toro]

Personally, I can find a lot of blame to place at the Feds doorstep - but I don't see the low interest rate environment they encouraged as one of the major causes. Money was cheap every where, with or without fed intervention; driving up the cost of overnight lending just would have made it more difficult for investment banks to roll over their debts.

It was cheap because of the Fed. When the Fed lowers rate, it has an affect on the entire curve. When the entire curve shifts, it shifts the pricing of all spread products, i.e. mortgages, as well. Not only that, many of the newer mortgages were ARMs priced off LIBOR, which is directly tied to the funding rates in the money markets, of which the Fed has an enormous influence. Monetary aggregates such as M2 and M3, of which the Fed has both direct and indirect influence, exploded before the housing bubble really took off. The Fed's actions also affect global interest rates because global bonds are at least in part priced as spread products, i.e. the difference in basis points between the reference bond and sovereign bond.

 

[8537]

Seen alot of absurd threads on the forum in the last 2 years. This one is definately up there for nomination for TOP k00k THREAD of the year!!!

Read Thomas Sowell's THe Housing Boom and Bust............its all there. Has ALL to do with CRA............

Thomas Sowell concluded that? Shocking, I tell ya - SHOCKING!

After concluding that, I'm sure he went about searching for every piece of evidence to support that conclusion.

 

[8537]

Personally, I can find a lot of blame to place at the Feds doorstep - but I don't see the low interest rate environment they encouraged as one of the major causes. Money was cheap every where, with or without fed intervention; driving up the cost of overnight lending just would have made it more difficult for investment banks to roll over their debts.

It was cheap because of the Fed. When the Fed lowers rate, it has an affect on the entire curve. When the entire curve shifts, it shifts the pricing of all spread products, i.e. mortgages, as well.

But that's the point - the cheap money that the FED was doling out was not the only driver. European markets were delivering historically low rates. The Fed Funds rate was increased not once but 17 times between 2003 and 2006 - and all the while the housing bubble got worse and worse.

Despite regular increases in the Fed Funds rate, the rate on the 10 yr T - Libor - mortgage didn't budge because investment firms didn't need to increase rates to get a larger share; they could instead create derivatives and new money which led to the M3 skyrocketing while the monetary base (the only figure the Fed directly manages) remained steady. By 2006 the yield curve was inverted - and investment banks were STILL lending at the same rate as 2003, or better....Because the money wasn't being made on the interest rate spreads. In other words, the connection between spreads and lending had been punctured.

 

[Toro]

Personally, I can find a lot of blame to place at the Feds doorstep - but I don't see the low interest rate environment they encouraged as one of the major causes. Money was cheap every where, with or without fed intervention; driving up the cost of overnight lending just would have made it more difficult for investment banks to roll over their debts.

It was cheap because of the Fed. When the Fed lowers rate, it has an affect on the entire curve. When the entire curve shifts, it shifts the pricing of all spread products, i.e. mortgages, as well.

But that's the point - the cheap money that the FED was doling out was not the only driver. European markets were delivering historically low rates. The Fed Funds rate was increased not once but 17 times between 2003 and 2006 - and all the while the housing bubble got worse and worse.

Despite regular increases in the Fed Funds rate, the rate on the 10 yr T - Libor - mortgage didn't budge because investment firms didn't need to increase rates to get a larger share; they could instead create derivatives and new money which led to the M3 skyrocketing while the monetary base (the only figure the Fed directly manages) remained steady. By 2006 the yield curve was inverted - and investment banks were STILL lending at the same rate as 2003, or better....Because the money wasn't being made on the interest rate spreads.

The Fed was not the only driver, but it was the main driver IMO. Apart from keeping rates too low for too long, their well-telegraphed stair-step increase in the Funds rate took little risk out of the funding markets because everyone knew what the Fed was doing. Greenspan was trying very hard to avoid a route in the bond markets similar to 1994, but it had the perverse affect of increasing risk. There was also the well established belief that there would always be a Greenspan Put, that Greenspan would bail out the markets when needed. Knowing that there was little risk in the market, banks loaded up on leverage to capture the spread along the curve. So even in 2006 when the curve was inverted, there was a general belief in the markets that the Fed would not allow the market to fail, which lead to money managers to duration match risky and riskless assets to capture the spread between different markets.

I put Wall Street as culprit number 2 on my list, but way, way down from the Federal Reserve and how it has conducted monetary policy over the past two decades. You cannot have bubbles without a dramatic increase in the money supply, and the Fed is the primary determinant of the money supply.

 

[8537]

It was cheap because of the Fed. When the Fed lowers rate, it has an affect on the entire curve. When the entire curve shifts, it shifts the pricing of all spread products, i.e. mortgages, as well.

But that's the point - the cheap money that the FED was doling out was not the only driver. European markets were delivering historically low rates. The Fed Funds rate was increased not once but 17 times between 2003 and 2006 - and all the while the housing bubble got worse and worse.

Despite regular increases in the Fed Funds rate, the rate on the 10 yr T - Libor - mortgage didn't budge because investment firms didn't need to increase rates to get a larger share; they could instead create derivatives and new money which led to the M3 skyrocketing while the monetary base (the only figure the Fed directly manages) remained steady. By 2006 the yield curve was inverted - and investment banks were STILL lending at the same rate as 2003, or better....Because the money wasn't being made on the interest rate spreads.

The Fed was not the only driver, but it was the main driver IMO. Apart from keeping rates too low for too long, their well-telegraphed stair-step increase in the Funds rate took little risk out of the funding markets because everyone knew what the Fed was doing. Greenspan was trying very hard to avoid a route in the bond markets similar to 1994, but it had the perverse affect of increasing risk. There was also the well established belief that there would always be a Greenspan Put, that Greenspan would bail out the markets when needed. Knowing that there was little risk in the market, banks loaded up on leverage to capture the spread along the curve. So even in 2006 when the curve was inverted, there was a general belief in the markets that the Fed would not allow the market to fail, which lead to money managers duration match risky and riskless assets to capture the spread between different markets.

I put Wall Street as culprit number 2 on my list, but way, way down from the Federal Reserve and how it has conducted monetary policy over the past two decades. You cannot have bubbles without a dramatic increase in the money supply, and the Fed is the primary determinant of the money supply.

The Fed can only directly control the monetary base. in a period of anemic growth and almost zero employment growth, we can't expect the Fed to increase rates at a pace that will significantly impact those factors. Despite recent clamoring, it is still true that price stability and employment are its dual mandate. It does not have a mandate to bring the derivatives market under control. When the Fed is staring at an inverted curve, a curve whose long end hasn't budged despite 17 straight increases, it's clear that it has lost its ability to directly impact the markets. Something else was driving the interest rate environment.

I'm not saying the Fed didn't make mistakes - certainly, it did. And its policies contributed to the problem (and still do). I would put them as culprit number 2 on my list, way way down from the unregulated sector of the money markets.

 

[Big Fitz]

Let me appeal to your common sense and reason. Respectfully, I believe you will get it.
WHO opposed low interest rates? WHO supported low interest rates.
The business sector, banks, financials, Bush administration, ALL POLITICIANS and most citizens. ALL supported low interest rates.
So how was that "the Fed's low interest rates"?
It was EVERYONE supporting low interest rates.
If that is hard for you to KNOW AS FACT where in the hell were you the last 10 years?

Yeah, I get that too.

But the Federal Reserve Open Market committee are the ones who set interest rates. They are responsible for monetary policy, no one else. They are the ones who are supposed to take away the punch bowl when things get out of hand. Instead, they were spiking it with 80 proof.

Don't get me wrong. It's not that I believe everything in those reports are wrong. Most are probably correct. The only thing that I'm saying is that I don't expect to get an unbiased answer from a political group since political groups have a vested interest in skewing things to benefit themselves. That was pretty apparent in both the main report and the dissenting report. I'd say that about most reports signed off by politicians. It's the nature of the beast.

The one thing both political groups have going on is a serious case of CYA.

I wonder why not a single banker or mortgage lender is on that board?

hmmmmmmmmmmmmm....

 

[8537]

Let me appeal to your common sense and reason. Respectfully, I believe you will get it.
WHO opposed low interest rates? WHO supported low interest rates.
The business sector, banks, financials, Bush administration, ALL POLITICIANS and most citizens. ALL supported low interest rates.
So how was that "the Fed's low interest rates"?
It was EVERYONE supporting low interest rates.
If that is hard for you to KNOW AS FACT where in the hell were you the last 10 years?

Yeah, I get that too.

But the Federal Reserve Open Market committee are the ones who set interest rates. They are responsible for monetary policy, no one else. They are the ones who are supposed to take away the punch bowl when things get out of hand. Instead, they were spiking it with 80 proof.

Don't get me wrong. It's not that I believe everything in those reports are wrong. Most are probably correct. The only thing that I'm saying is that I don't expect to get an unbiased answer from a political group since political groups have a vested interest in skewing things to benefit themselves. That was pretty apparent in both the main report and the dissenting report. I'd say that about most reports signed off by politicians. It's the nature of the beast.

The one thing both political groups have going on is a serious case of CYA.

I wonder why not a single banker or mortgage lender is on that board?

hmmmmmmmmmmmmm....

Are you saying there's not a single banker on the FOMC?

 

[kaz]

in the housing market.
Been telling you this for years now.

...

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%+

So you provide this list and don't mention that government underwrote 90% of all loans and virtually all those involved in the meltdown? That little "fact" something you claim to be centered on, that government underwrote virtually all the failed loans, is less important to you then these and not even worth mentioning while they are?

- lack of regulation, more important then that government underwrote the loans. Had government underwritten them and regulated banks, it would have turned out OK.

- excessive risk, more important then that government underwrote the loans. Banks took on too much risk in the loans underwritten by government. Gotcha

- Borrowing in high end loans, loans that didn't default. Gotcha, that was bigger then government underwriting massive number of failed loans.

- Lack of corporate governance. There you go, that certainly caused loans underwritten by government to fail

- Lack of ethics in the financial market. There you go, a clear reason government underwritten loans would fail.

Yes, you have nailed it, government underwriting subprime loans failing was clearly the fault of the market, and you have certainly listed why. Any reasonable person would see the problem wasn't government there with your hard hitting, intuitively obvious identification as to the reason that massive numbers of loans underwritten by government failed because of private companies in the financial market.

 

[Toro]

So you provide this list and don't mention that government underwrote 90% of all loans and virtually all those involved in the meltdown?

The government underwrote 90% of all loans? And virtually all those involved in the meltdown?

Please back that up.

The GSEs had 90% of the market after the meltdown, but not before. They had about a quarter of the subprime market and over half the Alt-A market, if I recall correctly, and 40% of the prime market.

 

[Toro]

Are you saying there's not a single banker on the FOMC?

Most aren't. There are a few with banking experience but most of the current board are academics with little or no business experience.

 

[8537]

Are you saying there's not a single banker on the FOMC?

Most aren't. There are a few with banking experience but most of the current board are academics with little or no business experience.

5 of 11 have significant private-sector banking experience. Most of the remaining 6 have significant federal reserve banking experience. I think a 50-50ish mix of academics / fed staff and private sector interests is a pretty fair mix - and that will probably tilt significantly towards the private sector when St Louis and KC come on to the committee in a couple years.