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It has been intimated, on this thread, that the Community Reinvestment Act was responsible, to a great extent, for the crisis caused by subprime loans. Furthermore, it was added that any arguments to the contrary, were due to propaganda delivered by "revisionist hacks." So, in light of that, I have a few questions for people who link the CRA directly to the subprime fiasco. Here are my questions:
1) The wretched performance of mortgage loans made between 2005 and 2007 caused the crisis. So, in regards to timing, why do certain people make this BIG link between the Community Reinvestment Act and subprime loans, especially considering the fact the aforementioned federal law was passed in 1977, with no substantive changes thereto since 1995?
2) It is acknowledged that independent nonbank lenders (e.g., mortgage and finance companies) played a considerable role in the subprime game. Since those lenders are not subject to CRA regulation, how should critics of the CRA respond to "revisionist hacks" who mention this detail?
3) If we are to trust a January 2011 report from the Financial Crisis Inquiry Commission, in which they said, "Research indicates only 6% of high-cost loans -- a proxy for subprime loans -- had any connection to the law," what should be the response from those continually link the CRA to subprime lending?
4) How do critics of the CRA account for data, courtesy of First American Loan Performance, which indicates that delinquency rates for subprime loans were just as high in middle- and higher-income neighborhoods as those in lower-income neighborhoods?
Many laws take time to reflect the effect done on society. That is why the CRA took such a long time. Have you read why the CRA was instituted?
Have you read how the CRA forced lending insitutions to give credit to people that had bad credit with threats?
Also, in time some lending insitutions were told by the government to lend and the government will back them up. What happened? The government in its wisdom decided to make a couple of well known institutions controlled by the government in many ways. What happened? The bubble burst afterwards and now legislators in DC simply sat down and point the finger at those institutions. You know what institutions they were, right?
I wish there was someone out there when he sits in front of Congress to have the guts and tell those gusy "YOU forced us to give credit to people that had no business buying houses because of bad credit". Take care.
Many laws take time to reflect the effect done on society. That is why the CRA took such a long time. Have you read why the
One side of the argument blames the repeal of Glass-Steagall as the primary cause of the crisis. (It's often argued that the act's repeal precipitated the crisis because there was no longer a wall separating commercial banking from the riskier environment of investment banking.)
The conservative position blames the Community Reinvestment Act.
But I still can't ignore the timing. One bill was passed in 1977. The other bill was repealed in 1999 -- right before the crisis.
Furthermore, I'm not defending the CRA, but at the same time, I won't understate the folly of repealing provisions in Glass-Steagall, provisions which kept deposits and loans from being used as collateral for risky speculation.
Many laws take time to reflect the effect done on society. That is why the CRA took such a long time.
One side of the argument blames the repeal of Glass-Steagall as the primary cause of the crisis. (It's often argued that the act's repeal precipitated the crisis because there was no longer a wall separating commercial banking from the riskier environment of investment banking.)
The conservative position blames the Community Reinvestment Act.
But I still can't ignore the timing. The CRA was passed in 1977. Glass-Steagall was repealed in 1999, right before the crisis.
Furthermore, I'm not defending the CRA, but at the same time, I won't understate the folly of repealing provisions in Glass-Steagall, provisions which kept deposits and loans from being used as collateral for risky speculation.
One side of the argument blames the repeal of Glass-Steagall as the primary cause of the crisis. (It's often argued that the act's repeal precipitated the crisis because there was no longer a wall separating commercial banking from the riskier environment of investment banking.)
The conservative position blames the Community Reinvestment Act.
But I still can't ignore the timing. One bill was passed in 1977. The other bill was repealed in 1999 -- right before the crisis.
Furthermore, I'm not defending the CRA, but at the same time, I won't understate the folly of repealing provisions in Glass-Steagall, provisions which kept deposits and loans from being used as collateral for risky speculation.
Ok, can't ignore the timming? Why not look into the CRA more closely and the history of it along the years and see what happened as time passed. I will say that as in many situations, I am not sayin the CRA is the ONLY reason. I will say it was a factor. Take care.
Just have to commend you for an excellent, even-handed discussion of this issue. I'm not as well-versed on the many, myriad complexities as you are but it seems like both your points [CRA & Glass-Steagel repeal] go hand-in-hand in creating this crisis. The fact is it was clearly to the lenders' financial advantage to make these bad loans and then even further to their advantage to bundle the loans and trade/sell/offer them up as viable securities. And, as previously noted it wasn't just poorer folks who defaulted - many middle income folks did, too!
I think another critical change helped to precipitate this crisis - reducing and/or eliminating down payments from the lending equation. It was decades ago when I bought my first house but back then you couldn't even think about buying a home unless you had a 20% down payment. Later that became 10% - then in some cases, 0-5%? Thus, what kind of vested interest did these folks, either low income or middle class, have in retaining ownership when the going got rough? The banks already had pocketed their fees and had federal loan guarantees so they were in decent shape. But what about the former homeowner who'd lost his/her home and their credit-worthiness? I think it was a "failure of imagination" of immense proportions.
Now there's such a huge gulf between the big lenders and the little-guy borrowers and it's hard to imagine how we get back to the more, level relationships of the past - when each side needed the other. But when big banks can be assured of the Fed's help [$trillions in time of crisis] and an average American with decent credit is hard-pressed to get a loan, the imbalance and inequity of this will continue to fester until major steps are taken to realign an arrangement that used to work.
Just have to commend you for an excellent, even-handed discussion of this issue. I'm not as well-versed on the many, myriad complexities as you are but it seems like both your points [CRA & Glass-Steagel repeal] go hand-in-hand in creating this crisis. The fact is it was clearly to the lenders' financial advantage to make these bad loans and then even further to their advantage to bundle the loans and trade/sell/offer them up as viable securities. And, as previously noted it wasn't just poorer folks who defaulted - many middle income folks did, too!
I think another critical change helped to precipitate this crisis - reducing and/or eliminating down payments from the lending equation. It was decades ago when I bought my first house but back then you couldn't even think about buying a home unless you had a 20% down payment. Later that became 10% - then in some cases, 0-5%? Thus, what kind of vested interest did these folks, either low income or middle class, have in retaining ownership when the going got rough? The banks already had pocketed their fees and had federal loan guarantees so they were in decent shape. But what about the former homeowner who'd lost his/her home and their credit-worthiness? I think it was a "failure of imagination" of immense proportions.
Now there's such a huge gulf between the big lenders and the little-guy borrowers and it's hard to imagine how we get back to the more, level relationships of the past - when each side needed the other. But when big banks can be assured of the Fed's help [$trillions in time of crisis] and an average American with decent credit is hard-pressed to get a loan, the imbalance and inequity of this will continue to fester until major steps are taken to realign an arrangement that used to work.
Yes, but....you're couching everything in terms of Wall Street and the Fed intervention, when the true problem began much earlier.
What you should consider is how government intervention played havoc with prices, lending costs, and the underwriting beginning 15-20 years ago--something that Grindlemeister willfully ignores. Once the doors to the treasury vaults opened, the money flow commenced and home prices began rising accordingly. As somebody who consulted in this industry for decades, I watched the day-to-day issues that the beefed up CRA imposed AND the Alice-in-Wonderland lending environment that government subsidies in the marketplace imposed (By the way, Grindlemeister is being disingenuous. I did not lay the entire crisis at the feet of the CRA. Far from it. I blamed the entire web of government support and subsidy programs that totally distorted the pricing mechanisms of the marketplace). In short, I'm not some ivory-tower thinking who is reading about what happened in The Atlantic magazine. Not only did I witness it going on in slow motion, but I predicted its effects fairly accurately.
Unfortunately, the fact that massive government intervention in the market had a great deal to do with the crisis doesn't fit his initial thesis, chiefly because massive government intervention is what he favors. Somehow or another, the mortgage and housing industry had cruised along decade after decade without this crisis emerging--and with very little government involvement to boot. But once the government started getting involved, suddenly the sleepy mortgage biz spun out of control. This should provide a clear lesson for those who don't reflexively blame the private sector for everything.
What you should consider is how government intervention played havoc with prices, lending costs, and the underwriting beginning 15-20 years ago--something that Grindlemeister willfully ignores.
I'm not willfully ignoring anything. And I'm not about to defend government intervention like the National Homeownership Strategy. As a moderate, I don't subscribe to that kind of intervention. Likewise, I won't defend the 1995 revision of The Community Reinvestment Act which -- despite having less of an impact than that intimated by my critics -- unfortunately encouraged banks to grant mortgages to borrowers with poor credit. But more importantly, I’m not going to understate the recklessness of repealing Glass-Steagall.
Quote:
Originally Posted by cpg35223
(By the way, Grindlemeister is being disingenuous. I did not lay the entire crisis at the feet of the CRA. Far from it. I blamed the entire web of government support and subsidy programs that totally distorted the pricing mechanisms of the marketplace).
With all due respect, I wasn't intentionally being disingenuous. The last thing I want to do is misrepresent anyone. I offer my sincerest apologies for overemphasizing the CRA in my arguments against your position. Your blaming of "the entire web of government support" for the crisis has been duly noted by me. My mistake...
Quote:
Originally Posted by cpg35223
Unfortunately, the fact that massive government intervention in the market had a great deal to do with the crisis doesn't fit his initial thesis, chiefly because massive government intervention is what he favors.
How does the obvious reality of government involving itself in the marketplace NOT fit my initial thesis? To reiterate for the sake of clarity, my original thesis can be summed up like this: The government is ALWAYS involved in the market. HOW it's involved varies depending on the political climate of the moment. Consequently, I argued that any aspirations of laissez-faire capitalism are naive. Again, the government is always involved. That was my thesis statement. Even when it came to deregulation, the government was involved when it passed the Gramm-Leach-Bliley Act in 1999 (and the "massive" lobbying campaign which culminated in its legislation demonstrates how the government can massively intervene on behalf of the financial sector). The Gramm-Leach-Bliley Act was "massive government intervention" to the advantage of the banks (hence the "massive" lobbying efforts).
Quote:
Originally Posted by cpg35223
But once the government started getting involved, suddenly the sleepy mortgage biz spun out of control. This should provide a clear lesson for those who don't reflexively blame the private sector for everything.
And the repealing of provisions in Glass-Steagall, which kept commercial and investment banking separate -- a repeal effort that was the result of private sector pressuring and bribing -- should provide a clear lesson for people who turn a blind eye to the private sector bribing the public sector.
When it comes to PROPER government intervention relating to the subprime mortgage meltdown, one has to ask this: Why didn’t the government intervene when it came to prosecuting high-ranking executives on Wall Street -- executives who obviously violated the Sarbanes-Oxley Act? To this day, the Justice Department isn’t doing much of anything. And while my critics opine that government pressure was the primary reason why banks loaned money to the wrong people, we cannot ignore the fact that the lust of loan officers for potential bonuses was a big incentive to engage in mortgage fraud. According to Eileen Foster who was executive vice president of Countrywide, and who worked with fraud investigations, there was plenty of fraud going on. Of course, punishments were meted out to whistleblowers regularly. Before she was scheduled to meet with government regulators to discuss the fraud, she was fired. In fact, an SEC civil suit acknowledged that Countrywide's CEO knew about the mortgage fraud. They settled out of court and made him pay five percent of compensation he received over an eight year span. Big deal. And as far as publicly traded companies are concerned, he can't serve as an officer or director. Banned for life. But it's still just a slap on the wrist.
Government intervention? When it comes to PROPER intervention, I'd like to see the Justice Department prosecute the crooks who broke the law when they violated the Sarbanes-Oxley Act.
There has been a lot of talk on this thread about underwriting and mortgage fraud due to government programs that I, personally, wouldn’t support. But should we turn a blind eye toward those in the industry who were motivated by greed when it came to such fraud? And notwithstanding all the aversion to regulation from my critics, why isn’t the Justice Department prosecuting executives who broke the law -- specifically the Sarbanes-Oxley Act?
Last edited by grindlemeister; 12-05-2011 at 07:52 PM..
I'm not willfully ignoring anything. And I'm not about to defend government intervention like the National Homeownership Strategy. As a moderate, I don't subscribe to that kind of intervention. Likewise, I won't defend the 1995 revision of The Community Reinvestment Act which -- despite having less of an impact than that intimated by my critics -- unfortunately encouraged banks to grant mortgages to borrowers with poor credit. But more importantly, I’m not going to understate the recklessness of repealing Glass-Steagall.
With all due respect, I wasn't intentionally being disingenuous. The last thing I want to do is misrepresent anyone. I offer my sincerest apologies for overemphasizing the CRA in my arguments against your position. Your blaming of "the entire web of government support" for the crisis has been duly noted by me. My mistake...
How does the obvious reality of government involving itself in the marketplace NOT fit my initial thesis? To reiterate for the sake of clarity, my original thesis can be summed up like this: The government is ALWAYS involved in the market. HOW it's involved varies depending on the political climate of the moment. Consequently, I argued that any aspirations of laissez-faire capitalism are naive. Again, the government is always involved. That was my thesis statement. Even when it came to deregulation, the government was involved when it passed the Gramm-Leach-Bliley Act in 1999 (and the "massive" lobbying campaign which culminated in its legislation demonstrates how the government can massively intervene on behalf of the financial sector). The Gramm-Leach-Bliley Act was "massive government intervention" to the advantage of the banks (hence the "massive" lobbying efforts).
And the repealing of provisions in Glass-Steagall, which kept commercial and investment banking separate -- a repeal effort that was the result of private sector pressuring and bribing -- should provide a clear lesson for people who turn a blind eye to the private sector bribing the public sector.
When it comes to PROPER government intervention relating to the subprime mortgage meltdown, one has to ask this: Why didn’t the government intervene when it came to prosecuting high-ranking executives on Wall Street -- executives who obviously violated the Sarbanes-Oxley Act? To this day, the Justice Department isn’t doing much of anything. And while my critics opine that government pressure was the primary reason why banks loaned money to the wrong people, we cannot ignore the fact that the lust of loan officers for potential bonuses was a big incentive to engage in mortgage fraud. According to Eileen Foster who was executive vice president of Countrywide, and who worked with fraud investigations, there was plenty of fraud going on. Of course, punishments were meted out to whistleblowers regularly. Before she was scheduled to meet with government regulators to discuss the fraud, she was fired. In fact, an SEC civil suit acknowledged that Countrywide's CEO knew about the mortgage fraud. They settled out of court and made him pay five percent of compensation he received over an eight year span. Big deal. And as far as publicly traded companies are concerned, he can't serve as an officer or director. Banned for life. But it's still just a slap on the wrist.
Government intervention? When it comes to PROPER intervention, I'd like to see the Justice Department prosecute the crooks who broke the law when they violated the Sarbanes-Oxley Act.
There has been a lot of talk on this thread about underwriting and mortgage fraud due to government programs that I, personally, wouldn’t support. But should we turn a blind eye toward those in the industry who were motivated by greed when it came to such fraud? And notwithstanding all the aversion to regulation from my critics, why isn’t the Justice Department prosecuting executives who broke the law -- specifically the Sarbanes-Oxley Act?
See, now you're talking out of both sides of your mouth. In your OP, you state that government involvement is needed "in a BIG way" (Your caps, not mine). I simply pointed out the problems massive government involvement brought to what had been heretofore a rather stable, by-the-numbers sector of the economy--one that had required the bare minimum of government support before. And if you think you're a political moderate, then you're kidding yourself.
Personally, I don't have a problem with either the Glass Steagall Act or mass prosecutions for securities fraud. In fact, I'm absolutely in support of the latter. However, that's a far cry from your apparent theme that the entire industry is to big and too important to exist without serious buttressing from the Feds, along with a raft of new regulations. I'm just pointing out the chain of causation that shows that this crisis was a Frankenstein's monster of the Federal government's creation. To look to them for a long-term solution is simply inviting more of the same.
Unfortunately the Regulators do what the politicians tell them to do and the politicians do the bidding of the last guy with the biggest bucks.
This mess started when deliberate inflation to pay for the Vietnam War wiped out the successful Savings and Loan industry. Then the money grubbers discovered a way to make certain everyone had a mortgage and collected their fees and speculation. They bet on and insured the eventual failure. The world economy has not seen the end of this debacle.
See, now you're talking out of both sides of your mouth. In your OP, you state that government involvement is needed "in a BIG way" (Your caps, not mine).
Excuse me, I'm not talking out both sides of my mouth. Yes, the government IS always involved "in a BIG way" when it comes to the marketplace and I've always said that with no contradictions. To reiterate yet again, the only thing that changes is HOW the government is involved. Shall I repeat it again, sir? Whether it's through regulations or legislation that's hostile to any oversight accompanying taxpayer-funded bailouts, the government is ALWAYS involved. The bailouts sans oversight were welcomed by industry. But regulations were resisted, for the most part. Both are examples of government involvement (with the former being well received and the latter not so much). The financial sector, whose overlords proselytized an unregulated market, demanded a bailout when they ran into trouble. If they were so resistant to the government being involved in the marketplace -- which is impossible because it always is, one way or another -- they sure didn't mind demanding that bailout money. If the private sector can do it on its own, why did they demand a taxpayer-funded bailout? No, I don't talk out of both sides of my mouth, but I recognize hypocrisy when I see it. Indeed, I see a group of failures and con-men on Wall Street who preach a marketplace where the government shouldn't involve itself, only to receive billions in public money, and then, reward themselves with bonuses. Can most of these big industries exist without government involvement? If they can, then why do they spend piles of cash lobbying the government? Why do so many companies receive subsidies? Could Cray Inc., who depends on public money for research, continue in any viable sense without the government? If we eliminated, for the most part, the government from the marketplace, are you seriously postulating the notion that most of these big companies can continue?
Quote:
Originally Posted by cpg35223
I simply pointed out the problems massive government involvement brought to what had been heretofore a rather stable, by-the-numbers sector of the economy--one that had required the bare minimum of government support before.
Again, when it comes to causing the crisis, you're overstating government intervention when it involves regulation, while at the same time, understating industry-friendly legislation that undermined protections enforced after the Great Depression. And you turn a blind eye to how the government involved itself when it came to bailing out those crooks after the mess happened.
Quote:
Originally Posted by cpg35223
And if you think you're a political moderate, then you're kidding yourself.
And with one statement, you ATTEMPT to deny me the option of defining my political orientation. Luckily, I'm impervious to your futile attempts at denying me that right. I'm a moderate. And even though you took it upon yourself to redefine me, I'll refrain from doing the same to you. You have the right to say who you are. I'm opting for the high road, friend.
Quote:
Originally Posted by cpg35223
Personally, I don't have a problem with either the Glass Steagall Act or mass prosecutions for securities fraud. In fact, I'm absolutely in support of the latter. However, that's a far cry from your apparent theme that the entire industry is to big and too important to exist without serious buttressing from the Feds, along with a raft of new regulations.
Just to clarify, government involvement is inevitable (as evidenced by the taxpayer-funded bailouts I mentioned above). You're hostile to any type of regulation, while I acknowledge that some regulations are positive and some are not. I'm not for every regulation under the sun. Hence, my declaration of being a moderate.
Quote:
Originally Posted by cpg35223
I'm just pointing out the chain of causation that shows that this crisis was a Frankenstein's monster of the Federal government's creation. To look to them for a long-term solution is simply inviting more of the same.
Well, then let's try removing the government from the private sector. Let's see how THAT pans out. But that would mean no more subsidies and no more bailouts. Of course, without subsidies, VIABLE research will come to a screeching halt, because I doubt that industry will be able to handle things on their own. But you seem to have faith in an unregulated marketplace with little involvement from the government. By all means, let's give it a try -- not just for the housing industry but all across the board.
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