Who do you blame more for housing crash: realtors or appraisers? (disclosure, mortgage)
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Tim - I know that the GSA's did not do subprime, but that was the tip of the iceberg, the camel's straw.
Even now Gov't entities are lending with 3.5% "down payments", leaving borrowers effectively underwater as soon as they close escrow!
My point is that endless easy money policies primed the pump - and Wall St did indeed pump the wells.
Gov't backed securitization to promote home ownership set the wheels in motion for exotic and ultimately catastrophic financial instruments, designed by the geniuses of Wall St. to our sorrow.
When manias take hold they are virtually unstoppable.
And who in his right mind who COULD have, WOULD have had the stones to end the party?
There is some good reading about the CRA and I'll admit it is debateable whether it created the problem. From what I've seen it is the time period and legislation that started and added fuel to the fire.
Quote:
Relation to 2008 financial crisis
See also: Subprime mortgage crisis and Global financial crisis of 2008–2009
Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[101] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[106] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[107]
However, many others hold that the CRA did not make a significant contribution of the subprime crisis. Nobel laureate Paul Krugman[108] noted in November 2009 that 55% of commercial real estate loans were currently underwater, despite being completely unaffected by the CRA.[109] According to Federal Reserve Governor Randall Kroszner, the claim that "the law pushed banking institutions to undertake high-risk mortgage lending" was contrary to their experience, and that no empirical evidence had been presented to support the claim.[110] In a Bank for International Settlements (BIS) working paper, economist Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust", relying partly on evidence that the housing bust has been a largely exurban event.[111] Others have also concluded that the CRA did not contribute to the financial crisis, for example, FDIC Chairman Sheila Bair,[112] Comptroller of the Currency John C. Dugan,[113] Tim Westrich of the Center for American Progress,[114] Robert Gordon of the American Prospect,[115] Ellen Seidman of the New America Foundation,[116] Daniel Gross of Slate,[117] and Aaron Pressman from BusinessWeek.[118]
Legal and financial experts have noted that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[63][119] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[120] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[121] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[122] Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.[123]
During a 2008 House Committee on Oversight and Government Reform hearing on the role of Fannie Mae and Freddie Mac in the financial crisis, including in relation to the Community Reinvestment Act, asked if the CRA provided the "fuel" for increasing subprime loans, former Fannie Mae CEO Franklin Raines said it might have been a catalyst encouraging bad behavior, but it was difficult to know.
In 1981 and 1985 the removal of laws that were established to (laws from 1927 and 1956) prevent a "too big to fail" scenario is what I feel is one of the earliest factors. The size and area of a single banking entity used to have limits, once those limits were removed, a few massive banks slowly gained more power over the politicians than the people - so from there, continued deregulation followed.
The banks CEO's were 100% conscious of what they were doing, while the individual bankers, appraisers, real estate agents were not. Intelligent ones could see the writing on the wall, but as far as the "now is a great time to buy" was not what I saw happening in 2000-2007. What I experienced was, "I/you better buy now before prices are out of my/your range" mentality.
I know some of the appraisers, agents, and individual bankers were, are, and always will be corrupt, but I suspect nearly ALL, of the CEO's at the big banks knew they were getting too big to fail, and did not care. So, what did the Govt. do? It made the remaining few even bigger.
So, what created this mess, who is the most to blame, well, not the little guys, they were drinking the koolaide, but they weren't making it. The little guys never wanted the lending industry to become bigger than the people, and until the time of the crash most didn't realize how big a select few really were. The big shots up top have a level of greed that your typical American has no concept of.
There is some good reading about the CRA and I'll admit it is debateable whether it created the problem. From what I've seen it is the time period and legislation that started and added fuel to the fire.
sorry, but you're confused. the CRA is irrelevant. beating a dead horse, here.
because they are easily swayed by mass manias that are hard for even the most "rational" to resist. Nothing else explains the insanity of behaviors that, in retrospect, look so obvious.
And even those who smell the BS think that they can escape before the SHTF. Very few had the courage and foresight to swim the other way.
Those that did survived very nicely. Some even made billions.
But the average person is not capable of this reasoning.
Sadly, people much prefer reassuring lies to unpleasant truths.
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..I think people ARE like fish
