Goal: Increase Minority Homeowners by 5.5 Million in a Decade
Guess who’s goal this was? You might be surprised:
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"More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That’s a home ownership gap. It’s a — it’s a gap that we’ve got to work together to close for the good of our country, for the sake of a more hopeful future. We’ve got to work to knock down the barriers that have created a home ownership gap.
I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families . . .
Home ownership is also an important part of our economic vitality. If — when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; the activity — the economic activity stimulated with the additional purchasers, the additional buyers, the additional demand will be upwards of $256 billion. And that’s important because it will help people find work."
- George W. Bush, U.S. President, October 15, 2002 1:55 P.M.
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Last week, we mentioned this speech from 2004. Fast forward to today’s excerpt, from an even earlier, 2002 speech.
Why keep bringing these up? Because it derails the false argument brewing amongst those on the right who blame the 1977 CRA or the 1938 Fannie Mae for the current housing and credit problem. I have zero patience for this nonsense, and am unafraid to call people on it.
Nothing in any of these Bush speeches that pushed for more lending to minorities and increased lower income home ownership caused the problem. Neither did any similar Clinton speeches. Nor did related the legislation related to the Bush speeches, nor did the CRA, nor Fannie Mae or Freddie Mac. Indeed, none of these actions required the sort of reckless lending that we saw from 2002-2007.
Understand this simple fact: In an ultra-low rate environment, where prices are appreciating rapidily, and mortgaes are being securitized, ALL THAT MATTERS IS THAT THE BORROWER NOT DEFAULT IN 90 days (or 6 Months). The goal was to make a loan that did not default in that period of time, it cannot be put back to the originator.
As a mortgage salesman, you only lose your a fee if a borrower defaults within 3 or 6 months. What do you do to maximize your returns? The best way to do that — to put people in houses that would not default in 90 days — was the 2/28 ARM mortgages. Cheap teaser rates for 24 months, then the big reset. By then, it was no longer your problem.
Can you grasp what a monumental change this was? Instead of making sure that borrowers could pay back ALL OF THE 30 YEAR FIXED MORTGAGE, you only had to find people who could afford the teaser rate for a a few months. THIS WAS AN ENORMOUS AND UNPRECEDENTED SHIFT IN LENDING.
This is the key to the hosuing boom and bust, anbd ultimately underlies the entire credit freeze. And, it would not have been possible without the Greenspan ultra-low rates, which made the teaser portion (the "2" of the 2/28) of these mortgages so attractive.
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Those who continue to blame the CRA, Fannie Mae, etc. reveal their fundamental misunderstanding of how credit operates in general, what the financing process was like from 2002-07, and how this situation came to pass. Or worse, they understand it, and choose to lie about it anyway for partisan political purposes.
You either understand these simple facts, or you don’t. If you cannot
comprehend this, well, then, I am at a loss as to what that says about your cognitive functioning. But if you understand this, but spit out the nonsense anyway, then you are merely a partisan with no respect for the truth.
And that seems to be the main people
blaming the CRA and Fannie/Freddie for the credit/housing crisis — those folks who either can’t think — or wont.
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Source:
President Hosts Conference on Minority Homeownership
October 15, 2002 1:55 P.M. EDT
http://www.whitehouse.gov/news/releases/2002/10/20021015-7.html
October 14th, 2008 at 10:05 am
nice rant BR lovin it!!
October 14th, 2008 at 10:06 am
I remember when the statistic of 66% home ownership was published and also that it was the highest on record . . . I thought, “Who else is left to buy?” Put my home up for sale and sold it in a weekend for cash. Been renting ever since.
October 14th, 2008 at 10:09 am
BR, I can’t find any place in the economy for the next bubble, can you? They are stuffing money into a system that is already saturated. After 15 years of relative cheap money what’s next?
October 14th, 2008 at 10:11 am
Higher education.
October 14th, 2008 at 10:15 am
As many bloggers are often promoting an agenda, I’m not sure if any dissenting opinions are allowed. But if your goal is to place the blame fully on President Bush, you make the same mistake of the right wing bloggers that you mention in your post- you’re not telling the whole story.
I can show you videos of similar commentary urging promotion of bad loans and weak lending standards that were made by current and former members of congress on both the right and the left- even our dear friend Mr. Greenspan was a proponent of these measures.
Your blog has always been helpful in examining economic and market issues and as the political agenda creeps into the content, it becomes less helpful because it makes your readers begin to question your lack of diligence in other areas. Meaning no disrespect, just an analysis- but if you’re trying to shape political opinions rather than offer financial insight, you would do well to also explain away some of Nancy Pelosi’s and Barney Frank’s comments to make your view at least somewhat believeable.
October 14th, 2008 at 10:15 am
BR: Right on with what caused the gap tween credit and collateral. Lower interest rates are de facto lower end prices.
But don’t forget another huge factor in this whole play…when the barriers of ownership between banks, real estate, and insurance were deregulated away we grew companies that were the seed of the over leverage and the too big too fail institutions that caused us all to become owners of bad banks and toxic paper sludge.
October 14th, 2008 at 10:16 am
Well, sorry you think this is an invalid point, but Bush just joined the left-leaning band wagon, so in that sense he is certainly a contributor to the problem. Just like the repubs joined into the “let’s reduce the CIA, let’s reduce the military, let’s not ever reform Social Security, let’s give mo gubmint health care entitlement via presc. drug benefits…” So, yes, if you are saying Bush bears some responsibility, you’re right. The problem is that when the libertarians say: “let’s not do anything” (or the repubs), they get hit with the: “brutal, uncaring, etc.”. Until we get somebody who’ll hold the line, the fraction of the GDP that is gubmint spending will continue it’s unending climb. Was/is a guiding principle of the libertarian wing of the repub party? No way. The last time you might (might!) be able to make the argument that this philosophy got implemented was under Reagan. Since then, it doesn’t matter who is in office: gubmint intervention has risen. Now, the GSE + lack of regulation (regulation does NOT equal direct participation of gubmint as a business) gave us what we have now (credit market meltdown/bailout).
October 14th, 2008 at 10:18 am
concerned citizen, a four letter word for you: GOLD
October 14th, 2008 at 10:18 am
If Obama gets elected I look for a renewable energy boom. Lots of little players that could have a run with a little govt money and a few tax incentives. Not all bad, mayge a step in the right direction.
October 14th, 2008 at 10:19 am
thank you and amen
October 14th, 2008 at 10:20 am
I know I’m a relative new comer to posting here, but for the traders that hang out here:
My gut is all over buying this dip. What say ye folks? Do you think yesterday was a “one-dayer”?
The pullback to the intraday minute MA’s seems perfectly relevant to how we’ve been trading of late. Its only natural for longs to want to take a profit after so much bludgeoning. I’m staying pat, fully long, and betting that this rebound last’s awhile, at least to a retest of the dominant downtrend. I have that at approximately 115-120 on SPY, or 50 day EMA.
October 14th, 2008 at 10:21 am
thank you and amen
October 14th, 2008 at 10:22 am
I agree with everything you say regarding all the other things that contributed to this debacle: Greenspan, CFMA, bankers, borrowers, regulators, etc. Where you lose me Barry is where you claim that CRA was not a contributing factor. It was.
I guess that’s the reason the whole situation is so acute. If it was just one problem — low teaser rates for instance — the Fed could just ease rates to the point that the 28 in the 2/28 would remain low.
But the problem isn’t just that the rates were too low. Politicians decided that society would be better with higher levels of homeownership. Risk managers across the globe (Basel accords) thought their mathematical models perfectly controlled risk. That controlled risk allowed bankers to use ridiculous levels of leverage. Homeowners thought their houses were ATMs. Etc., etc.
CRA, which typified the thinking in on both sides of the aisle in Washington, was a contributing factor. Maybe not the most significant factor. But to say that it had nothing to do with the problem is as wrong as what you accuse your pal Charlie of doing.
October 14th, 2008 at 10:24 am
BR,
I think you may underestimate the *trade up* element of the housing market.
If some tax incentive or subsidy is directed at say the middle-upper end of the market, perhaps the 750k-1mill range, it will have the distortionary effect of inflating the prices of $1mill+ homes. BUT it won’t affect cheaper homes.
By inflating the bottom of the barrel, government, via the trade-up phenomena, distorted the entire housing market and aggravated the frenzy.
October 14th, 2008 at 10:24 am
the hysterical sound of a dying progressive
the only idiotic/moronic thing to believe is that FNMA/CRA had *nothing* to do with the crisis. however this is not what you are claiming, so you can cleverly state that strawmen who say it’s the *only* thing are idiots.
but this is not what most people on the other side of the argument believe. they believe that there was *some* influence on prices by these factors (and other market manipulative incentives, like the mortgage deduction). how much is difficult to determine. but you cannot state with any certainty that they had nothing to do with it.
October 14th, 2008 at 10:27 am
speaking of buying ‘dips’, BR’s call on Friday, DJIA~7500 IIRC, was Insane(-ly) spot-on.
Way to put it on the Record BR.
btw, is Kotok a skilled/avid Fisherman?
October 14th, 2008 at 10:27 am
BR lamented: “You either understand these simple facts, or you don’t. If you cannot comprehend this, you are a low functioning moron. If you understand it, but spit out nonsense anyway, you are a liar.”
You forgot the obvious third option: Anyone who can’t distinguish economic facts from economic fairy tales or fantasies is a modern day supply side Republican. They are both stupid and liars, but see the need for this behavior because it advances their agenda. The people who believe their blather are the sames ones who would vote for a barbie doll or a cocker spaniel or a rusty spoon if it were the anointed candidate of the moment. Part of being a good Republican, by today’s standards, is to believe anything you are told and pass it along (re Kudlow).
October 14th, 2008 at 10:28 am
As harsh as this rant sounds, it is the truth. I have always done my best to express my “left” leaning economic/financial opinions as just that, opinions; and respected those who disagree. I don’t think it is any longer intellectually fair to respect the economic/financial opinions of staunch conservatives. They are wrong. They have been proven wrong. They have dragged those of us who were right down with them. This is no longer a matter of opinion. Markets have to be properly regulated, the labor force has to be given their fair share with wages and benefits, and the tax system has to be adjusted reasonably to account for the incredible income gap that’s developed. Anything else will simply not be sustainable for the long haul.
October 14th, 2008 at 10:31 am
I agree CRA wasn’t the problem, but I am still puzzled why you don’t hold FNMA/FHLMC feet to the fire? CRA and FNMA/FHLMC are not the same. CRA is closer to FHA, if anything.
FNMA/FHLMC did, in fact, lower lending standards. I was there. Automated underwriting, etc. It wasn’t for saintly reasons to meet minority homeownership goals, it was to get more business, spurred on by Countrywide and other lenders.
A self-employed businessman making hundreds of thousands a year could get a zero down loan on his credit score alone. You didn’t have to be poor and black to benefit from FNMA/FHLMC loosened standards.
October 14th, 2008 at 10:33 am
Nice try. But the reality is that Bill Clinton re-wrote the CRA and created this mess while the Democrats in Congress received huge political contributions, particularly Chris Dodd and Barney Frank. What are you smoking? Where are the calls are investigations now?
October 14th, 2008 at 10:37 am
Sheesh! What a party pooper. I’m a Republican with a tenuous hold on the suburban middle class lifestyle who’s been blaming everything on minorities for years now. I know I’ve used it promiscuously in the past, but I really need this one. If I can’t convince all my neighbors that minorities and Clinton are to blame, how am I supposed to get them to begrudgingly go along with all of this government intervention to backstop my home value?
October 14th, 2008 at 10:38 am
BR,
If it helps underscore your point, here’s a tool that you can use to find the probability that someone with a given FICO credit score will be 90 or more days delinquent on making their loan payments (of any type, not just mortgages.)
The chart included with the tool shows how the FICO scores needed to obtain a conventional mortgage that were progressively lowered by Fannie Mae and Freddie Mac sharply increased the probability of delinquent payments.
October 14th, 2008 at 10:39 am
thank you, BR, for your efforts in pushing back on this meme. Liars or idiots, that’s what they are.
October 14th, 2008 at 10:40 am
good grief – who strengthened CRA? Clinton and Reno…
October 14th, 2008 at 10:40 am
Who were the loan originators turning the loan over to and why?
October 14th, 2008 at 10:41 am
“low functioning moron” … niiice. I’m gonna start using that one.
In today’s announced Bailout 3.0, has anyone figured out what this bailout means to banks that are on the brink of insolvency? Is it going to keep them afloat, or are we going to be able to put these poorly run banks out of business? I think a serious purge needs to take place and I’m concerned the BO 3.0 is going to prop up the weak members of the herd.
October 14th, 2008 at 10:44 am
BR: Love the honesty and the guts.
Don’t listen to the those who want you to lean over backwards to avoid offending the partisans. That path leads to the muddle.
October 14th, 2008 at 10:46 am
Barry, answer Ironman’s point about Fannie/Freddie lowering the FICO scores.
October 14th, 2008 at 10:49 am
In truth, loan originators became used car salesman – the transmission only had to last until the “mark” drove the car off the lot.
October 14th, 2008 at 10:51 am
Well put Dustin.
Having a debate does not mean that both sides are equal in their validity. That is what many on the right do not understand. They use this ploy in the ID/Evol debate. There is NOT equal weight of evidence in ID vs Evol, regardless of how many fundamentalist Christians want to “believe” it true.
Conservatives have been proven wrong on the supply side debate. They will never admit it but the world is moving in another direction now. This financial crisis has been attenuated ONLY by GOVERNMENT INTERVENTION!.. The free market was frozen and unwilling to participate. The free market was acting in self interest and choking the machinations of interbank commerce. Someone on the outside had to step in and say, “Okay now, don’t worry, we wont let you fall too far. We have a safety net for you. You will not be eaten alive by the market sharks” This is what even the masters of the universe wanted to hear.
We are still gonna have a deep recession but everyone has gotten their assurances so now they will go and sleep better.
October 14th, 2008 at 10:53 am
Interesting chart. The problem didn’t begin in 2003.
http://1.bp.blogspot.com/_otfwl2zc6Qc/SPJK-sCChmI/AAAAAAAAF3g/QS81bfxcdP0/s1600-h/owner1.bmp
October 14th, 2008 at 10:54 am
If you have read the post the last couple of weeks, you would know that Barry is not just blaming Bush. Fannie and Freddie were bit players in a big game of greed and excess. CRA did not say to lend to people who can not afford to pay it back. You’ll have to show me where the bill says that.
October 14th, 2008 at 10:55 am
I agree with the author’s comments. Trying to blame this on the CLE is garbage. Minorties were the perfect marks, more easy to defraud. They are easy to swindle. That’s the name of the game. That was the motivation. They could care less about helping them. Putting them into an ARM massive fees. Right. Fredie and Fannie were fraud conduits for Wall Street. Wall Street was in control of the strings. On their orders government was complicit actively or they stood down. It was mostly a regulatory standdown. I so sick of idiots blaming shiftless negroes, mexicans, and greedy white trash for this problem. Do you really think the applicants filled out their mortgage applications rather than the brokers themselves. Lenders viewed these people as animals, pigs, cows, and chickens to feed in dark cages and slaughter. There are so many in the media who are so clueless about these issues. It’s so easy to get them to parrot the big lie and outrageous falsehoods. The pathetic part is most of them actually believe it. Every man for himself in this environment. Leave the foolish to their fate. Not to be to cynical but the latin maxim: Man wants to be deceived; deceive him. … comes into play.
October 14th, 2008 at 10:59 am
Remember that line from the movie “Sneakers” where they are in the back of the Russian guys car and he says “you won’t know who to trust”? How true.
Bush was pushing (and subsequently achieved) the leftist agenda of “multiculturalism”. The root of the word “diversity” is “divide”. So the oft repeated doublespeak phrase (always in a patriotic sense) “diversity is our strength” has been fully implemented by “integration” down to the neighborhood level.
What does this mean? It means “they” have effectively broken up once solid voting blocks (lots of people who are like-minded) leaving open the entrance of leftist dialectic processes on the city/county/state level.
We’ve all been had. I suspect we’re about to see the globalist agenda crammed down our throats at and unprecedented rate.
I would go long lawyers, chaos, crime, riot control gear, intelligence oriented policing gear.
October 14th, 2008 at 11:00 am
Barry,
The CRA and Fannie Mae constructions didn’t start it, but the last housing boom did certainly start long before rates plummeted. And it started very abruptly, which suggests some legislative/structural change.
Robert (above) points to a graph that is certainly spot on.
October 14th, 2008 at 11:01 am
Well, Barry, when someone ends their argument by saying “anyone who doesn’t agree with me is a moron or a liar”, I get the sense that they’re not too confident that the facts they have provided are sufficient to prove their case. I guess that makes me a moron.
Before CRA was kicked into high gear, originators were paid the exact same way. Why didn’t this happen before, then? Why didn’t it happen in Japan, when rates were super-low?
And why bring up Bush’s speech about home ownership? It seems on one hand you’re saying CRA and the homeownership push didn’t have anything to do with it, but wait, even if it did, Bush said it too. That seems to undermine your argument as well.
You seem a little politically polarized on this issue.
October 14th, 2008 at 11:03 am
BR,
I personally don’t believe ideology had much to do with it, except the fed’s ideology that it could fine-tune economic performance with manipulations of the money supply.
We could have been the socialist states of amerika or governing like they did on the western frontier at our founding, either way, we’d have lapped up all that free money like a kitten slurping cream.
I think trying to pin this on ideology just confuses the analysis.
October 14th, 2008 at 11:06 am
Ironman, reliance on the FICO score was also part of the problem. I have a FICO of over 800, but there’s no way I could afford a million dollar home. Other things like income and reserve savings and employment are important factors in determining one’s ability to make payments.
October 14th, 2008 at 11:09 am
I don’t have a clear understanding of what the real problem is. I don’t consider myself a low functioning moron, or a liar – just someone trying to learn.
So who IS to blame? You make it seem like Greenspan by making the ultra-low rates?
But, is there also blame for the originators of the loans who were purposely giving out loans on the basis that the people wouldn’t default within 90 days, and then, who cares – not their problem? Who were these originators, and do they get some/most/all/any the blame?
October 14th, 2008 at 11:10 am
McCain Unveils New Economic Stimulus Proposal: Tax Cut For Millionaires
On Monday, Barack Obama announced “a new economic rescue plan Monday geared toward middle-class voters.” McCain didn’t announce anything, which “caused some head scratching.”
And now, on Tuesday, McCain is unveiling his new proposals, going back to the well of tax cuts for the rich. McCain is planning to announce a two-year “cut the capital gains tax on stock profits in half, from 15 percent now on stocks held a year or longer to 7.5 percent — a $10 billion proposal.
Old John McDepends really means it when he says “My Friends”.
October 14th, 2008 at 11:11 am
Barry, methinks thou doth protest too much. Too many people and entities were complicit in this perfect storm to try to pin the blame on any single person or factor. You’ve done a good job of identifying the various people/factors involved…why not just admit it took a whole bunch of people screwing up to get us in this mess and leave it at that.
October 14th, 2008 at 11:14 am
Didn’t this start with President Clinton??
October 14th, 2008 at 11:17 am
You tell ‘em, Barry!
Could some of these mortgage brokers be
tried for fraud? How could this scam go on for so long??
Eve
October 14th, 2008 at 11:17 am
I agree with Frank. Enough with your rants. There is plenty of blame to go around – Democrats AND Republicans – public and private sector.
October 14th, 2008 at 11:18 am
Barry, Glass Steagall was done away with under BILL CLINTON. The rest is a sideshow once these protections were taken out. You can blame Bush, but Clinton, Rubin and Summers were the masterminds of this credit bubble. I’m curious, did 1 Quadrillion dollars in derivatives (notional…LOL) all go in housing or were bets made across all asset classes?
October 14th, 2008 at 11:19 am
Fannie and Freddie were hybrid institutions that had a profit motive as well as a public policy motive. No one at F&F complained when they were told to issue more, because it might harm shareholders. They saw a greater chance at profit. F&F management should have been more responsible, and pushed back against weak lending practices. They did not, and even followed the independent lenders down, as U/W practices deteriorated.
Clearly, the politicians that did not favor GSE reform legislation, including Bush, Congressional Democrats and some Republicans, are far more culpable than F&F management. As I have pointed out, there is a lot of blame to be shared in these matters.
And, no, I don’t blame the CRA. The Bush Administration gutted it through a lack of enforcement during their term.
October 14th, 2008 at 11:21 am
“…while the Democrats in Congress received huge political contributions, particularly Chris Dodd and Barney Frank.”
I don’t know. This article shows a little different info:
http://www.usatoday.com/news/washington/2008-09-19-3382012386_x.htm
October 14th, 2008 at 11:23 am
We are all entitled to our own opinions; but not our own facts.
Thanks Barry.
October 14th, 2008 at 11:24 am
Here’s a picture of Ol’ Bill doing away with Glass Steagall for you short bus riders, and surprise surprise the Democrats were glad handing too. Quick, look surprised Barry!
http: //i188.photobucket.com/albums/z167/liberalamerican/clintonsignsglasssteagallrepeal.gif
October 14th, 2008 at 11:24 am
Of course Bush didn’t create this bubble. But he had his own ideological and political reasons for inflating it.
Bush and Cheney were 100% in favor of flooding the world with cheap money because it allowed them to have their wars without having to raise taxes. The “ownership society” was their attempt to brand this cheap money universe as a natural extension of American Exceptionalism and the American Dream.
And for a couple of years, it worked.
The situation that Barry talks about — where Wall Street firms could securitize these shady mortgages and sell them off without the government ever having a hand in the transaction — were possible because of the flood of cheap money.
Bush and Cheney did not cause this bubble. They just used to to their advantage, country and economy be damned.
October 14th, 2008 at 11:26 am
Well, if you’re going to throw around the word ‘moron,’ let’s see if your intellectual capacity allows you to wrap your mind around the contribution of Fannie/Freddie, in their capacity as a dominant player in the industry, contributed to lower risk premiums across the mortgage industry (if not most of US fixed-income) as a result of their implicit guarantee (= government subsidy). I’m not arguing CRA, or even trying to “blame” FNM/FRE per se, simply pointing out the dangers of some of the strident, categorical rhetoric you’re sometimes prone to. Perhaps you watch too much Kudlow; he gives me a headache and I switched off a long time ago.
October 14th, 2008 at 11:26 am
Shane Merritt claims above:
“Your blog has always been helpful… and as the political agenda creeps into the content, it becomes less helpful because it makes your readers begin to question your lack of diligence in other areas.”
Why is that? Why is it that when BP host BR points out the actual speech that launched the actual initiatives that caused the actual problems that resulted in the actual crisis that it impugns some other analysis he does?
The facts are the facts. Those people that deviated from looking at facts of the political economy for the last few years have suffered the last couple of weeks (and it will continue.) BR is doing you a service.
We now have the proof for the naysayers of the “The greatest story never told.” It was smoke an mirrors. That is the point.
October 14th, 2008 at 11:26 am
GuinnessFan, go to opensecrets.org to see whos been playing footsy with Chris Dodd.
October 14th, 2008 at 11:26 am
Tom,
“But the reality is that Bill Clinton re-wrote the CRA and created this mess while the Democrats in Congress received huge political contributions, particularly Chris Dodd and Barney Frank.”
Even assuming it had anything whatsoever to do with the problem, WHICH IT DIDN’T, just how did President Clinton and the Democrat Congressional MINORITY enact it against the Republican Congressional MAJORITY ?
Eh ?
.
October 14th, 2008 at 11:27 am
9/30/99…
Read the part about Clinton and the bailout.
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.
”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.
”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”
Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
http://query.nytimes.com/gst/fullpage.html?res#9C0DE7DB153EF933A0575AC0A96F958260&sec#&spon#&pagewanted#print
October 14th, 2008 at 11:27 am
Of course the ones ranting most loudly against minorities are usually the ones losing their 4000 sq ft homes while trying to figure out how to pay for their boat and RV and their three brand new SUVs and big screen TVs ….
October 14th, 2008 at 11:34 am
I agree with Frank. Enough with your rants. There is plenty of blame to go around – Democrats AND Republicans – public and private sector.
Posted by: Ron | Oct 14, 2008 11:17:47 AM
—
Ron,
You seem to deliberately misapprehend the entire content of Barry’s post. There are no Democrats today attempting to blame CRA and lending to black people in general for the existing crisis. There are many many Republicans making this spurious claim. Republicans have made this a “partisan” issue. All evidence shows the claim itself has no factual basis. All evidence shows the claim was created, introduced, marketed and sustained by Republican politicians and pundits for purely partisan propaganda and CYA purposes.
Saying “there is plenty of blame to go around” reminds me of the Swamp King in Monty Python and the Holy Grail who says, after his daughter’s entire wedding party has been slaughtered by John Cleese: “This is supposed to be a happy occasion. Let’s stop bickering and arguing over who killed who.”
Cheers.
October 14th, 2008 at 11:35 am
Robert: There’s not much for BR to answer in regard to my comment or the post to which I linked. They’re simply an indication of how much risk was being taken on both Fannie Mae and Freddie Mac by lowering their objective credit lending standards, regardless of whatever motives various politicians had in encouraging more home ownership.
cynicalgirl: Those things certainly impact one’s ability to borrow money and would, for a generic lender, influence how much money an individual could borrow.
Their credit score, however, doesn’t care about that very much. Instead, it provides a pretty good indication of how likely an individual will be late in making their payments based on their past history and debt load, regardless of whether they can afford their payments or not.
October 14th, 2008 at 11:37 am
> “I agree CRA wasn’t the problem, but I am still puzzled why you don’t hold FNMA/FHLMC feet to the fire? CRA and FNMA/FHLMC are not the same. CRA is closer to FHA, if anything. FNMA/FHLMC did, in fact, lower lending standards. I was there. Automated underwriting, etc. It wasn’t for saintly reasons to meet minority homeownership goals, it was to get more business …”
Posted by: cloudy | Oct 14, 2008 10:31:35 AM
**********
BR,
I have to call you out on this one. I live here in “wingnut central”, and I have tried to explain to many around me that the CRA had no more effect on this mess than a fart in a hurricane.
But Cloudy is exactly right. No thinking person can let Fannie/Freddie off the hook. They did lower standards and built unrealistic models. In 04, Congress took a pass when they had the chance to clean up the GSEs.
I recently attended a local lenders association meeting where to guest speaker was a Fannie Mae representative. She described how Fannies’ focus has been on “homeownership” in the sense of “homebuying”. She announce proudly than Fannie is now focusing on “susatainable homeownership”, looking at the ability of the buyer to maintain that ownership over the life of the loan. She said it in a way to make you think that Fannie had just discovered this concept. If I did not know she was being serious, I might have thought is was a SNL skit.
Fannie/Freddie bought up or guaranteed huge amounts of Alt-A paper. They contributed rocket fuel to the housing bubble. I have argued that if had been just a garden variety housing bubble, it would be old news by now. All of the things that you have previously posted about make this different: Derivatives, complict rating agencies, regulatory failures, and on and on. Fannie is not “the” cause”, but it certainly contributed to the perfect storm.
DID YOU JUST CLEAN UP YOUR POST? What happened to the “low functioning moron” part? Good move. You were starting to sound like a talk radio host!! LOL
October 14th, 2008 at 11:42 am
Rich Mason, don’t confuse everyone by providing facts. Glass Steagall was the big one though. It made this debacle possible even though those protections were put in place because the Depression taught us not to trust the bankers/govt.! Thank you Bill and friends for destroying America. Now I know why Bill and friends were all smiling. This type of theft only comes once in a BLUE moon.
October 14th, 2008 at 11:45 am
Once again, thank you! I’ve been saying this for the past 2 weeks now to loads of my “conservative” friends that are grabbing for anything they can attach blame to for this mess.
October 14th, 2008 at 11:50 am
Barry, Glass Steagall was done away with under BILL CLINTON. The rest is a sideshow once these protections were taken out.
yeah, except for the fact that G-B-L isn’t the big culprit here, it was CFMA, which specifically banned oversight on CDS AND created the Enron disaster by opening up energy trading with no oversight.
Bill Clinton may have signed that bill, but it was a Republican bill, with 9 out of 11 sponsors and co-sponsors in the house and senate being from that party.
October 14th, 2008 at 11:56 am
Dear Shane Merritt,
Did you even read the entire post? Or did the leading quote from the Chimp make you so blind that all you could do, as all you Repugs ever do, is to point crazily around screaming “look what he said mommy!”, “see what she did daddy!” ??
If can’t deal with the truth, stick with FBN.
October 14th, 2008 at 12:00 pm
Barry, keep it up. Unfortunately, some people will fool themselves all of the time, and scapegoating is an unfortunate part of human nature. (On the plus side, the markets will be happy to relieve the fools and reality-deniers of their excess capital at any turn.)
The bitter truth is that this credit binge was a nationwide, system-wide problem, aided and abetted by nearly everyone. Far too many people were chasing profits with tunnel-vision. Not enough were looking at The Big Picture (pun intended!) and guarding the system in the national interest. The system was eroded across the board, by special interests from all over the political spectrum. It wasn’t even a purely American problem; the bad loans were made (or bought) all over the world. Those pointing fingers at any single example from just the U.S. (CRA, FNM/FRE, Bush, Dodd, Frank, Gramm, Clinton, etc.) are merely proving their immense ignorance.
The world got the crisis it deserved.
Those who avoided losing their wealth are now financially and politically stronger relative to the fools who rushed in. It’s our job to rein in the excesses and right the global system.
Unfortunately, until we reboot the regulatory system, rein in the CDS market, and require meaningful down payments, we may just be pouring fuel on the fire.
Now a large number of national governments have hooked themselves to their sinking financial ships, but they haven’t stopped the ships from leaking capital. As a result, the governments (or at least their currencies) may go under as well.
Sigh.
October 14th, 2008 at 12:02 pm
I really like (NOT!) the idea that multiculturalism is a leftist plot. I think of it as getting along with your neighbors. You know, live and let live?
And the focus on “like-minded people” gives me the willies. Are you one of those guys in Chicago in 1966 that was shooting black men who had the temerity to walk into your neighborhood? Of course it wasn’t because they were black, but because they had wrong ideas…
October 14th, 2008 at 12:02 pm
Too bad we can’t capture all of this hot air — original assertion and comments combined — because perhaps then we could generate enough light to go look for our lost stock market keys…hopefully someplace besides where they are not.
October 14th, 2008 at 12:05 pm
Good on you BR. The impact of the push to increase home ownership which came from both parties and is basically desirable had little or nothing to do with this. The more people who beat back this nonsense the better. What we’re dealing with here is another myth from Right Wing Rationalisations Inc. The fundamental problem with most of the more whacky far right theories like trickle down, any sort of regulation is bad, the efficacy of pre-emptive wars as a method of containing terrorism, global warming denial, and creationism, is that they are largely baloney. Thus when they are put to the test and fail just as that other extremist theory Marxism failed they are faced with a quandary of how to defend such failure. This accounts for the constant stream of lies that has to be produced whether it’s Tillman’s friendly fire death or invented stories like the CRA’s responsibility for the global financial meltdown. Alternatively, they claim that real conservatism wasn’t really tried. We’re in the middle of such a case now with all this ACORN bullshit. This is a bunch of do gooders, my very Republican sister works in it for godsake, who are being accused of being an organized crime syndicate because some of their registration collectors have got a bit over creative because they get 50 cents for turning in regs. It’s of totally minimal importance but today the WSJ made it their lead ed subject although in the past 48 hours European govt’s have partially nationalized their banks and made 1.8 trillion available for bailout programs: the stock market rose by the largest one day amount in its history: and the US govt are going to partially nationalize the banks. It is literally unreal and measure of just how deep a hole conservatism finds itself in. If November turns out to be the rout that is expected the right is going to have to revisit it’s theories because they are lying in ruins at the moment. I must say I do derive a lot of amusement from the various right wing shills like Kudlow applauding actions that would make European socialists jump for joy. These people remind me a bit of some of thoses 60’s intellectuals like Sartre trying to defend Stalinism.
October 14th, 2008 at 12:05 pm
EXCELLENT POST, BR!
Do readers also understand that the GSEs did not buy 2/28’s?
October 14th, 2008 at 12:06 pm
“If you cannot comprehend this, well, then, I am at a loss as to what that says about your cognitive functioning. But if you understand this, but spit out the nonsense anyway, then you are merely a partisan with no respect for the truth.” Unless you can deny that you were thinking of Gasparino when you wrote these words, then you are essentially calling him either an idiot or a unscrupulous shill. And that’s (more than) 100% okay. But then why refer to him as you “pal”? Punditry is a strange world.
October 14th, 2008 at 12:06 pm
Minorities’ Home Ownership Booms Under Clinton but Still Lags Whites’
By Ronald Brownstein
May 31, 1999 in print edition A-5
http://articles.latimes.com/1999/may/31/news/mn-42807
October 14th, 2008 at 12:07 pm
Soylent, I can pull up the votes regarding doing away with Glass Steagall if you need convincing that Democtats were fully on board. Go to the picture to see the asshats for yourself.
Bill Clinton:
Signed NAFTA into law
Allowed the FED to change Reserve Requirements for the Bankstas
Did away with GlASS STEAGALL
Signed into Law that China would have Most Favored Trading Status permanently (Signed into Law on Oct. 10 of 2000) and promised to get them into WTO
October 14th, 2008 at 12:08 pm
If you want a good house at a budget price, just move to Alaska and become a prominent mayor. Then have some contractor buddies build your new lakeside home for maybe even free while a multi-million dollar sports complex is being built on the taxpayers dime by the same contractors in your town. Don’t file any building permits. You people just don’t know how to shop.
October 14th, 2008 at 12:08 pm
Rich poated:
“In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.”
For the UMPTEENTH TIME, those are not the predominant mortgages that went bad.
.
October 14th, 2008 at 12:09 pm
Douglass Watts,
I’ll stipulate as a fact that 2 plus 2 equals 4.
But unless you have some objective, provable evidence that a speech by George Bush four years ago caused the global financial system to collapse, or even to start the mortgage/residential lending markets to overheat and then collapse, let’s keep that notion in the opinion realm.
You are entitled to your opinions, properly identified.
IMO, I don’t see a Bush speech could ever have caused much of anything. For crying out loud, he was barely intelligible when he spoke.
October 14th, 2008 at 12:10 pm
Who exactly is blaimng this mess exclusively on CRA/FNM? The operative word being “exclusively”. And please—name names, as opposed to “those on the right”. Simply stating “those on the right” is a cop-out, not befitting one who “isn’t afraid to call them out”…again…a vague “them”.
Is this all about Charlie Gasparino or Ben Stein? It can’t be. Please tell me it isn’t. Please tell me that there’s more to this than simply those two obvious partisans.
On the flip side: Are you saying CRA/FNM had no impact at all? I don’t think you are…at least I hope not. But please, clarify. And if they did have some impact, cannot reasonable people disagree as to how much?
Right now, I’m with Pachuco at 10:24. Seems like a lot of straw man bickering going on…in a black/white fallacious view of the world.
October 14th, 2008 at 12:11 pm
When I drive a new car off the lot, the rapid drop in value doesn’t cause me to default…
MARTIN FELDSTEIN: “For us, we have to get at the fundamental cause of all this, which is the rapid decline in house prices, which is causing individuals to default on their mortgages, leading to foreclosures and a further downward spiral in house prices.”
JOSEPH STIGLITZ: … “They are. But I want to echo what Marty said. The fundamental problem is the problem of foreclosures, the problem of mortgages.”
“What we are doing is analogous to a massive blood transfusion to a patient that is hemorrhaging very badly, and we’re doing nothing or very little to address the fundamental problem.”
“And if we don’t, the problem is going to get larger again. That is, there are going to be more foreclosures. The holes in bank’s balance sheets are going to get larger. People aren’t going to be repaying the loans.”
http://www.pbs.org/newshour/bb/business/july-dec08/globaleconomy_10-13.html
October 14th, 2008 at 12:19 pm
“I have zero patience for this nonsense”
and yet, you don’t seem to have a substantive argument against it?
October 14th, 2008 at 12:21 pm
To me it is both interesting but also unnerving how ideologues deal with the concept of “truth” – the arguments have more in keeping with artful propagandizing than wisdom seeking.
From Mein Kampf:
[1] All propaganda must be popular and its intellectual level must be adjusted to the most limited intelligence among those it is addressed to. Consequently, the greater the mass it is intended to reach, the lower its purely intellectual level will have to be.
[2] The more modest its intellectual ballast, the more exclusively it takes into consideration the emotions of the masses, the more effective it will be.
To search for blame within a particular political party is simply to embrace a seperate idologue’s propaganda. The simpler the message – the more it relies on the rousing of feelings – the more effective is that propaganda.
Neither Democrats nor Republicans own the truth. To demonize one group while defending all action of another is simply to admit to the effectiveness of that group’s propaganda and the low level of intellect on which it acts.
October 14th, 2008 at 12:28 pm
“BR, I can’t find any place in the economy for the next bubble, can you.. what’s next”
I’ll tackle that one
…the bankruptcy bubble
October 14th, 2008 at 12:30 pm
I think the reason we are in recession is one thing. Wage destruction. If you took the top 1% of wage earners out the equation, I believe you would find that wages have been collapsing for years. And at some point that will inevitably lead to house prices collapsing also along with a destruction of our standard of living. and since nothing is being done to address that issue, we will continue on the current path down. If wages had been going up, I do not believe that we would be where we are today. And the ones who advocated this policy are the ones we are now bailing out. WALL (WAIL) STREET.
October 14th, 2008 at 12:31 pm
I think the reason we are in recession is one thing. Wage destruction. If you took the top 1% of wage earners out the equation, I believe you would find that wages have been collapsing for years. And at some point that will inevitably lead to house prices collapsing also along with a destruction of our standard of living. and since nothing is being done to address that issue, we will continue on the current path down. If wages had been going up, I do not believe that we would be where we are today. And the ones who advocated this policy are the ones we are now bailing out. WALL (WAIL) STREET.
October 14th, 2008 at 12:32 pm
“Until we get somebody who’ll hold the line, the fraction of the GDP that is gubmint spending will continue it’s unending climb.”
We had someone who held the line. His name is Clinton, and GDP as a fraction of gubmint spending DECLINED during his term.
Talk about your historical revisionism…
October 14th, 2008 at 12:34 pm
Winston, both National Political Partys are Organized Crime Syndicates which provide protection for loot. They run a protection racket, and this debacle only unscores my point. The little guy will get left holding the bag while the crooks ride off into the Hamptons Sunset. While we argue amongst ourselves, they steal us blind. Bread and Circus above all else Comrade!
October 14th, 2008 at 12:36 pm
You’ve lost some credibility today. Almost every person/entity in the housing chain had some responsibility for the mess, including CRA, Fannie and Freddie. You _appear_ to be exonerating key players for political purposes.
Why not post a survey where people can allot blame, resulting in a pie chart which divies up who contributed the most? While unscientific, it would be interesting to see how people would allocate 100 hypothetical “blame dollars.”
October 14th, 2008 at 12:37 pm
John, you seem to forget that Clinton didn’t think we could balance the budget until the GOP took over the House. Even then he fought it tooth and nail, but in the end he caved. Revisionism explained.
October 14th, 2008 at 12:40 pm
JOSEPH STIGLITZ: … “They are. But I want to echo what Marty said. The fundamental problem is the problem of foreclosures, the problem of mortgages.”
“What we are doing is analogous to a massive blood transfusion to a patient that is hemorrhaging very badly, and we’re doing nothing or very little to address the fundamental problem.”
“And if we don’t, the problem is going to get larger again. That is, there are going to be more foreclosures. The holes in bank’s balance sheets are going to get larger. People aren’t going to be repaying the loans.”
http://www.pbs.org/newshour/bb/business/july-dec08/globaleconomy_10-13.html
THIS IS A LIE! 1 Quadrillion Dollars in Derivatives were written on EVERYTHING that could be bet on. Housing was only one part of the Greater Credit Bubble.
October 14th, 2008 at 12:43 pm
We’ve sitting here on the brink of world financial disaster, and STILL there are people refusing to accept reality.
The government didn’t do this to you. Black people didn’t do this to you. Democrats didn’t do this to you. Poor people didn’t do this to you.
You did this to yourselves.
Accept it.
And hope that the people who are cleaning up this mess are smarter than you are. I’d recommend listening a lot to the ones who were warning you years ago that you were headed over a cliff. You were wrong. It’s time to humble yourselves, start listening to people who were right, and to start learning something.
If you want to make things better, you have to first stop pretending you’re the victims here. You weren’t. You were largely left to your own devices, and this is what you did. Nice work.
October 14th, 2008 at 12:48 pm
It all comes down to fake risk assessment that ALL companies and regulators were using.
1. Either you believe the risk assessments and are not very inquisitive or
2. You did not believe them and went with the fraud anyway.
Please read about the Black Swan Theory.
Professor Taleb is calling for the removal of Scholes and Merten’s Nobel prize.
Risk Assessment which lead to all this debt allocated derivatives was based on their Nobel winning Black-Scholes model.
They should have known after LTCM, Scholes hedge fund firm, blew up. But all the companies still used this bogus model.
October 14th, 2008 at 12:56 pm
BR writes:
Can you grasp what a monumental change this was? Instead of making sure that borrowers could pay back ALL OF THE 30 YEAR FIXED MORTGAGE, you only had to find people who could afford the teaser rate for a a few months. THIS WAS AN ENORMOUS AND UNPRECEDENTED SHIFT IN LENDING.
OK Barry, point taken. Now please use your analytical prowess to warn us about the ways in which the latest barrage of economic proposals from both presidential candidates can result in the next devastating “unprecedented shift…”. At this stage of the game, I’m more worried about the next perfect storm than I am about the current one. A well thought out analysis would do your readers a service in time for the Nov 4th election.
October 14th, 2008 at 12:59 pm
Anonymiss:
We are all in this together. Establishing blame won’t help, but tracing where the policy went crazy will help us understand how we go into this situation in the first place. How can we understand what is happening to us without any reference to the past? Should we just give up now?
October 14th, 2008 at 1:03 pm
@John
While no doubt an inadvertent inversion, “GDP as a fraction of gubmint spending” sounds like what the near future holds
October 14th, 2008 at 1:06 pm
Establishing blame won’t help, but tracing where the policy went crazy will help us understand how we go into this situation in the first place.
“Tracing where the policy went crazy” is the exact same thing as “establishing blame.”
Iznit?
October 14th, 2008 at 1:15 pm
This isn’t conservative versus liberal. This is government intervention (CRA, Fannie Mae, Glass Steagall, Greenspan) versus free markets. You will have fraud,corruption and greed in free markets…but not to the extent and wide ranging influence as when the government is sponsoring it! The left hand of government doesn’t know what the right hand is doing. They make a bunch of piecemeal decisions that in sum lead to horrible consequences. The next ponzi scheme to implode will be social security.
October 14th, 2008 at 1:17 pm
Thank-you, Winston Munn.
While the lizard brains argue over which of the plutocrats are responsible, the plutocrats set themselves up more power to steal our wallets and our souls.
We need a true revolution. A rejection of everything Washington and Wall Street. This New World looks rather like the Old. Perhaps a new Reign of Terror might do the trick.
October 14th, 2008 at 1:34 pm
As I mentioned in the post, (but it takes some extra investigation, and knowledge of time/history as batmando said):
1. Clinton had no idea about balancing a budget until a repub congress came up and
2. most of the balancing came on the back of military cuts.
(Note as a point of fairness: this kind of thought- reducing military spending- was again joined by the repubs, finally it is biting us in the past few years).
I’ll wait here while you go do your internet searching….
yernamehear
“Until we get somebody who’ll hold the line, the fraction of the GDP that is gubmint spending will continue it’s unending climb.”
We had someone who held the line. His name is Clinton, and GDP as a fraction of gubmint spending DECLINED during his term.
Talk about your historical revisionism…
Posted by: John | Oct 14, 2008 12:32:04 PM
October 14th, 2008 at 1:35 pm
Wait to see who comes out on top, and then you’ll know who was responsible.
October 14th, 2008 at 1:55 pm
Barry,
I think ideology is getting in the way here of intellectual honesty. You are undoubtedly right that Greenspan’s artificially low interest rate policy was a major engine of the housing bubble. However, the ‘homeownership society’ programs by the federal government for decades, promoted by both parties, is also at fault to some extent.
For instance, Deductibility of mortgage interest made it cheaper to borrow money and caused home prices to increase. GSE’s and their ability to borrow cheaply due to implied government backing caused interest rates for home purchases to be even lower than they otherwise would, again causing home prices to escalate over time.
These factors cannot be blamed for the entire problem, but they are part of it.
October 14th, 2008 at 2:01 pm
SPECTRE,
“you seem to forget that Clinton didn’t think we could balance the budget until the GOP took over the House.”
How can one “forget” something that never occurred ?
The ‘92 Clinton/Gore campaign laid out specific numbers and policy changes in June of 1992 that would balance the federal budget, and had them enacted in 1993.
It worked.
The federal budget was in NET balance by the Summer of 1994, well before ‘Newtie and the Blowhards’ took over the Congress in January of 1995, and WAAAAAY ahead of any major budget legislation passed by the Republican Congressional Majority AFTER they foolishly shut the federal government down TWICE in early 1996.
.
October 14th, 2008 at 2:04 pm
yernamehear,
“1. Clinton had no idea about balancing a budget until a repub congress came up”
Wrong.
See previous post.
“2. most of the balancing came on the back of military cuts”
False.
* The current administration inherited a level of military spending from President Clinton that was more than 22 times as large as the combined spending of the seven countries traditionally identified by the Pentagon as our most likely adversaries: Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria.
* The current administration inherited a level of military spending from President Clinton that was more than five times larger than the military budget of Russia, the second largest military spender on the planet.
* The current administration inherited a level of military spending from President Clinton that was more than that of the next 12 biggest-spending nations on the planet, COMBINED.
.
October 14th, 2008 at 2:07 pm
John, you seem to forget that Clinton didn’t think we could balance the budget until the GOP took over the House. Even then he fought it tooth and nail, but in the end he caved. Revisionism explained.
Posted by: SPECTRE of Deflation | Oct 14, 2008 12:37:37 PM
The fatal flaw in this fable from Right Wing Rationalisations Inc is what happened between 2000 and 2006 when exactly the same bunch of people were in control of house and senate and deficits went through the roof. The only difference was the removal of Clinton from the equation. Perhaps they switched to Jim Beam from Wild Turkey.
October 14th, 2008 at 2:22 pm
I’m one of the shitheads who for a while worked for CountryWide soliciting the loans. I only stopped when I realized WTF I was actually doing. What you miss is the overall climate of what was going on. CountryWide was being fried by Congress reps to lend more and more and we felt that pressure. We were not only selling to make big commissions, but to stay in business. The climate, which includes media approval, political approval, and peer approval simply meant that we found ways to “do it” and whatever way we chose was approved. We had a letter from Congressman Frank praising our sales; another from the White House; I think we even had one from the Comptroller of the Currency (whatever the fuck that is). Barry, every part of the government was pressuring us and praising us for what we were doing. But anyone with the background who looked would have realized we were selling stuff to people who couldn’t possibly pay stuff off. Even though the default rate was very high, Congress held a hearing demanding more lending. The overall climate could not have existed without CRA, the House committees, Krugman, (loved us) and the rest of the apparatus together with the rest of the enabling legislation.
October 14th, 2008 at 2:27 pm
VJ,
Did Bill Clinton really balance the budget ?
PLEASE READ THE WHOLE QUESTION BEFORE YOU RESPOND !
1. In 1994 Newt Gingrich , who was the Republican Speaker of the House, led what he called the Republican Revolution.
2. Part of that was his “Contract With America” which DEMANDED a balanced budget.
3. Clinton was so opposed to this proposed legislation that the federal government SHUT DOWN temporarily over the conflict.
Bearing this in mind is it actually fair to say that CLINTON balanced the budget ?
October 14th, 2008 at 2:33 pm
Howard,
“CountryWide was being fried by Congress reps to lend more and more and we felt that pressure”
Good trick given that mortgage brokerage was an unregulated industry.
Oh, and the CRA did not apply to non-federally-regulated institutions.
.
October 14th, 2008 at 2:40 pm
Hey, Barry. You know I love your stuff but I’m surprised at the tone of this post. Taking a stand is one thing (and your best attribute) but calling people who don’t agree as either “liars” or lacking in cognitive function (”morons”) isn’t that far off from Bush’s 9/11 “with us or against us” position.
At the risk of sounding like a moron, I have to both agree and disagree with you here.
Agree – Mortgage Salesman are definitely the ones that started this entire problem. Once the “pioneers” of 2/28 ARM lending started cashing in bonuses, it spread like a wildfire through the entire industry and they all jumped in. Minorities and low-income earners didn’t have a chance.
Agree – CRA had nothing to do with this
Agree – Greenspan rates made much of this possible…though I would categorize this as “unintended consequences”.
Agree – Clinton/Bush are not to blame for general policy and feel good home ownership comments.
Disagree – Fannie/Freddie not to blame.
In my opinion, they were just as much to blame for buying up these mortgages, re-packaging and selling them off.
Had they done some DD and not been willfully blind to the flawed 2/28 ARM stream that was providing execs with bonuses beyond belief, they would have stop buying/securitizing mortgages.
This would have choked off the primary mortgage market, which would not have had enough liquidity to continue with the 2/28 ARM practice.
In fact, I blame Fannie/Freddie much more than anybody else in the process. I don’t have high expectations from some mortgage broker in Daytona Beach looking to make some fast bucks – but I sure as hell expected a lot more from Fannie/Freddie.
Regards,
George
October 14th, 2008 at 2:41 pm
VJ, the Internet is your friend once you learn how to look things up even if you don’t like the answer. LOL! Catch a clue already:
No, Bill Clinton Didn’t Balance the Budget
CATO think tank
October 8, 1998
No, Bill Clinton Didn’t Balance the Budget
by Stephen Moore
Stephen Moore is director of fiscal policy studies at the Cato Institute.
Let us establish one point definitively: Bill Clinton didn’t balance the budget. Yes, he was there when it happened. But the record shows that was about the extent of his contribution.
Many in the media have flubbed this story. The New York Times on October 1st said, “Clinton balances the budget.” Others have praised George Bush. Political analyst Bill Schneider declared on CNN that Bush is one of “the real heroes” for his willingness to raise taxes — and never mind read my lips. (Once upon a time, lying was something that was considered wrong in Washington, but under the last two presidents our standards have dropped.) In any case, crediting George Bush for the end of the deficit requires some nifty logical somersaults, since the deficit hit its Mount Everest peak of $290 billion in St. George’s last year in office.
And 1993 — the year of the giant Clinton tax hike — was not the turning point in the deficit wars, either. In fact, in 1995, two years after that tax hike, the budget baseline submitted by the president’s own Office of Management and Budget and the nonpartisan Congressional Budget Office predicted $200 billion deficits for as far as the eye could see. The figure shows the Clinton deficit baseline. What changed this bleak outlook?
Newt Gingrich and company — for all their faults — have received virtually no credit for balancing the budget. Yet today’s surplus is, in part, a byproduct of the GOP’s single-minded crusade to end 30 years of red ink. Arguably, Gingrich’s finest hour as Speaker came in March 1995 when he rallied the entire Republican House caucus behind the idea of eliminating the deficit within seven years.
We have a balanced budget today that is mostly a result of 1) an exceptionally strong economy that is creating gobs of new tax revenues and 2) a shrinking military budget. Social spending is still soaring and now costs more than $1 trillion.
Skeptics said it could not be done in seven years. The GOP did it in four.
Now let us contrast this with the Clinton fiscal record. Recall that it was the Clinton White House that fought Republicans every inch of the way in balancing the budget in 1995. When Republicans proposed their own balanced-budget plan, the White House waged a shameless Mediscare campaign to torpedo the plan — a campaign that the Washington Post slammed as “pure demagoguery.” It was Bill Clinton who, during the big budget fight in 1995, had to submit not one, not two, but five budgets until he begrudgingly matched the GOP’s balanced-budget plan. In fact, during the height of the budget wars in the summer of 1995, the Clinton administration admitted that “balancing the budget is not one of our top priorities.”
And lest we forget, it was Bill Clinton and his wife who tried to engineer a federal takeover of the health care system — a plan that would have sent the government’s finances into the stratosphere. Tom Delay was right: for Clinton to take credit for the balanced budget is like Chicago Cubs pitcher Steve Trachsel taking credit for delivering the pitch to Mark McGuire that he hit out of the park for his 62nd home run.
The figure shows that the actual cumulative budget deficit from 1994 to 1998 was almost $600 billion below the Clintonomics baseline. Part of the explanation for the balanced budget is that Republicans in Congress had the common sense to reject the most reckless features of Clintonomics. Just this year, Bill Clinton’s budget proposed more than $100 billion in new social spending — proposals that were mostly tossed overboard. It’s funny, but back in January the White House didn’t seem too concerned about saving the surplus for “shoring up Social Security.”
Now for the bad news for GOP partisans. The federal budget has not been balanced by any Republican spending reductions. Uncle Sam now spends $150 billion more than in 1995. Over the past 10 years, the defense budget, adjusted for inflation, has been cut $100 billion, but domestic spending has risen by $300 billion.
We have a balanced budget today that is mostly a result of 1) an exceptionally strong economy that is creating gobs of new tax revenues and 2) a shrinking military budget. Social spending is still soaring and now costs more than $1 trillion. Is this the kind of balanced budget that fiscal conservatives want? A budget with no deficit, but that funds the biggest government ever?
So the budget is balanced, but now comes the harder part: cutting the budget.
October 14th, 2008 at 2:45 pm
A rather timely piece in McClatchy today that supports BR’s points. Some tidbits:
* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year [2006].
* Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.
* Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent…
* Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
‘Private sector loans, not Fannie or Freddie, triggered crisis’
October 14th, 2008 at 2:46 pm
You are right about many of the factors that contributed to the problem but missed the boat with respect to the CRA.
CRA was a fundamental change in attitude that permeated the political system, changing the lending criteria from being able to service a loan to being eligible for a loan based on location. The problem was compounded by the Clinton administration which made it tougher for banks not to do as D.C. wanted. Add to that nutsy FED actions, a disconnect between granting loans and bank liability, poor oversight/regulation, etc. etc. and BOOM!
CRA and its underlying philosophy of granting loans on the basis of location and not ability to handle the loan is where is all started. If you don’t get that then you have clearly missed the boat.
October 14th, 2008 at 2:46 pm
SPECTRE,
“Did Bill Clinton really balance the budget ?”
Yes.
“1. In 1994 Newt Gingrich , who was the Republican Speaker of the House, led what he called the Republican Revolution.”
The election was in November of 1994. The Republican Majority took control in January of 1995. They had no major budget legislation signed into law by the President until after they shut the government down for the second time in February of 1996. The Republican Congressional Majority never submitted federal budget legislation as required by law but instead modified the White House proposed legislation.
The federal budget was in NET surplus in the Summer of 1994.
“2. Part of that was his ‘Contract With America’ which DEMANDED a balanced budget.”
The Contract On America passed the House and DIED in the Senate.
“3. Clinton was so opposed to this proposed legislation that the federal government SHUT DOWN temporarily over the conflict.”
President Clinton announced he would not sign into law their RightWing legislative agenda, and if the American people wanted that agenda, they would have to get themselves another President. They decided to reelect him instead.
.
October 14th, 2008 at 2:46 pm
Link to ‘Private sector loans, not Fannie or Freddie, triggered crisis’
http://www.mcclatchydc.com/251/story/53802.html
October 14th, 2008 at 2:56 pm
VJ, not being able to see the forest for the trees comes to mind when I think of you. It’s all there on the Internet if you could stand the truth. You can’t. I keep seeing one and two sentence rebutals which is pure BS, but it’s all you have. Sad really!
October 14th, 2008 at 2:57 pm
SPECTRE,
“VJ, the Internet is your friend…”
Only if one knows how to separate opinion from news and gibberish from fact.
“Stephen Moore is director of fiscal policy studies at the Cato Institute.”
And in 1993, as President Clinton’s tax & budget legislation was making it’s way through Congress, Stephen Moore predicted that “Clinton’s plan will torpedo the economy“.
Moore is a perpetual RightWing loser that has been proven wrong so many times I’ve lost count.
.
October 14th, 2008 at 3:12 pm
CRA and its underlying philosophy of granting loans on the basis of location and not ability to handle the loan is where is all started. If you don’t get that then you have clearly missed the boat.
Posted by: Bill | Oct 14, 2008 2:46:38 PM
Please, sir. Talk about projection. You are one of those people who speak as if legalized racial and religious persecution and discrimination has never existed in the United States. As if all of those real estate deeds which contained covenants against the property being sold to Jews or Blacks was all just a big fairy tale. As if Jim Crow and segregation never existed. As if any type of financial and employment discrimination never existed.
Please.
October 14th, 2008 at 3:16 pm
Howard,
I’ll just go ahead and be ashamed for you for writing that bunch of claptrap. My guess is that a) You never worked at Countrywide, and b) You’re a very bad liar.
And Spectre, quoting Stephen Moore is like quoting Rush Limbaugh. That guy has zero credibility and is nothing but a hack for the Republicans. The Club for Growth has been a case of VD that this country can’t seem to shake.
October 14th, 2008 at 3:23 pm
Just because the Bush administration endorsed higher rates of home ownership does not mean that the mentioned laws and organizations did not help facilitate the problem.
October 14th, 2008 at 3:26 pm
DW, you are correct about wages. While housing costs were rising 20% per year, core inflation and wage increases were only around 3% per year, making homes unaffordable for most people. The way around it was to create exotic loans to create the illusion that the monthly payment was affordable. Until the reset.
The claim that somehow the drop in real estate can be contained is what bothers me. The only way for that to happen is if everyone gets a really big raise. And that’s unlikely. Until prices drop or wages eventually catch up, the median home is not affordable for the median wage earner.
October 14th, 2008 at 3:33 pm
GlASS STEAGALL
Glass-Steagall has almost….ALMOST…as much to do with the current crisis as the CRA. Which is to say, practically nada.
What do the institutions at the epicenter of the current crisis, such as Home Rock, AIG Financial, Fannie Mae, Fortis and various German Landesbank, all have in common? They were never regulated by the CRA OR by Glass-Steagall. What does Lehman Brothers have in common with the other Big 5 Wall Street investment banks swirling the drain today? They never moved into insurance or commercial banking after Glass-Steagall’s repeal.
When will the robots on the USA political right or left pushing the CRA or Glass-Steagall, respectively, notice that they are both pushing fairy tales in an effort to obtain political mileage out of the current crisis, truth be damned? Probably never.
October 14th, 2008 at 3:56 pm
there are many, similiar, stories, like this: “I’m one of the shitheads who for a while worked for CountryWide soliciting the loans. I only stopped when I realized WTF I was actually doing. What you miss is the overall climate of what was going on. CountryWide was being fried by Congress reps to lend more and more and we felt that pressure. We were not only selling to make big commissions, but to stay in business. The climate, which includes media approval, political approval, and peer approval simply meant that we found ways to “do it” and whatever way we chose was approved. We had a letter from Congressman Frank praising our sales; another from the White House; I think we even had one from the Comptroller of the Currency (whatever the fuck that is). Barry, every part of the government was pressuring us and praising us for what we were doing. But anyone with the background who looked would have realized we were selling stuff to people who couldn’t possibly pay stuff off. Even though the default rate was very high, Congress held a hearing demanding more lending. The overall climate could not have existed without CRA, the House committees, Krugman, (loved us) and the rest of the apparatus together with the rest of the enabling legislation.
Posted by: Howard | Oct 14, 2008 2:22:41 PM
from the people, actually, at the levers of the Machine while this was transpiring, that give much, anecdotal, credence to the idea that this whole Episode was as scripted as “Friends”.
Sadly, this: Thank-you, Winston Munn. (nice post Winnie)
While the lizard brains argue over which of the plutocrats are responsible, the plutocrats set themselves up more power to steal our wallets and our souls.
We need a true revolution. A rejection of everything Washington and Wall Street. This New World looks rather like the Old. Perhaps a new Reign of Terror might do the trick.
Posted by: Donkei | Oct 14, 2008 1:17:48 PM
is, to me, our only real option. and, I think that we need to leaven our understanding of it by reflecting on this: “You did this to yourselves.
Accept it.
And hope that the people who are cleaning up this mess are smarter than you are. I’d recommend listening a lot to the ones who were warning you years ago that you were headed over a cliff. You were wrong. It’s time to humble yourselves, start listening to people who were right, and to start learning something.
If you want to make things better, you have to first stop pretending you’re the victims here. You weren’t. You were largely left to your own devices, and this is what you did. Nice work.
Posted by: anonymiss | Oct 14, 2008 12:43:00 PM
for the first ‘Reign of Terror’ may just be that struggle, with ourselves, over the Reality of how horribly we’ve allowed ourselves to be misled, and lied to. Thinking/Hoping that we could outsource that, our Responsibility as Citizens, as well..
October 14th, 2008 at 3:56 pm
CRA and its underlying philosophy of granting loans on the basis of location and not ability to handle the loan is where is all started.
LOL! After being called on your bull that the CRA caused the credit crisis, you concede that CRA may have been responsbile for a negligible proportion of the problem loans, but that the legislation performed some kind of Jedi Mind Trick that caused the financial industry to destroy itself. Quit before you fall even further behind.
October 14th, 2008 at 3:57 pm
More partisan CRAP. There is blame a plenty, and everyones hands are red. Republicans, Democrats, Private industry, Public oversight, citizens living beyond their means, appraisers padding appraisals, brokers, investment bankers………
I am sooooo sick and tired of partisan hacks trying to place blame and a total void of leadership looking for solutions……
3rd parties have never looked so appealing in my entire life.
October 14th, 2008 at 3:59 pm
I’ve been trying to wrap my head around this for months. The argument is essentially that some banks, like WAMU, who were subject to the CRA, would have made these loans regardless of the CRA due to the low interest rates, while the rest of the loans came from non-depository mortgage banks, who weren’t subject to the CRA to begin with? Also, that the secondary mortgage market of FNM FRE and depository institutions that bought the securitized loans from the mortgage banks bought those loans because of potential returns, not to fulfill CRA requirements?
It makes sense, and I can see how the blame on the CRA is misplaced, although I cannot say I see the light in regards to FNM FRE. How are they not a major conduit that passed the risk on from the mortgage banks to the rest of the financial system? Had they not existed, would we not have had at least a little more consolidation of losses, rather than the massive systemic risk we have today?
Like many have said before, this has become such a partisan/hot button issue, both sides refuse to believe that the other might have any relevant facts, which is just a shame. Before anybody jumps me, I’m not fingering BR in that last sentence, its just a general observation.
October 14th, 2008 at 4:00 pm
I really like (NOT!) the idea that multiculturalism is a leftist plot. I think of it as getting along with your neighbors. You know, live and let live?
And the focus on “like-minded people” gives me the willies. Are you one of those guys in Chicago in 1966 that was shooting black men who had the temerity to walk into your neighborhood? Of course it wasn’t because they were black, but because they had wrong ideas…
Posted by: Doctor Jay | Oct 14, 2008 12:02:11 PM
Doctor Jay, what I’m saying requires thinking above the autonomic “you’re a racist” response your pre-formatted, liberal university education provides.
What I’m talking about is how a group of individuals bent on keeping a nation in the dark to their plans for ruling the ENTIRE WORLD, while having those in the dark pay for their endeavor.
There is nothing beneath them.
The end justifies the means.
Any prosperity we enjoy is merely a side benefit, not the primary objective.
We are all coppertops for their machine, nothing more, nothing less.
Democrats and Republicans alike are both tools of the “masters of the Universe”.
McCain and Obama are interchangeable.
We are selecting the lesser of two evils.
“Change” is coming…and from the looks of the setup…a lot of people aren’t going to like it. Be prepared for chaos.
This current crisis was engineered, set up to fail. Think about it. Who was the source. Kudos to Barry for digging into it. It’s vital that we realize the ultimate source for this. Vital.
The angst and anger in this thread is palpable…but yet there doesn’t seem to be anywhere to turn…certainly neither “candidate” is any different from those before them.
October 14th, 2008 at 4:03 pm
SPECTRE of Deflation,
you’ve been doing Yeomen’s duty on this thread, though arguing with dead-enders, like VJ (no offence meant VJ), creates much heat, but little light.
Some, no matter the schematic you show, will still believe the Shadows are real( thanks Plato)
October 14th, 2008 at 4:14 pm
Home ownership is the epitome of the American Dream. All endeavors to allow that dream to be realized by more people was the rule. The realization of the dream did not come with any responsibility.
October 14th, 2008 at 4:25 pm
I also wonder if someone could shed some light on another question I have: The link posted earlier that showed the top 15 subprime lenders, and how only one was subject to the CRA. The bulk of the rest were subsidiaries of major depository banks such as JPM BOA and Citi. No related effects between the parent and sub as relates to CRA regulations? I know nothing of the legal regulations of such acts with regards to parent and subsidiary companies.
October 14th, 2008 at 4:44 pm
it wasn’t the CRA that bundled loans, leveraged them 40:1, then got Moody’s and the S&P to rate them as “AAA” and have pensions buy them… was it?
No, the problem was greedy Wall St. people being unregulated by Bush Administration people.
October 14th, 2008 at 4:45 pm
kfizzle,
“The argument is essentially that some banks, like WAMU, who were subject to the CRA, would have made these loans regardless of the CRA due to the low interest rates, while the rest of the loans came from non-depository mortgage banks, who weren’t subject to the CRA to begin with?”
Not to mention that many of the federally regulated banks, which were subject to the CRA, also set-up subsidiaries that did mortgage brokerage and were unregulated and not subject to the CRA.
.
October 14th, 2008 at 4:47 pm
To add to my last post: Wouldn’t you think that the subs are the link between the big banks and their SIVs, and thus another reason why depository institutions are getting hammered with losses? More and more, I’m really finding the CRA blame to be rather circuitous. Of course, if these banks were doing this explicitly to comply with CRA regulations, that would pretty much change everything for me.
Somebody has to know the answer to some of this.
October 14th, 2008 at 5:02 pm
I really like (NOT!) the idea that multiculturalism is a leftist plot. I think of it as getting along with your neighbors. You know, live and let live?
“You say that it is your custom to burn widows. Very well. We also have a custom: when men burn a woman alive, we tie a rope around their necks and we hang them. Build your funeral pyre; beside it, my carpenters will build a gallows. You may follow your custom. And then we will follow ours.”
– Sir Charles Napier, on multiculturalism.
October 14th, 2008 at 5:09 pm
thanks, for this post. i cant stand hearing fannie and freddie being blamed either. it is about time the tide turns on this misinformation being delivered usually by people with an agenda. as if that alone should not disqualify them but agenda’s permeate all levels of communication. thanks,
October 14th, 2008 at 5:46 pm
I still don’t understand why FNM/FRE don’t deserve some blame. Without their then implicit govt backing, they would never have been able to borrow at such low rates, and thus help lower mortgage rates. You can’t take them out of the secondary market and expect that it wouldn’t have been vastly different. If so, then they genuinely serve no purpose. If you go to Freddic Mac’s website, there is a nice little graphic they made depicting how their whole process is supposed to work. It explicitly says that mortgage lenders drew up the terms based on FNM/FRE requirements and using FNM/FRE tools.
If it is the unregulated mortgage banking sector that is to blame (and not the CRA), then how can FNM/FRE not be complicit and absolutely crucial to making that market work if lenders were drawing up mortgage to expressly fit the requirements of those institutions?
October 14th, 2008 at 5:53 pm
Thanks BR for keeping the story ALIVE!!
October 14th, 2008 at 6:39 pm
Barry,
Thanks for the article. However, it is useless to try to convince people who already believe these lies.
Studies on cognitive dissonance and beliefs are pretty clear: arguing a belief with facts, paradoxically REINFORCE the belief.
This has to do with espousing a belief as part of a broader sense of self. No one wants to question their sense of self without being forced be the facts and a substantial amount of personal pain.
As an example, how it is that voters who would not have considered Barrack Obama as a viable candidate have changed their mind since the fall out on Wall Street and the markets?
October 14th, 2008 at 6:59 pm
kfizzle,
When Fannie & Freddie were buying mortgages, they assumed everyone down the line was doing their due diligence all along the way. Their parameters certainly did not include mortgage brokers falsifying an applicant’s income, or their misrepresentation to applicants about mortgage reset rates, or false appraisals.
.
October 14th, 2008 at 7:26 pm
Like most things, the truth is probably in the middle. Most bubbles are created by a confluence of unforeseen factors / luck and mixed with human emotions. I’m sure that CRA changes in ‘95 had some influence (CRA scores, anyone?), but not sole responsibility. Mozilo, Bush, a focus on measuring performance with the wrong metrics, low interest rates, ratings agencies, those that relied too heavily on them, “Flip that house” shows, and good ol’ fashioned greed and fear all played parts
October 14th, 2008 at 7:26 pm
I’m not sure that the point was to point fingers at any political party (both sides interested in their own welfare above all). Barry says that simplistic touts of the CRA as root cause are just wrong.
We haven’t become accustomed to living under socialism for long, but if it resembles European socialism, our children will be paying enormous taxes to cover the socialist agenda.
October 14th, 2008 at 8:44 pm
VJ, complacency is not an excuse. Most lines of business have a word for it: malpractice.
October 14th, 2008 at 9:28 pm
Regarding the Clinton surplus:
http://www.letxa.com/articles/16
October 14th, 2008 at 10:35 pm
If Fannie and Freddie hadn’t lowered the standards for mortgages they would buy, would as many risky mortgages have been originated? If mortgage brokers were not able to unload their inventory to Fannie and Freddie, would the investment banks alone have been able to make up the demand that Fannie and Freddie represented? Unlikely. Thus, if Fannie and Freddie hadn’t lowered their standards, fewer risky mortgages would have been made, less money would have been chasing the same (or slightly lower) housing stock in this country and the housing bubble would not have been as bad. We’d probably still have had a crisis, but it would have been crisis-lite and concentrated solely in investment banks and AIG. Fannie and Freddie would still be solvent and the taxpayer would be on the hook for hundreds of billions less than we currently are. So without a doubt the lowering of standards for mortgages that Fannie and Freddie would buy up contributed mightily to the current crisis. And the lowering of standards at the GSEs was demanded by politicians–Democrats and Bush and Rove (who thought that is Hispanics, owned homes they would vote Republican).
October 14th, 2008 at 11:22 pm
Moron = me. But wait; my IQ is >> 100.
Thus, I am not a moron (whew).
But wait, you’re not a moron either. Morons don’t blog (they are happy).
Oh, I get it. You mean that I’m a moron, in a relative sense.
Uncle Barry?
October 14th, 2008 at 11:32 pm
We’re missing some important facts in this discussion.
1. Fannie and Freddie were drastically losing market share because they weren’t in the subprime market. Subprime lending was growing exponentially. Fannie and Freddie ultimately got into the market late (very late) in the game. Furthermore, Fannie and Freddie only purchased AAA rated bonds. The arguement that Fannie and Freddie are to blame are simply unfounded. The subprime market had already taken off before they got in the game.
2. No one is pointing the finger at the primarily lenders who originated these mortgages – the Ameriquests, Associates, Households and Countrywides of the world. I find that strange. These are the lenders who originated these failing loans and sold them to Wall Street investors. Why not start at the place where the loans were originated?
3. Not all lending institutions are regulated by CRA. CRA only applies to depository lending institutions – like banks. Institutions that are not depository institutions – like Beneficial or Ameriquest, or New Centry – are not depository institutions. They are not covered by CRA. So arguing that these institutions who originated these problematic loans were concerned or pressured by CRA just isn’t the case. They aren’t regulated or monitored by anyone for compliance with CRA. What these institutions were concerned with was making money. That was their driving force.
4. Lot’s of depository institutions and community based lenders made good loans to low and moderate income people and those loans are doing just fine. In fact, many of them perform better than prime loans.
October 14th, 2008 at 11:33 pm
kfizzle,
“VJ, complacency is not an excuse. Most lines of business have a word for it: malpractice.”
Actually, it was widespread FRAUD committed by an unregulated industry.
How Fannie & Freddie would have been aware of that is beyond me.
.
October 14th, 2008 at 11:37 pm
rcm,
“If Fannie and Freddie hadn’t lowered the standards for mortgages they would buy, would as many risky mortgages have been originated?”
But it was the FRAUD committed by an unregulated industry. The CRA loans written by federally regulated institutions have a very low default rate.
“If mortgage brokers were not able to unload their inventory to Fannie and Freddie…”
But that is their purpose. The problem was that an unregulated industry was gaming the system, and there were no regulatory cops on the beat for eight years.
.
October 15th, 2008 at 12:35 am
Keep talking about the CRA, BR, please, please, please. Every time you do, the truth comes out and the liberal enablers in congress and their benefactors at F&F get implicated. BTW, how much longer are you going to try to portray yourself as an independent?
October 15th, 2008 at 12:36 am
cmon!
at this point you cant afford to be stupid anymore! The stakes are too high. Be happy you got away with 8 years of stupid.
There is no one to blame for the last 8 years but the people of the last 8 years. Forget congress they are all republicans in sheeps clothing. Their part in all this is sitting by and doing nothing over all the crimes committed by the executive branch.
2002 recession:
Bush (et al) says to greenspan find a place to blow me a bubble and churn us out of this recession or you are out.
Folks…. all the policies of the gov before bush were sustainable until wall street and greenspan made them into fairy dust.
If you cant deal with the idea of the truth being this simple and blame being thrust on one group which is our entire gov for the last 8 years then move to disneyland where untruth is a way of life.
Whats next blame Jefferson for Hoover?
October 15th, 2008 at 1:20 am
Barry,
You encapsulate the big picture on this ridiculous CRA topic perfectly!
Thank you!!!
October 15th, 2008 at 9:50 am
«I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families . . .»
That GWB was saying that was because the Republicans had a strategy of shrinking the support of the Democrats among dark skinned people.
The main political effect of home ownership (like car ownership, stock ownership, gun ownership, …) is to turn people into Republican voters, as they start to think with their wallet, and vote for ever increasing asset prices and to protect their wealth from the rabble.
As Norquist wisely pointed out:
http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=11699
«The 1930s rhetoric was bash business — only a handful of bankers thought that meant them. Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.”»
http://www.thevanguard.org/thevanguard/other_writers/norquist_grover/060803.shtml
http://www.enterstageright.com/archive/articles/0903/0903norquistinterview.htm
«The growth of the investor class–those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result–is strengthening the conservative movement. More gun owners, fewer labor union members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats.»
October 15th, 2008 at 1:01 pm
This VJ person is like a lot of folks I guess. To defend the proposition that the US defense budget did not go down as a fraction of GDP under Clinton he says that it’s many multiples larger than a bunch of other countries’ defense budgets. I’ll not waste people’s time by replying to the non sequitur.
In addition, the underlying assumption, not clear if intentional or not, is that we should want a fair fight. No, I want our military to be many, many, MANY times bigger and badder than anybody else’s.
Luck to you VJ
October 15th, 2008 at 2:01 pm
“No, I want our military to be many, many, MANY times bigger and badder than anybody else’s.”
Posted by: yernamehear
No problem. We spend more than the rest of the world combined (not including the two wars) on our military. When most of your oil is under the ground of other folks’ countries it’s how you proceed.
It is unfortunate that Eisenhower’s fear came to pass. The amount of money spent by this country on non-productive, non-wealth-creation items like the military and housing among many others is incredible. Send the factories overseas and you’re not left with much except a reliance on credit expansion to keep the illusion going.
BR,
I understand and agree with why you made this post, but I hope we can soon get back to macro-economic issues and leave the politics behind because there is no political dialogue in this country.
October 16th, 2008 at 1:02 am
Howard said, “I think we even had one from the Comptroller of the Currency (whatever the fuck that is).”
Howard, I don’t really know what the fuck the Comptroller of the Currency does, but he is on the board of the newly created “Office of Financial Stability”:
Section 101. Purchases of Troubled Assets.
Authorizes the Secretary to establish a Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP in consultation with the Board of Governors of the Federal Reserve System, the FDIC, the Comptroller of the Currency, the Director of the Office of Thrift Supervision and the Secretary of Housing and Urban Development.