Howard Husock has an exercise in cognitive dissonance in today’s NYT Op-Ed pages titled Housing Goals We Can’t Afford, and it begins:

“The national wave of home foreclosures, many concentrated in lower-income and minority neighborhoods, has created a strong temptation to find the villains responsible.”

What can you say about an Op-Ed whose very first sentence is a giant pile of steaming bullshit? That statement is demonstrably false. As the prior post on foreclosures shows, the concentration is mostly middle class and upper middle class white suburban neighborhoods.

California leads the nation in foreclosures. The state’s foreclosure activity was up 51% from a year ago. These are not CRA communities, they are what were hoped to be surburban bedroom communities east of the major cities (San Diego and L.A.)

Next up is Florida; The state’s foreclosure activity was still up 68 percent from November 2007. The enormous overbuilding of Condos, and not CRA, is to blame. These weren’t inner city loans to minorities, as Dan Gross pointed out, they were “WCI Communities — builder of highly amenitized condos in Florida (no subprime purchasers welcome there)” WCI filed for bankruptcy in August. “Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities.”

~~~

Let’s put some context around what the CRA  is and isn’t.

In the 1960s and 70s, banks would redline neighborhoods. They would literally put a map on a wall, and with a red magic marker, draw a redline enveloping certain neighborhoods. If you lived within the redlined areas, regardless of your income, credit score, assets, debt servicing ability, if you were in the redlined area you could not qualify for a mortgage.

Although Redlining was made illegal by the Fair Housing Act of 1968, the practice still surreptitiously continued. The Community Reinvestment Act of 1977 was the next attempt to stop redlining. There were two main aspects of the CRA: First, it required banks to apply the same lending criteria in all communities. Credit Score, Loan-to-value, percentage of monthly take home, etc. had to be the same across different areas.

Second, the Community Reinvestment Act required banks to make good faith attempts to loan the money back to its own depositors. If you open up a branch in Harlem, you cannot suck up all the local business and residents’ cash, and then turn around and only lend it out to Tribeca condo buyers. You must make a fair attempt to loan the money locally. Banks have no obligation to open branches in Harlem, but if they did, they are required to at least try to lend the locals back their own money.

Note that there are no quotas, minimums or mandates. This is a very soft rating system.

~~~

The rest of Husock’s article is filled with the usual dissembling and half-truths. He mentions “in 1995 the Clinton administration added tough new regulations,” but omits any mentions that the Bush administration substantially watering down the act in 2004.

The only testimony adduced from the banking industry in the Op-Ed was“a compliance officer for a New Jersey bank wrote in a letter last month to American Banker.” That’s your inside proof? Meanwhile, since Bear Stearns collapsed in March, there has been a veritable parade of bankers, mortgage originators, lenders, fund managers, and investment banks CEOs all testifying in Washington D.C. about the causes of the crisis. By some strange coincidence, not a single one blamed the CRA (Dick Fuld, CEO of Lehman Brothers was even asked about it). Not a one.

And of course, vast numbers of sub-prime mortgages were written by non-CRA banks. Indeed, none of the 300+ mortgage originators that imploded were depository banks covered by the CRA.

This is a an intellectually silly argument from other perspectives also. Why was there no credit/housing meltdown from 1977 to 2005? Why did 30 other countries, none of which have are covered by the CRA, have a remarkably similar housing boom and bust to the USA?  Husock’s arguments not only fail legally and factually, they also fail in terms of time and space . . .

>

Source:
Housing Goals We Can’t Afford
HOWARD HUSOCK
NYT, December 10, 2008

http://www.nytimes.com/2008/12/11/opinion/11husock.html

Subprime Suspects
Daniel Gross
Slate, Tuesday, Oct. 7, 2008, at 2:08 PM ET

http://www.slate.com/id/2201641

Category: Bailouts, Data Analysis, Legal, Politics, Psychology, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

51 Responses to “More CRA Idiocy”

  1. Rest of the hi foreclosure states:

    After Florida comes Michigan, whose automobile industry is going down the tubes. Michigan has one of the highest unemployment rates in the country, and entered a recession long before the rest of the nation did (Ohio, another top 10 foreclosure state, has a similar issues as Michigan).

    Nevada and Arizona rounded out the top 5, as enormous suburban overbuilding of McMansions and exurb communities at the height of the boom has left developers with an enormous supply of unsold homes. These are not CRA urban areas at all. The rest of the top 10 include Georgia, Illinois, Texas and Virginia.

  2. Scott F says:

    The good news is, we now have another hack author to dismiss as full of shit.

    Throw him on the pile with Ben Stein, Amity Shlaes, Don Luskin, and the all the rest of the douchebags of the current crisis.

  3. crack says:

    But Barry, the NY Times is a communist rag. If it writes something bad about a government policy it must be true.

  4. Mannwich says:

    Truth and facts don’t really matter to a whole subset of this country. They just “make their own reality”. Debating anything with these people is generally a big waste of time.

  5. Machiavelli999 says:

    Mannwich is absolutely right. And to expound a little more on this. Falling back on ideology, whether it be far right or far left, is so much easier and calmer for your brain than actually examining data and facts.

    This is a little bit OT, but the Austrian economic school of thought specifically admits to not using any empirical evidence or models to come to their conclusions. They claim that human behavior cannot be mathematically modeled, but that makes me even more skeptical that you can just “infer” the behavior of humans like the Austrians claim they can.

  6. I thought the Civil War solved all that discrimination & stuff?

  7. Winston Munn says:

    Yes, debating these types is a mind-numbing experience. But as long as their disinformation is expressly labeled: Opinion-Editorial, then any debate with them should be in the same format.

    The real problem I have is when this type “Op-Ed” is reported as pseudo-news – Fox comes immediately to mind with their incessant claims that “Some people say….”

    That is not reporting but disguising opinion as news. “Some people say the CRA is at fault for the housing crisis.” Yes, it is a factual statement. But it is not news. Nor does it attempt to verify the truthfulness of the claim.

    Our society is in trouble. We have turned over our information system to masters of propaganda and spin doctors.

    The sanctity of the internet is paramount in these times.

  8. VoiceFromTheWilderness says:

    Thanks BR for putting in a strong counter-argument, and just generally being a proponent of truth.

    I agree though with others, there is a significant portion of this country for whom ‘truth’ is entirely subordinate to winning. They are, in my opinion, a significantly larger portion of the media than they are of the general public. At this point the thing to do, isn’t to waste time ‘arguing’ with them, since they will say and do anything to win, rather it is to see clearly what they are doing, and who they are. To pay attention, and to recognize the goals they are trying to achieve — in this case diverting blame, and hence corraling bailout money, and votes.

  9. Mannwich says:

    @Voice: “I agree though with others, there is a significant portion of this country for whom ‘truth’ is entirely subordinate to winning.”

    That’s the crux of it right there. Most of the “informed” know what reality is, they’d just rather ignore it if it means they get to “win”.

  10. VennData says:

    Wait a minute Mr Big Picture… didn’t Carter visit Spain while he was el Presidente? …and wasn’t it Clinton who went to Oxford – that’s in England, mortgage meltdown central – as a draft-dodging hippie? That waylays your entire “…why are there mortgage crises in other countries?” argument.

    Bush had only left the country once prior to being elected Commander-in-Chief, Sarah Palin had nothing to do with anything foreign, and McCain was sitting in the Hanoi Hilton – while you were racing your Trans Am around Long Island – which would make him ineligible for a mortgage.

    I rest my case.

  11. BR,

    with this: “Why was there no credit/housing meltdown from 1977 to 2005? Why did 30 other countries, none of which have a CRA, have a remarkably similar housing boom and bust? Husock’s arguments not only fail legally and factually, they also fail in terms of time and space . . .”

    as I’ve said before, you can conduct my Voir Dire, anytime..

    that said, if you would (yes, and if you find the 25th Hour in the Day), would you piece together a string of Q:’s, like those above?

    We need all the Critical Thinking Practice we can get..

  12. CaptiousNut says:

    So, then, the CRA is blameless?

    The fact is, if you inflate the bottom end of the market….you inflate the whole darn thing via *trade-ups*.

    There’s a whole army of strawmen to debunk on this subject. Why single this one out, repeatedly?

    Are we running for office or something here?

  13. Patrick Neid says:

    I have never wasted time with who got the loans. I just knew there was a bubble. I was always more curious who bought them and did that create the demand loop.

    From yesterdays NYTimes comes this:

    Fannie Mae and Freddie Mac engaged in “an orgy of junk mortgage development” that turned the two mortgage-finance giants into vast repositories of subprime and similarly risky loans, a former Fannie executive testified on Tuesday.
    The mortgage development, which began in 2005 and lasted until at least last year, happened as senior executives at the two government-sponsored enterprises ignored repeated warnings from internal risk officers that they were delving too deeply into dangerous territory, according to internal documents released at a Congressional hearing in Washington. The two companies have been taken over by the government.
    The former executive, Edward J. Pinto, who was chief credit officer at Fannie Mae, told the House Oversight and Government Reform Committee that the mortgage giants now guarantee or hold 10.5 million nonprime loans worth $1.6 trillion — one in three of all subprime loans, and nearly two in three of all so-called Alt-A loans, often called “liar loans.”
    Such loans now make up 34 percent of the total single-family mortgage portfolios at Fannie Mae and Freddie Mac, a level that will link them to eight million foreclosures, or one in six, in coming years, Mr. Pinto said. The nonprime loans “have turned the American dream of homeownership into the American nightmare of foreclosure,” he said.

    And from the day before: From Franklin Raines himself

    “Fannie Mae did not cause the current crisis,” Raines told the House Oversight and Government Reform Committee.
    “By the time [Fannie] began its most significant investments in riskier loans in 2005, the roots of the present crisis had long taken hold,” he said.
    The panel, headed by Rep. Henry Waxman (D-Calif.), is trying to affix blame and causes for the collapse of Fannie and its sibling Freddie Mac, both of which were taken over by the government in a rescue earlier this year.
    Raines and his counterparts at Freddie Mac testified yesterday that blame should start with regulators and members of Congress for pressuring the two entities to expand into riskier loan products with limited oversight.
    Raines had been pushed out for alleged accounting rigging at Fannie.
    He and his successor, Daniel Mudd, and former Freddie Mac CEOs Richard Syron and Leland Brendsel, told the committee they were always bogged down trying to meet their companies’ “dual mandates as profit-making, shareholder-owned corporations that were also required to promote affordable housing.”
    Mudd told the panel that regulators never raised the red flag, despite warnings about troubles ahead.
    “At the time the government declared conservatorship over the company, we were still maintaining capital in accord with the relevant regulatory standards, and we were still – along with Freddie Mac – the principal source of lending to the mortgage market,” Mudd said.

  14. AGG says:

    Barry,
    Of course the NYT article is bullshit. They are, as our soon to be ex-presidente would say, catapulting the “properganda”.
    They know what they are doing. It’s MENS REA.

  15. Pat G. says:

    Mark E Hoffer Says @ December 11th, 2008 at 12:16 pm

    Hey Mark, saw your comment from yesterday. Yes, I believe T-Bills are a proxy for the USD. See, what’s happening to the USD today? The only thing keeping it up are lower oil prices and foreigners belief that it is a safer haven than their currency. It’s going to fall alot more before the dust settles. Also, I finished reading the info at the Trilateral Commission site. Found out about “Tall Paul’s” involvement as the North American chairman and his frequent presentations to other nations gathered there very interesting.

  16. Winston Munn says:

    What gives me a sense of concern about CRA disinformation is the seeming organization of the smears, almost as if a disinformation committee had written out “talking points” and sent them out to a network of “repeaters”.

    I agree with Mannwich that “Most of the ‘informed’ know what reality is…”, which only compounds the trepedation caused by the sense of organizational methodology.

  17. ByteMe says:

    The same people pushing the CRA smear are the same idiots claiming that privatization of services is “cheaper” and “better” and “more efficient” than government-offered services, that “socialist health care” is worse than for-profit health care and on and on. It’s the fat cats protecting their turf and using some willing idiots to move the ball for them.

    Sad that so many people buy into it. Hey, did you hear that Obama’s birth certificate isn’t real and that he’s a Muslim from Kenya who consorts with a radical Christian preacher? Uh….

  18. DeDude says:

    What I don’t get is that it has been proven again and again that even if you can manipulate the perception of reality, you cannot change reality, with a lie. Those weapons of mass destruction did not appear, just because you got everybody in the media to say they did. And the result of “reacting” to a fantasy rather than to reality has in this, and so many other situations, turned out to have disasterous concequences. Kudlow may be able to convince a lot of people that it is better for the economy to give money to the investor class than to the consumer class, but the collapse of the consumer class and the economy bites him as hard as anybody else (or is his stock portfolio not down 40%). Are they to dim to understand the GDP formula (a 2’nd grade math problem), and what it realy means that consumption is 70% of our GDP. Don’t they understand that if we “fix” this problem by getting rid of CRA, the problem will come right back again, or are they just so hellbend on hurting the poor and minorities that they don’t care about anything else. They would rather sink their own ship than see “them kind of people” get safely to shore.

  19. Francois says:

    “What gives me a sense of concern about CRA disinformation is the seeming organization of the smears, almost as if a disinformation committee had written out “talking points” and sent them out to a network of “repeaters”.”

    Bingo! If one takes the time to connect the CRA caused everything BS with the now infamous talking points memo about Bush’s legacy, does it really comes as a surprise that there is, in fact, a “network of repeaters”?

    The far-right has, is, and will do anything to deflect the blame from the basic tenets of their economic ideology, which has been THE fundamental failure that led to the situation we’re in. hence, the all out attack on CRA, FDR, and the most laughable on them all “We have a market crisis because investors KNOW that SOCIALIST policies are coming with this Barrack HUSSEIN Obama.” ( a joke pushed by Fix News in May 2007 onward)

    They will keep on doing so, because outside of their ideology they have NOTHING to offer. Furthermore, if the public at large finally understand this, the Republicans know darn well they’d be forced to play the role of (dis)loyal opposition for a long time to come.

    And it just so happen that in the current context where we need SOLUTIONS, (as opposed to mindless obstruction — witness California Republiscums right now for a sample of what’s to come in DC) the way Republicans behave as opposition is a sucker game that would destroy them for a couple of generations.

    The “sanctity of the Internet” is a good concept. It has become the only place where uncensored debate and fact-checking force the far-right to run without a chance to hide from their endless spin.

    Keep up the heat Barry and give’em hell!

  20. Tom K says:

    Whitewashing Fannie Mae – Congress begins its self-absolution campaign.

    http://online.wsj.com/article/SB122895461803096429.html

  21. Francois says:

    test

  22. Francois says:

    “What gives me a sense of concern about CRA disinformation is the seeming organization of the smears, almost as if a disinformation committee had written out “talking points” and sent them out to a network of “repeaters”.”

    Bingo! If one takes the time to connect the CRA caused everything BS with the now infamous talking points memo about Bush’s legacy, does it really comes as a surprise that there is, in fact, a “network of repeaters”?

    The far-right has, is, and will do anything to deflect the blame from the basic tenets of their economic ideology, which has been THE fundamental failure that led to the situation we’re in. hence, the all out attack on CRA, FDR, and the most laughable on them all “We have a market crisis because investors KNOW that SOCIALIST policies are coming with this Barrack HUSSEIN Obama.” ( a joke pushed by Fix News in May 2007 onward)

    They will keep on doing so, because outside of their ideology they have NOTHING to offer. Furthermore, if the public at large finally understand this, the Republicans know darn well they’d be forced to play the role of (dis)loyal opposition for a long time to come.

    And it just so happen that in the current context where we need SOLUTIONS, (as opposed to mindless obstruction — witness California Republiscums right now for a sample of what’s to come in DC) the way Republicans behave as opposition is a sucker game that would destroy them for a couple of generations.

    The “sanctity of the Internet”…what a good description! It has become the only place where uncensored debate and fact-checking force the far-right to run without a chance to hide from their endless spin.

    Keep up the heat Barry and give’em hell!

  23. Pat G.

    for sure the U$D is highly impaired, and, seemingly, to me, very overvalued.

    and, re: those Trilateral catz, ya just can’t make that stuff up..

    these guys: http://www.cfr.org/ are a real barrel of monkeys, as well..

    their pub. Foreign Affairs, needs to be on everyone reading list..

  24. DeDude says:

    It is pretty obvious that we made a big mistake when we privatized Freddy and Fannie (F&F) and turned them into entities that were concerned about things such as profit, bonuses to the CEO, and market share. When their competitors started taking away a chunk of their market share, by offering these reckless subprime products (and harvest the fat profits of those products), then the privately owned entities F&F naturally began to find ways of getting into that s**t also. Although they should be commended for the fact that the cost per % market share of bailing out F&F was a lot less than the bailouts of the other private companies any cost of bailouts are to much. The lesson learned is that if you have a perfectly well functioning public entity that serves society in a cost effective way and without the need of risk taking behaviour to satisfy gready CEO’s and shareholders, then you should not privatize them. Lets hope that lesson remains clear in our heads after the private entities get back into the mortgage marked and foggy minds may suggest that we don’t need F&F.

  25. Francois says:

    Hey Barry,
    I’ll be happy to share my thoughts with the group once WordPress stop to lose/refuse to post?/drop 80% of my posts since you migrated you blog on their platform.

    Sorry to post this here, but I can’t find any other way to let you know this problem.

    Keep up the good work

    Francois

  26. ottovbvs says:

    BR: You’ve published mountains of evidence contradicting this bs but at the end of the day this is all part of the ongoing effort by Heritage, Manhattan, AEI et al to shift the blame for the entire shambles onto CRA and anyone else or thing that was standing within a hundred miles of this calamity. Despite the obvious lunacy of the notion that all those luxury homes and condos in Florida, Nevada, and California were not being sold to low income families, you’re not going to stop them peddling this garbage because after all that’s what these organizations exist to do. That is their raison detre. Peddling rationales and storylines that bolster the worldview of conservatives. Truth and good govt have nothing to do with it. All you can do is keep pushing back against it and in this respect the net has proved a major tool. These days there is simply nowhere to hide from accurate information or from previous totally loopy statements you may have made. Keep up the good work, these people are a cancer on society.

  27. ottovbvs says:

    Tom K Says:

    December 11th, 2008 at 2:18 pm
    Whitewashing Fannie Mae – Congress begins its self-absolution campaign

    The good old WSJ ed page. Home of Luskin, Laffer, Dow 36,000 Hassett, Bomb Bomb Damascus Stephens, Wesbury, Moore, Lereah and other such luminaries. Usually wrong but never in doubt.

  28. MediaCocktail says:

    Most of the foreclosures around here have been of the Spectacularly-Upper-Class variety. You wouldn’t believe these garage sales!! It’s like Black-Friday every Saturday morning.

  29. rogerdaily says:

    Barry – i can see the veins popping out of your forehead…it’s so transparent that what is sooooo upsetting to you is that someone who’s not a far left loony dared to express some insight in the liberal soon to be bankrupt rag known as the New York Times….tThe reason you are sooooo defensive about CRA is that it is one of those things which clearly shows that the seeds for this mess were sown long before Bush 43 took office … heaven forbid Bill Clinton and the Dems bear any responsibility…go take a valium and try reading some publications that aren’t so clearly politically slanted.

  30. Winston Munn says:

    @rogerdaily,

    It is readily apparent that you are fluent in Genuine Frontier Gibberish and have an excellent understanding of claptrap and gobbledeegook.

    BR wrote,
    “Husock’s arguments not only fail legally and factually, they also fail in terms of time and space . . .”

    You forget, Barry, we are an empire now and when we act we create our own reality….you are moving through a new dimension of space and time…..that sign post up ahead….The roger zone,,,,

  31. Whammer says:

    I do have some questions around the other 30 countries. Clearly the housing crisis in those countries demonstrates that the CRA was not the problem. Nor, frankly, were Fannie or Freddie.

    However, we’ve been blaming the ratings agencies and the “non-feasance” of the SEC and the OTS, among others, for a lot of the root causes also.

    I can see how the low US interest rates and the loose money supply could influence other countries, although it was accompanied by a fairly significant devaluation in the dollar until fairly recently, so it seems as though some of that should have been tempered.

    So I’m trying to get at the root cause of the housing market troubles in the other countries, where we can’t really blame the US SEC or the OTS or other folks like that.

    I can understand how, when our CDOs started collapsing that it has had worldwide implications. What I still don’t quite get is how our housing mania got contagious.

  32. Tom K says:

    @ottovbvs – and you disagree with what part(s) of it?

  33. Mannwich says:

    @Whammer: “I can understand how, when our CDOs started collapsing that it has had worldwide implications. What I still don’t quite get is how our housing mania got contagious.”

    Let me take a stab – the contagion spread because we have become a culture that is utterly obsessed with wealth, material goods, and celebrity (it’s worshiped everywhere in our culture with our media plankton doing more harm than good) and people were/are trying all trying to get rich quickly without really “working” for it. We now have a “shadow economy” where actually “working” for a living trying make things of real value is for suckers. Too many people merely want to jump on the latest money-making gravy train before it derails and falls into the river.

  34. Whammer says:

    @Mannwich — I buy that explanation for inside the US. But I don’t understand why the Spaniards and the Australians and the Irish and who the heck knows got into similar situations.

    Were their mortgages being repackaged into CDOs? Were Moody’s and S&P rating those?

  35. DeDude says:

    Whammer; unfortunately US culture is extremely exportable (Hollywood) and often accepted other places without much of any critical evaluation. In many european countries the housing market heated up very similar to how it happened in US. In the end most consumers can be convinced that the only thing that matters is the monthly payment, because that really is what matters most to them; and the don’t wait or you will be priced out (of housing that always goes up) wasn’t that hard to copy either.

  36. Jono says:

    Machiavelli999 you know that is utter nonsense and you have deliberately misinterpreted it.

    The Austrian school DO check their premises and analysis with all kinds of technical data.

    What they do, is build their theory on praxeology. That all human action is purposeful. All other schools of economics, at least on a macro level, tend to work backwards and use the data to conjur up some new theory, especially on a macro level. The monetarists and Keynesians engineer the statistics to suit their agenda (CPI, GDP) and use them to create some kind of framework that involves central banks performing buying securities and controlling the supply of money to set a cash rate and target the rate of CPI (as if that were the correct definition of inflation).

    The Austrians are the only school of economics that applies the same theory of human behaviour to an individual micro-level (individuals, households and firms) as they do to the entire economy. They do a brilliant job at exposing all the fallacies and underlying assumptions used by Keynesian economists, which are just a re-hash of the old mercantilist fallacies.

    No other school of economics will criticise the role of the Federal Reserve in creating this crisis, and thats why they all deserve a big fail on their report cards.

  37. colion says:

    Stop Covering Up And Kill The CRA
    By INVESTOR’S BUSINESS DAILY | Posted Friday, November 28, 2008 4:20 PM PT

    Regulation: The Community Reinvestment Act is to blame for the financial crisis, but it so powerfully serves Democrats’ interests that they’ll do anything to protect it — including revising history.

    The CRA coerces banks into making loans based on political correctness, and little else, to people who can’t afford them. Enforced like never before by the Clinton administration, the regulation destroyed credit standards across the mortgage industry, created the subprime market, and caused the housing bubble that has now burst and left us with the worst housing and banking crises since the Great Depression.

    The CRA should be abolished, along with the government-sponsored enterprises that fueled the secondary market for subprimes — under pressure from Clinton, who ordered HUD to set quotas for “affirmative action” lending at Fannie Mae and Freddie Mac.

    But powerful Democrats in Washington want to protect the act — along with Fannie and Freddie — and spin the subprime scandal as the result of too little regulation, not too much.

    “Repealing or weakening the CRA would be a mistake,” warns Senate Banking Committee Chairman Chris Dodd, D-Conn., who argues that the CRA should be strengthened.

    Dodd, the top recipient of Fannie donations and himself a beneficiary of a sweetheart mortgage brokered by a subprime lender, recently invited one of Clinton’s top enforcers of the CRA to testify.

    “The notion that CRA has caused this problem is a pernicious thought,” said former Comptroller of the Currency Gene Ludwig. “These are not truthful statements. The CRA has helped to create a better and sounder world for finance, not the opposite.”

    Dead wrong. But the mainstream media believe it, and have attacked those, including this paper, who dare to tell the truth about the crisis. Already the debacle has erased $13 trillion in wealth, while putting taxpayers on the hook for up to $8 trillion in bailouts.

    “The latest salvo from conservatives began via a Sept. 15 editorial in Investor’s Business Daily, titled ‘The Real Culprits In This Meltdown,’ ” grumbled a column distributed by Scripps Howard News Service. “Its editorial blamed President Clinton for today’s mess.”

    As we said, Clinton beefed up the CRA and used it to force banks to subsidize poor communities with close to $1 trillion in high-risk loans and other commitments that flouted underwriting rules.

    Yet, somehow, these media-driven myths keep getting in the way of actual facts, such as:

    Fact: The 1977 law was only lightly enforced until Clinton added teeth to it in 1994 and launched an anti-redlining campaign against banks, led by Ludwig, Housing Secretary Henry Cisneros (and later Andrew Cuomo) and Attorney General Janet Reno that lasted into this decade.

    Minority homeownership rates, which had been flat, began a steep rise in 1995, and home prices soon followed, stoked by easier lending. Numerous bank officials complain that they still feel pressured by CRA regulators to make inner-city loans they know are at great risk of defaulting.

    Myth: The CRA could not have led to financial Armageddon, because the overwhelming share of subprime mortgages came from lenders that were not banks and not regulated by the CRA.

    Fact: Nearly 4 in 10 subprime loans between 2004 and 2007 were made by CRA-covered banks such as Washington Mutual and IndyMac. And that doesn’t include loans made by subprime lenders owned by banks, which were in effect covered by the CRA.

    Last year, when the bubble burst, bank subprime loans totaled $142 billion, dwarfing those made by lenders.

    What’s more, the biggest subprime lender, Countrywide, while not subject to the law, still came under federal pressure to make risky loans in minority communities.

    Clinton created a separate department at HUD to police “fair lending” at Fannie and Freddie and also at lenders like Countrywide, which became Fannie’s biggest client. In 1994, Countrywide became the nation’s first mortgage lender to sign with HUD a “Declaration of Fair Lending Principles and Practices.”

    As a result, Countrywide made more loans to minorities than any other lender — and not surprisingly, was one of the first lenders swamped by loan defaults.

    Other lenders felt the heat from Reno’s Justice Department, which prosecuted them for failing to operate enough branches in black neighborhoods. Reno put the entire banking industry on notice about the CRA and her enforcement program.

    Myth: The CRA did not force anyone to do subprime loans or take excessive risks.

    Fact: Subprime loans were the vehicle banks used to satisfy CRA compliance, and Clinton and his regulators encouraged their use. Before Clinton took office, subprimes were virtually unheard of. By the time he left, they made up more than 9% of the market for mortgage originations. Today they’re 20%.

    “It’s instructive to go back to the early stages of the subprime market, which has essentially emerged out of the CRA,” ex-Fed chief Alan Greenspan said in recent testimony on the roots of the crisis.

    Clinton pushed banks to grant mortgages to minorities with poor credit by using “flexible” underwriting standards — or risk being branded racist. Rules were weakened to the point where welfare and unemployment checks were accepted as qualifying income.

    Myth: Greedy investment bankers, who securitized and sold subprime mortgages, drove us to the credit crisis, not government.

    Fact: Clinton’s regulatory policies led to the creation of this new risk on Wall Street. His CRA amendments created the subprime market, and only after he pressured Fannie and Freddie to socialize the risk and guarantee the profit from the subprime loans did Wall Street get involved in a big way.

    The exotic securitizations that have gotten so much of the blame were a symptom, not the cause, of the crisis.

    The architects of the crisis want to divert attention from their own culpability by blaming the markets rather than their own regulations mandating that banks make high-risk loans based on race.

    In fact, regulations had almost everything to do with this mess. And instead of strengthening them to atone for the alleged “sins of capitalism,” we should be abolishing them.

    Two bills in the House would be a good place to start. HR 7264, which has nine co-sponsors, would repeal the CRA. And HR 7094, with 17 co-sponsors, would dissolve Fannie Mae and Freddie Mac.

    During the last severe slump, President Reagan deregulated the economy, saying: “Government is not the solution to the problem; government is the problem.” He’s as right today as he was then.

  38. wd78 says:

    Barry, it’s time to cut to the chase and address all of the facts without attempting to revise history or push your political agenda which diminishes your contributions. Here is a link to an article that lays things out chronologically:

    http://www.americanthinker.com/2008/10/what_really_happened_in_the_mo.html

    Your critique of this article from an apolitical view would be of great interest.

  39. BoboKnows says:

    Barry, if you had bothered to research the demographics of the top California foreclosure cities listed in Dan Levy’s Bloomberg article, you would have found that most of them are majority non-white, and in fact are probably prime CRA areas. Per the 2000 census, Stockton, Riverside, San Bernardino, Vallejo and Fairfield are all majority non-white. Merced, which tops the CA foreclosure list was only 52% white in 2000 and may well be majority non-white by now. Only Modesto (70%) and Bakersfield (62%) were predominantly white, but they are certainly not “suburban bedroom communities”. Check a map.

  40. Whammer says:

    From the IBD blurb:

    “The exotic securitizations that have gotten so much of the blame were a symptom, not the cause, of the crisis.”

    That is so obviously a crock of s–t that the rest of the piece must be viewed as nonsense.

    The problem is not that buyers defaulted on loans. Foreclosures were a feature, not a bug, in the leadup to this crisis. Lenders didn’t care who they loaned to, because house prices always went up. Loan to someone who can’t pay — no problem — just foreclose and sell to a new buyer and generate more fees.

    Once the entire stock of housing was overbuilt and prices started to drop, then the crap hit the fan and the “exotic securitizations” made the whole thing super-toxic. If those didn’t exist, we’d ride this out fairly simply.

    Remember that all the Ludlows and their ilk were saying that sub-prime couldn’t possibly be a problem because it was a small part of the overall housing market? Why did that suddenly become wrong and CRA became the whipping boy? Because they are full of crap.

  41. colion says:

    whamer, you really have to get your facts straight and then review your Logic 101 notes on cause and effect. I’m sure that the world will look different to you after that.

  42. Imelda Blahnik says:

    Wow, the Investors Business Daily is a parody rag? Who knew?

    Actually, colion, I don’t think the IBD goes far enough. Rather than blame Clinton and the CRA, I think we need to pin the blame where it truly belongs: with Abraham Lincoln and the 13th Amendment.

    If we never had Lincoln, if we never saw the passage of the 13th Amendment, blacks would still be slaves and we wouldn’t have so many minorities getting mortgages.

    Ultimately the CRA is a civil rights bill, so it’s just a continuation of the process that began with the 13th Amendment and continued through the Civil Rights Act and the Voting Rights Act to the present, or at least until 2000.

  43. Whammer says:

    colion, why don’t you educate me as to why the CRA forced banks to make 125% LTV loans. And no-doc loans. And why don’t you educate me as to why the CRA forced Goldman, Lehman, et al to wildly lever their portfolios. And why don’t you educate me as to why S&P and Moody’s were forced by the CRA to rate the securitized loans as AAA?

    Cause and effect, my ass.

  44. scepticus says:

    Here are my top 3 reasons why the UK/irish housing market saw the same action as the US:

    1) yes, our morgages were securitised in the same way via CDOs. In some cases it was the same banks doing the lending in both US and UK: e.g HSBC, who for some reason were known as a cautious lender in the UK but my understanding is that they were a big part of the sunprime action in the US. Santander did alot of morgages in the UK via Abbey National, and of course did the same in Spain.

    2) As mannwich pointed out, the cultural/media pressure was immense. Nightly property development shows, pressure to get on the ladder before it got too late, watching the Jones-next-door net worth rocket via their buy to let portfolio. Buy-to-let was the main driver in the UK, much of which I think was financed just by short term wholesale borrowing without even much securitsation (e.g. northernrock, bradford&bingley), with plenty of normal middle class families owning 3-4 proprties. In factthe people with several investment properties were seen as the sensible ones. The real ‘idiots’ just withdrew equity from their only property and spent it on pure consumption.

    3) Same regulatory failure as in the US. Its embarassing how our administration just took their lead from the US, no questions asked, whether it was iraq, finance or mortgage lending. And it is true to say that this started with Blair, who in turn took his lead from Clinton initally, before W.

  45. Blissex says:

    «However, we’ve been blaming the ratings agencies and the “non-feasance” of the SEC and the OTS, among others, for a lot of the root causes also.
    I can see how the low US interest rates and the loose money supply could influence other countries, although it was accompanied by a fairly significant devaluation in the dollar until fairly recently, so it seems as though some of that should have been tempered.
    So I’m trying to get at the root cause of the housing market troubles in the other countries, where we can’t really blame the US SEC or the OTS or other folks like that.
    I can understand how, when our CDOs started collapsing that it has had worldwide implications. What I still don’t quite get is how our housing mania got contagious.
    »

    The ultimate root cause is political, the rise to power of the financial rentier class, that has happened thanks to the anti-labor, anti-business political movements of Reagan, Thatcher etc. This happened in a lot of countries and even got a name, the “Washington Consensus”. This resulted in a huge transfer of resources and power from primary, secondary and tertiary industry to financial speculation, who bought politicians.

    The economic ultimate causes are two: the essential abolition of the fractional reserve requirement, and the 0% yen carry trade, both of which started in 1995-1996. This created a colossal amount of essentially free money, which was used by financial speculators as zero-cost input in lending at a high price to the rest of the economy. A third political cause was the integration of the ex-second world (ex-communist) economies in the rest of the world economy, which greatly reduce the global bargaining power of the workers in first-world economies.

    Everything else is a consequence, and a pretty immediate one too. Only fools would not borrow at 0% or not create credit if there is zero reserve requirement, and use that to buy assets.

  46. Blissex says:

    «the essential abolition of the fractional reserve requirement, and the 0% yen carry trade, both of which started in 1995-1996. [ ... ]the integration of the ex-second world (ex-communist) economies»

    To add the obvious: in a world dominated by the politics of the “Washington Consensus” and globalized financial markets these factors are of course global (if free credit is available in the USA and in Japan, it does not stay confined to the USA and Japan) and would affect most countries at the same time.

    Except of course those like Germany whose political and business elites do not subscribe entirely the the Washington Consensus and “beggar thy worker” policies.

  47. Greg0658 says:

    I really want to see the tv mini series “V” the Visitors come back to the tube.

    I saw Lonesome Dove on last week. Couldn’t help but watch, even tho I have the DVD collection.
    Those were the days. Love that one on a shutin winter day.
    “they say your a Man of Vision … ya … hell of a vision”

  48. Mr. Mark says:

    If you recall from the Republican candidate’s campaign, a prominent theme was the bashing of the evil ‘community organizer’ who, it was implied, worked in nefarious ways toward uncertain ends. It seemed to resonate with the base, but I could not for the life of me figure out why it emerged as a campaign message.

    Until I heard partisans impugning the Community Reinvestment Act. Suddenly it became clear. The CRA was the product of successful local community organizing to reform lending practices (behavior) and to ensure greater transparency concerning lending to allow for public scrutiny (regulation of a kind). Also at the local level, activists were able to convince community-based lenders to focus their practices on social improvement, and research shows that where activists were successful in organizing to apply pressure, both the character of lending – and the local government’s own housing activities – produced gains in affordable housing (for example).

    Thus the hostility to CRA and to community organizers more generally. Thanks, Barry, for bringing this to our attention. I too choked on the op-ed piece. With the recent campaign to put it into context, now I understand better why it’s the bogeyman – and why progressive reforms in urban policy (duh – WHAT urban policy?) and housing in particular will be hard-won victories.

  49. Steve Sailer says:

    To understand the housing bubble, you need to study the crucial role of George W. Bush and his many attacks during 2002-2004 on down payments, as the chief obstacle to minorities achieving an equal share of the American Dream. This sent a loud signal to federal regulators to give a pass to zero down payment mortgages, which surged from less than 7% of all first time homebuyers in California (epicenter of the mortgage meltdown) in the Clinton Years to 41% in 2006. Bush was carrying out Karl Rove’s plan to bring Hispanics into the GOP by using easy credit to make them conservative home owners.

    For example, in Bush’s July 17, 2002 address to the African Methodist Episcopalian church in Atlanta to promote Bush’s October 15, 2002 White House Conference on Minority Homeownership, the President said:

    “Now, we’ve got a problem here in America that we have to address. Too many American families, too many minorities do not own a home. There is a home ownership gap in America. The difference between Anglo America and African American and Hispanic home ownership is too big. (Applause.) And we’ve got to focus the attention on this nation to address this.

    “And it starts with setting a goal. And so by the year 2010, we must increase minority home owners by at least 5.5 million. In order to close the homeownership gap, we’ve got to set a big goal for America, and focus our attention and resources on that goal. (Applause.) …

    “And so here are some of the ways to address the issue. First, the single greatest barrier to first time homeownership is a high downpayment. It is really hard for many, many, low income families to make the high downpayment. And so that’s why I propose and urge Congress to fully fund the American Dream Downpayment Fund. This will use money, taxpayers’ money to help a qualified, low income buyer make a downpayment. And that’s important.

    “One of the barriers to homeownership is the inability to make a downpayment. And if one of the goals is to increase homeownership, it makes sense to help people pay that downpayment. We believe that the amount of money in our budget, fully approved by Congress, will help 40,000 families every year realize the dream of owning a home. (Applause.) Part of the success of Park Place is that the city of Atlanta already does this. And we want to make the plan more robust. We want to make it more full all across America.”

    Mortgage dollars for home purchases flowing to Hispanics increased 691% from 1999 to 2006 versus about 100% for whites.

    A lot of people can’t imagine that minorities can make much of an impact but when you look at data from the Federal Home Disclosure Act database, you’re eyes should be opened.

    By 2004-2007, minorities accounted for half of all subprime dollars, purchase and refinance. In 2006, minorities accounted for 34% of all kinds of mortgage dollars, subprime and prime. In 2006, the average mortgage of any kind taken out by a Hispanic was a few thousand dollars larger than the white average — that’s because Hispanics are so concentrated in Housing Bubble states, especially California.

    Contrary to what the host says, foreclosures tend to be concentrated in working class districts, typically heavily minority. For example, in Los Angeles County, the nation’s largest, foreclosures have, so far, been minimal in wealthy white and Asian places like Santa Monica. They’ve been quite high in Non-Asian minority districts like Compton (which is now majority Hispanic), and overwhelmingly high in mixed ethnicity blue collar exurbs like forlorn Lake Los Angeles in the distant high desert.

  50. Steve Sailer says:

    Today, 12/21, the New York Times finally catches up with what I’ve been pointing out for months. From the NYT:

    White House Philosophy Stoked Mortgage Bonfire
    By JO BECKER, SHERYL GAY STOLBERG and STEPHEN LABATON

    “We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” — President Bush, Oct. 15, 2002

    But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

    From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

    He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

    Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

    … “The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”

    … “We absolutely wanted to increase homeownership,” Tony Fratto, his deputy press secretary, recalled him saying. “But we never wanted lenders to make bad decisions.”

    Darrin West could not believe it. The president of the United States was standing in his living room.

    It was June 17, 2002, a day Mr. West recalls as “the highlight of my life.” Mr. Bush, in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.

    Mr. West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment — just the sort of creative public-private financing Mr. Bush was promoting.

    “Part of economic security,” Mr. Bush declared that day, “is owning your own home.”

    A lot has changed since then. Mr. West, beset by personal problems, left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across America, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr. Bush’s tour.

    “I just don’t think what he envisioned was actually carried out,” she said.

    Park Place South is, in microcosm, the story of a well-intentioned policy gone awry. Advocating homeownership is hardly novel; the Clinton administration did it, too. For Mr. Bush, it was part of his vision of an “ownership society,” in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters.

    As I explained in detail back in October in “Karl Rove — Architect of the Minority Mortgage Meltdown.”

    But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.

    So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

    Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.

    And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.

    The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

    And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.