I like Mike Shedlock — but I have no idea what to make of this foolishness he recently posted:

How the CRA Fueled the Housing Bubble

That “source” Mish is citing is a (WTF?) IBD Editorial — an editorial page notorious for their hard right views. They do not believe that radical deregulation of the financial markets had anything to do with causing the crisis. I wont even bother debunking the foolishness there — it is a flat earth argument that has been thoroughly discredited.

Dude, you have put out enough intelligent commentary over the years that I was willing to skip past the populist ravings, the anti-union screeds, the gold buggery, even the cranky end of world nonsense that seems to be in fashion.

But you need to ask yourself: Are you Seeking the Truth — Or Obscuring It?

This foolish posts suggest the latter. Please let me know when you return to the former. Until then, there are more accurate and intellectually honest things awaiting my time . . .


Searching for the Truth in an Age of Disingenuousness (December 31st, 2010)

Category: Really, really bad calls, Weblogs

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.

67 Responses to “MISH Jumps the Shark”

  1. Paul says:

    I stopped reading Mish almost two years ago, shortly after I first met him — at the Kauffman forum, curiously enough. His periodic insights dont weigh his deep dives into the uber-crank pool.

  2. Liquidity Trader says:

    I have to agree with Paul — he has been pretty negative this entire rally. There is not a lot of value there

  3. me says:

    What Paul said.

  4. wngoju says:

    Thanks, BR. Well said – and it should be said, ’cause when Mish sticks to facts, he’s great. But he’s really really infatuated with Ron Paulism & etc. If we, the great unwashed, point this out we get slammed. But your weighing in is great.

  5. wngoju says:

    Now – BR, your mission, should you choose to accept it, is to comment (again…) on ZH.

  6. Nuggz says:

    “His periodic insights dont weigh his deep dives into the uber-crank pool.”

    Exactly. And based on the endless, unhinged comments in the Comment Section, I would say his appeal is rather limited , narrow, and questionable.

  7. AHodge says:

    i never heard of him
    with qualities like “populist ravings, the anti-union screeds, the gold buggery, even the cranky end of world nonsense, CRS nonsense” what did he do good?
    in the nonrandom sense ?

  8. Mike in NorCal says:

    Ugh, the same old CRA arguments combined with the Acorn boogey-man. I expect IBD to turn the “derp” up to 11, but not Mish.

    Thank goodness the CRA has been repealed and the markets can get back to operating efficiently. Otherwise, poor people who can’t pay back their loans would just continue to extort money out of the banks; buy properties they can’t afford; and keep inflating the housing bubble.

  9. curbyourrisk says:

    Although I took Mish of my daily reading list about 5 months ago, mostly do to his once in a while WAY OUT THERE postings, I would not outright dismiss a lot of his other stuff.

    If we only had bloggers with 1 view……..what would be the worth of those bloggers? We need multiple views….

    By the way…..BR is on my list of must read daily, along with ZH and Denninger. Between the 3 of them, I pretty much get all the views. EXACTLY what is necessary for one to form THEIR OWN VIEW OF THINGS. NO ONE SHOULD JUST SPIT BACK SOMEONE ELSES VIEW. Which is, unfortunately, what I see way to often on here from the commentors. (Yes, I know I am setting myself up to be abused…….but i come here to read BR…not the rest of you)

  10. wally says:

    All true.
    Somedays when you wake up in the morning and find you have nothing to say the best thing to do is to just say nothing. Especially is you have a blog, like Mish, for example.

  11. phantomfivefive says:

    Did any of you guys read the post being discussed here? Right after the quote, he says, “The CRA certainly did not cause the financial crisis. However, it did contribute to it.”. So it hardly seems fair to slam him for something he didn’t actually say, then accuse him of intellectual dishonesty. Sure, Mish is a cranky axe-grinder, but this accusation of intellectual dishonesty is unwarranted.


    BR: I read it — but no, the CRA did not even remotely contribute to the crisis — but the new (intellectually dishonest) fallback position from the earlier reality denials is now that Acorn/CRA/GSE “contributed” to the crisis. The smaller lie is “It was a major factor.”

    No, it had nothing to do with it, according to every (non wingnut analysis) from the FDIC to the Fed to me to Jamie Dimon.

    Thanks for playing . . .

  12. contrabandista13 says:

    I was just asking on of my associates this morning…. What should we be outraged about today…?

    I’m leaning towards immigration, with energy policy a close second….

    Any suggestions….? I really, really need a sanctimonious and indignant jag before I go out to lunch….

    Many thanks,


  13. JohnL says:

    “Now – BR, your mission, should you choose to accept it, is to comment (again…) on ZH.”

    really turned out well last time http://www.zerohedge.com/article/jumping-sharks-barry-ritholtz


    BR: That was weak shit from Tyler, and I told him as much. I don’t expect ditto heads to understand critical analysis . . .

  14. solanic says:

    Wait until Mike digs into this news!

    Not only did the Fed loan money to Belgian & German banks, and even a bank controlled by Libya – but apparently they loaned money to a Mexican bank controlled by a socialist drug czar that has strong connections to Nevada real estate. In a bizarre – and frightening twist – Senator Harry Reid is connected to several huge apartment complexes that used the bank to finance their purchase.

    The apartment complexes are Section Eight housing for lower income and house a predominantly Hispanic community with rumors of a large population of illegal immigrants. It does not appear Senator Reid did anything illegal to help the Mexican bank owned by the socialist drug czar get the Fed loan at 0% to save the complex from certain bankruptcy. It is obvious however, that the immigrants voted for Reid in 2010 and played a vital role in his winning his re-election bid.

  15. solanic says:

    Wait until Mike hears about this!
    “…It does not appear Senator Reid did anything illegal to help the Mexican bank owned by the socialist drug czar get the Fed loan at 0% to save the complex from certain bankruptcy. It is obvious however, that the immigrants voted for Reid in 2010 and played a vital role in his winning his re-election bid.”

    Apparently details showed up in Fed FOIA docs thanks to Bloomberg.

  16. cleargulf says:

    BR, please avoid religion and politics. Stick to the markets.

    “The Catholic and the Communist are alike in assuming that an opponent cannot be both honest and intelligent.”
    - George Orwell


    BR: How do you figure that commenting on reality — and a specific group that seems dead set on denying reality — is either religion or politics?

  17. Mike in Nola says:

    I used to read all of Mish’s stuff but he really has gone apeshi!t over how the solution to our problems is abolishing unions and, now, the CRA. I’ve only noticed this shift the past 6 months or so. Maybe it’s medication. I still scan his post titles in my RSS reader and skip most.

    cleargulf: It’s not religion or politics; it’s facts. Unfortunately America’s MSM has forgotten that nutjob points of view are not entitled to equal time with rational points of view.

  18. barryinkona says:

    I put Mish in the same shark-jumping category as Minyanville. What a surprise that he posts there. From getting in bed with Fox Business, to Mish, to Charles Freakin Payne I haven’t been more disappointed with someone or something I once liked in a long time.

  19. Lugnut says:

    To me CRA was more a barometer of the people publically endorsing it; namely that those same folks often had been lobbied hard and bought for by the banks that wanted to a more loose credit environment. They certainly weren’t lobbying hard to re-enact Glass Steagall

  20. curbyourrisk says:

    The only important issues the MSM in America choses to report on are…..who got voted off American Idol, Who is dancing this week on Dancing with the Stars and will Charlie Sheen and Lindsay lohan hook up???

  21. VennData says:

    The belief in the CRA caused the crisis provides solace to the ideological. A talking point when they’re standing around the cracker barrel.

    The good news for data-driven rational thinkers is that it seems that these people are the same ones sitting on bonds, missed the rally, refuse to sell their bonds, and will get the double whammy as the Fed they hate so passionately raises rates.

    The American capitalist system has a way of punishing the ignorant. Anger? Where do you think that Tea Party Anger came from? They missed the rally, that’s where it came from. That is the driving force in American politics, not the deficit, not war, not abortion… the self-styled GOP genuflectors listened to the GOP marketing about the “End of America” and missed the rally.

    Wait until their bonds get hammered. You ain’t seen anger…

  22. brianinla says:

    BR no matter how strongly you keep repeating your opinion it doesn’t make it more true the more times you say it. It’s apparent you made up your mind about this a long time ago and nothing will change it. IF it’s true that CRA loans have higher defaults then they were a contributor to the crisis. Just like if Univ of Phoenix has higher defaults on student loans then they are a contributor to the private education loan crisis. Were they THE contributor? No. Did they take part? Yes. Did appraisers take part by over-inflating house values? If they were contributors, how could the CRA not be a contributor?


    BR: And you can tell the contribution the CRA had by the enormous boom and bust that took place in Harlem, South Side of Philly, Chicago, Oakland, DC, etc.

    What? Those areas lagged the overall national housing boom significantly?


  23. DL says:

    Hard to find an economic analyst without a political agenda.

  24. BTW, I welcome debate and intelligent commentary — I expect people to challenge me.

    But if you are going to repeat discredited memes that have already been shown to be worthless, I have to call you out on the nonsense.

    I dont have the patience to re-litigate the Scopes Monkey trial.

    (This is a general comment, not anything specific to anyone)

  25. Eric Sebille says:

    “No, it had nothing to do with it, according to every (non wingnut analysis) from the FDIC to the Fed to me to Jamie Dimon.”

    Well if the FDIC, Fed, and Jamie Dimon said it it must be true. We all know how spot on they have been over the past decade.


    BR: Fuck them — and me?

  26. VinnyJH says:

    Unless I am mistaken, if the government coerces a business to provide its services or products at a loss, the rational economic actor would provide the absolute minimum quantity necessary to satisfy the government mandate rather than making as many as possible. It is absurd to suppose that subprime lenders made the loans for any other reason than that they viewed them as highly profitable opportunities.

  27. Andy T says:

    I never really thought that things like the CRA had much to do at all with. If anything, a smaller contributing factor. The TRILLION dollar credit pushers Fannie and Freddie were much more culpable.

    However, what do you make of the following statements from the post in question?
    “FICTION: Because the CRA was passed in 1977, long before the subprime crisis, it couldn’t have caused the recent explosion in bad loans.

    FACT: The toothless 1977 regulations fully expired in July 1997, when President Clinton rewrote them to toughen CRA enforcement as part of a crusade to close the “mortgage gap” between blacks and whites.

    For the first time, banks were required to show results. One of the five performance criteria in the “lending test” — the most heavily weighted component of the CRA exam — was adopting “flexible lending practices” to address the credit needs of poor borrowers in “predominantly minority neighborhoods.” Banks that didn’t bend their underwriting rules risked flunking the exam.

    Ex-Federal Reserve Board Gov. Lawrence Lindsey, a staunch CRA defender, acknowledges that the changes “did contribute to a downgrading of credit standards.”

    One of the arguments that the CRA enablers/supporters us is the idea that the CRA had been around since 1977 and there was no problems…blah blah blah…

    So, is that above comment true? Did Clinton “rewrite” the rules to make them tougher?

  28. johnsoncon says:

    I agree with Mish. I suppose BR doesn’t agree with the analysis over at Vdare.com either? Facts are the free-market never had a chance despite “deregulation”. It was never deregulated!!!! 1) Fed was manipulating interest rates, 2) Rove/Bush forced the “ownership society” nonsense on the marketplace to push minorities into home ownership, Fannie & Freddie was distorting the marketplace by buying all these loans to minorities. The worst foreclosure areas are in fact: Harlem, South Side of Philly, Chicago, Oakland, DC. There are massive areas of foreclosure devastation, most foreclosure auctions involve crappy properties in bad neighborhoods. The market was never deregulated, it was over-regulated by Rove/Bush, Barney Frank & GSEs, by CRA requirements, community organizers putting the race-care guilt-trip on banks, the Fed distorted markets, TBTF companies like WaMu knew they could takes risks they otherwise couldn’t have. The list is endless. Mish is right.

  29. socaljoe says:

    The degree to which CRA contributed to the housing bubble is difficult to measure. No doubt it had some effect… but surely it pales in comparison to the effect of artificially low interest rates and the $6 trillion dollars of mortgage lending by Fannie, Freddie, and FHA.

  30. Fred C Dobbs says:

    Sometimes Barry, you are wrong. If you look at the Big Picture, if you examine the change in residential real estate lending since the Civil Rights Legislation was passed under Johnson in the ‘60s, you will find it is all about expanding loans to persons who were not then credit worthy. Sophisticated residential real estate lenders who use deposits that were insured by the US Government and backed by the credit of US taxpayers have always been happy, since the advent of Fanny and Freddy, to make loans to applicants regardless of the color of their skin. If a lender makes $1 million in loans and sells them every month, the lender makes 12 times the loan fees the lender would make if he made them and held them for a year. And, during the one month the lender holds them, the risk of default is virtually non-existent. So the lender with the biggest and most efficient loan applicant network will drive up its profits over others, and Wall Street will reward the shareholders with a higher P/E ratio, and the executives will receive more and greater compensation. So, if you return to the ‘60s, you will find that the US Government authorized residential real estate lenders whose deposits were insured, to make loans not to exceed a specified % of the home’s sales price (which was accepted as the best evidence of the security’s market value). In the case of banks, they were limited to 70% percent, and S&Ls could go higher. It was a crime to go above the ceiling. This meant that if the applicant’s ratios made the loan ‘legal,’ the lender would make the loan and sell it to the US Government to accept the risk of default. The lender was making a “temporary” loan essentially to the home, not the individual, and didn’t give a damn about the individual’s skin color. There was a problem, however, the market was well-served. To enlarge the market, to expand company profits, and enrich executives and speculators in the company’s stock, there had to be a way to use this newly-created conduit or pipeline of making no risk, no brainer loans and selling them to the ‘sucker,’ the US Government. The solution was to make credit-worthy applicants who were formerly not credit-worthy, and this could be done with the stroke of pen in Washington DC. A regulator only had to make legal what was illegal. As all political parties have always claimed home ownership is a good idea, they saw an opportunity to expand their voter base by stimulating home ownership through lowering lending requirements, and, by common agreement, the race to the bottom on US lending restrictions began. Residential real estate loans are not made to the individual, but are made, instead, to the property, for before the lender can go after the person, the lender has to takeover the property, fix it up and sell it. If the lender later goes after the individual borrower, he may extinguish the liability in bankruptcy, leaving the lender empty handed. Whoever advised Congress it would be a good idea to rid residential real estate lending of the ancient requirement of requiring substantial down payments should be ferreted out and exposed. They are the ones most responsible. They may be found on Wall Street and in the offices of law firms in NYC and DC.

  31. Thor says:

    People still read Mish? Talk about fringe right, is he still trying to call himself a “libertarian”?

    Curb – BR is on my list of must read daily, along with ZH and Denninger.

    Well that would explain why you’re usually such a shill for the right wing POV now wouldn’t it? Let me guess, in your world BR qualifies as a far left leaning Liberal.

    Then we have

    Which is, unfortunately, what I see way to often on here from the commentors

    Then why do you bother engaging people in the comments section so often? Why not just read what BR has to say and be done with it. I’ll admit it though, you are amusing.

  32. Any article, book, blog post, or editorial that discusses the crisis should begin and end by stating how it was the Maestro who caused the vast majority of the damage. Between low rates for too long and pushing to undo Glass-Steagall, easy Al has more blood on his hands than anyone. A nice shot at the rating agencies should come next.

    As far as CRA, I don’t think it is a good idea to “motivate” banks to make unsound loans at any time. I imagine the flaws in the program emerged mostly due to the crisis, not as a cause of it.

  33. rootless says:


    The degree to which CRA contributed to the housing bubble is difficult to measure. No doubt it had some effect… but surely it pales in comparison to the effect of artificially low interest rates and the $6 trillion dollars of mortgage lending by Fannie, Freddie, and FHA.

    Strange that lending by Fannie, Feddie, and FHA comes to your mind as main culprit, but not the lending by a widely deregulated private mortgage industry, which originated the vast majority of the real estate loans that have gone bad.

  34. rootless says:


    About the alleged culpability of Greenspan regarding interest rates:

    Between low rates for too long

    Only if one believes that the Fed is a deciding factor that determines market interests rates. I don’t believe that. I don’t see the hard evidence for this, or the causal chain through which the Fed would have caused too low rates in a market that has a volume of many trillion dollars.

  35. curbyourrisk says:

    Thor…I don’t shill for no one. I defen Barry on other boards as well as defending Denninger and ZH here. My areguements are mine…..I do not agree with anyone 100%, and that is the way thing are supposed to be. There is no way anyone should agree 100% with anyone else……that is what being an individual is all about. I am by no means a right wing anything. When it comes to economics … politics should be left outside the room and down the hall. We need people in power will to do the right thing no matter the concequences. And remember….consequences can be painful…I don;t give a shit about the current effects of a RIGHT decision…..as long as it fixes the problem longer term.

    As for just reading what someone has to say…that is boring….and you bore me. As for finding me amusing……good for you. Many times I have had the same reactions to things you have written here.

    BR is not left leaning in my view nor liberal….He is one of the more centrists commentators in the blogosphere, economically speaking. Socially speaking…..yeah….he might be a little more left than me. being centrist…is why I come back. IF YOU HAVE A PROBLEM with what I have to say, don’t read it.

    Have a good weekend…….grab yourself a beer …. and watch the Yankees kick some ass.

  36. Eric Sebille says:

    “No, it had nothing to do with it, according to every (non wingnut analysis) from the FDIC to the Fed to me to Jamie Dimon.”

    Well if the FDIC, Fed, and Jamie Dimon said it it must be true. We all know how spot on they have been over the past decade.


    BR: Fuck them — and me?

    I was suprised you include yourself with those three musketeers…any thought on the sell off in AAPL late in the day for broader market implications.

  37. whskyjack says:

    CRA required banks not to redline certain neighborhoods, such as mine. That was the case in 1990 when I bought the first house in the neighborhood. If you wanted to sell a piece of property in this neighborhood, you either had to take what a cash buyer would pay(at the time around $5000) or finance the sale yourself.
    CRA did not require the lowering of credit standards, it required them to apply equal standards to these neighborhoods.
    If the CRA contributed to the housing bubble it was only in my neighborhood and ones like it. The housing bubble went into neighborhoods way beyond the ones covered by CRA.
    The CRA did not require Countrywide to lend $95,000 on the $60,00 house next door to a 24 yr-old with a wife 2 kids and a $15 hr job. Countrywide did that all on its own.
    What Fannie Mae did do was pull the price of housing up by giving qualified buyers a 20% grant that would reduce their mortgage if they stayed in the house 10 yrs.
    So as a result house next door sold for $80,000 not $60,000. to a lady who went through a buyer education program. This helped raise appraisals in the neighborhood but did nothing for the lady in question but she came out on the lucky end because of countrywide’s foolishness.

  38. carpediem0496 says:

    Fred C Dobbs, thank you for putting this into its rightful context.

    The CRA was part of this process. There were, of course, other a number of other major factors including securitization. Once there was a method to keep the fees and find a bagholder for the long-term credit risk, it was off to the races.

  39. StillAboveWater says:


    April Fools. ;)

  40. phantomfivefive says:

    “BR: I read it — but no, the CRA did not even remotely contribute to the crisis”

    Come on… sure it did–even if only insofar as it is one example of a type of policy or institutional practice that contributed to the crisis, which is what I took to be Mish’s point.


    BR: You are engaging in squishy, data-free thinking.

    I demand empirical evidence — not suppositions, suggested implications, non-causative correlations.

    I appreciate that not everyone is intellectually equipped for this sort of sophisticated analysis — hence, the poorly reasoned, unsupported, empirically ignorant arguments that I deem as FAIL.

  41. Drunk Hulk says:

    duh, CRA is credit related. duh Crash was Credit related . . duh, CRA caused crash

  42. Artie says:

    Dude — did you just call phantomfivefive stupid?

  43. Bill Wilson says:

    I think Mish jumped the shark about a year ago, but I still check his blog just about every day. You don’t have to read every post. On the other end of the spectrum, Paul Krugman has a lot of intelligent commentary. He also posts a lot of silly left versus right nonsense.

    I don’t think the CRA caused or contributed much to the housing bubble, but I think it’s a stupid idea. If you want to help poor people buy houses, build more low income housing. You can also have programs that teach people how to budget their money, and programs that help people save money over time.

    The ability to borrow money is not a right, it’s a privilege that is earned. If people can’t reach the bar, don’t lower it. Help them to reach it. You’re not doing them, or the rest of us, any favors by getting them in over their heads.

  44. No, I was not referring to either him or Mish or IBD

    But Jesus-fuck, these guys refuse to do the most basic quantitative work.

    Its simple: FOLLOW THE MONEY — Thats the data that will lead you to understanding —

    How much in dollars mortgages and home sales is the CRA? What proportion was it relative to the overall mortgage market? The overall subprime market? What was the comparative default rate ? How much impact did it have?

  45. Chad says:

    It’s embarrassing to be a conservative now.

  46. RW says:

    It’s pretty clear that most folks have no idea what the CRA actually is or does except they’re pretty sure if something is intended to benefit “those people” it must be no good. Makes it easy for anyone who wants to whitewash the real reasons for the financial meltdown to raise CRA and other extraneous issues as a distraction. Stupid.

    But aside from the fact that CRA subsidized nothing (there is no such thing as a “CRA-backed” loan) and enforced nothing other than legal and appropriate loan practices (no red lining, full docs, no NINJA’s, etc) there is one fact that should be dispositive on an investing blog where, at least in theory, money talks and bullshit walks:

    CRA loans sell at a premium in the secondary mortgage market and overlooked CRA loans in a mortgage package will frequently be stripped out by professional traders to sell separately at a greater profit.

    Try saying that about most of the loans originated from non-CRA regulated facilities.

    ‘Nuff said. Mish should know better: he’s either being punk’d by someone or drinking too much kool aid but regardless he’s less useful to investors in his current state.

  47. gloppie says:

    Although I haven’t removed the RSS feed from Mish’s place (yet), I rarely read any of his work any more. I got tired of his constant union bashing about a year ago. But some of his stuff somehow resonates with me once in a blue moon.

  48. MacroEconomist says:

    Mish is an ass plain and simple. I’ve never seen someone with so much hubris who as accomplished so little.

    BR – you do realize you’ve opened Pandora’s box. He’s going to seek blogo-revenge.

  49. Jack says:

    In a general response to some of the commenters: in what era was there a “free market” as you perceive it?

    Citations, please.

  50. moruobai says:

    Thanks for posting this BR. Don’t comment here much but I read your blog everyday. I think it’s the best economics and finance blog on the web.

    As for Mish, I stopped reading Mish completely the day he posted a picture of a laid-off firefighter begging for money to feed his kids and wrote nasty things about him. It had nothing to do with any global economic trend analysis – just foolish reveling in another person’s real suffering. Very disturbing!

  51. Bill Wilson says:

    This is off topic. Am I the only one who thinks Washington’s Blog and Zero Hedge are becoming strangely similar.

  52. Francois says:

    An IBD editorial??

    Is he smoking 20% THC/gram of ganja shit??


  53. Francois says:

    Mish is about to become a caricature like Jonathan Hoenig. as long as they stick STRICKLY to trading and finance, it is possible to take them seriously.

    However, when they venture in anything social or political, they give insanity a bad name.

  54. China Bear says:

    It seems to me Mish is giving a fair comment here. There is no 100% clear cut “Truth” here. Commenting also does not “obscure facts”. I hope people here discuss in a more objective way, not affected too much by the sentiment. Of that Mish has done quite well. BTW BP is really a good blog, too.

  55. algernon says:

    I will continue to follow your blog, Mr. Ritholtz, because I think sometimes you have insights. But your arrogant manner of dissing people such as Mish, diminishes my opinion of you as a human being.

    You trash him without dealing with the arguments he or IBD presented. If IBD has a right of center perspective, then you need not deal with their argument. You need not point out their error; merely call them wingnuts. How persuasive of you.

    You & Mish know the central-bank-induced credit bubble is the essence of the crisis. The roll of CRA in lowering credit standards is not central, but it is undeniable that it lowered credit standards. It was an exacerbating factor even if not perfectly demonstrable via money flows.

  56. RW says:

    “The roll (sic) of CRA in lowering credit standards is not central, but it is undeniable that it lowered credit standards. ”

    And this, ‘algernon,’ is why your response is debased and irrelevant: what is really ‘undeniable’ (as my post above notes) is that CRA raised credit standards and CRA regulated loans sold on the secondary mortgage market at a premium as a result.

    CRA was only an ‘exacerbating factor’ to those desperate to find a scapegoat sufficient to exonerate their bankrupt philosophy.

  57. wunsacon says:

    “This is why we can’t have nice things.”

    Some Propertarians essentially believe/proclaim “government should not try to do good things, because it always does more harm than good”. So, whenever something goes wrong, they come out and say “this is why we can’t have nice things”. But, just like a “batty” parent complaining that we should never have bought anything nice for the house because the kid might break it, Propertarians seem to suffer from a relative inability to distinguish between good ideas and bad ideas or between dearth and excess. They’re prone to think in terms of extremes.

    For instance, some Propertarians see a slippery slope between good policies like “end redlining, which arbitrarily restricted lending on the basis of race” and bad policies like “encourage or allow banks to lower lending standards” (which is bad no matter what the color of the borrower).

    What’s unfortunate is: while I would like to find common cause with Propertarians — generally a very smart, honest, and hard-working bunch of people — in combatting the bad policies, they instead oppose good policies as well. What happens is the equivalent of “splitting the ticket”, but over ideas/policies instead of electoral candidates. Who wins? The incompetents and crooks, it seems.

  58. wunsacon says:

    I still read Mish/ZH daily and consider them to be valuable sources of information. As for Mish perhaps “harping” on “unions”, I consider it acceptable. He’s one guy, does a wonderful job telling people stories we won’t find on the MSM, but understandably can’t address many subjects with nearly the same depth. Nevertheless, that being said, his “unions = slavery” post a few weeks back struck me as “over the top”.

    If government outsourced trash pickup to a company, can I go work directly for the state without the company collecting a big cut? Won’t the company’s cut of my billable rate be larger than when I’m working for a union? Why isn’t that “slavery” too? Why isn’t that even worse? And won’t the CEO and shareholders donate to political campaigns and causes I disagree with?

    Does Mish know that in some (all?) states workers can opt out of paying any part of their dues that goes to political campaigns/causes and some other fees? Can’t Mish argue instead for promoting that legislation in more states (if it doesn’t already apply everywhere)?

    And what makes Mish think there’s going to be less “coercion, blackmail, backroom deals” and other sins by outsourcing? Surely, he’s read stories about our military industrial complex. How will outsourcing of the police force to Blackwater improve America?

    I once read that, during the 1800s, election winners (often/sometimes/usually) would fire every public employee and replace them with their campaign workers/donors. So, while I’d like to make it easier to fire some public workers, we want to be careful when we roll back worker protections.

    Before we make significant changes to the public sector, I’d like to hear/read more detail on “what’s next” and why that model will work better.

  59. lunartop says:

    Overall I’d probably put Mish behind Deninger in terms of rigour of thought and “the truth”. But as I come from the “left” I don’t agree with everything they put out and sometimes think they’re way off base – although I do love Denninger on a rant :)

    I also read ZH, Krugman and some of the MMT guys. The point is as part of the earch for “the truth” it’s about walking the tightrope between having the intellectual confidence to filter and the intellectual humility to not filter.

  60. Lookout Ranch says:

    I too like Mish and still read him most days, but he is definitely more passionate apostle than dispassionate analyst.

    Personally, I think Mish is angry and frustrated that the economy hasn’t vindicated his beliefs by collapsing in the catastrophic deflationary death spiral for which he’s been rooting.

    No doubt it’s just a matter of time…

  61. bullionaire says:

    Kudos BR for saying what a lot of us that used to read Mish have been thinking.

    It’s too bad he’s lost his way – he used to have some interesting analysis that was useful in gaining a better understanding of the financial crises.

    Now it seems he’s become so preoccupied with the agenda you listed, he’s become a bit of a wing nut with a cult following.

  62. The CRA is a small representative example of all vehicles that imprudently facil1tate bad debt expansion defined as debt that will undergo default. This leads to asset overproduction, oversupply, over valuation and ultimate saturation of the market. Good for speculators otherwise eulogized as investors by financial industry and trading houses – bad in the long term for the average US citizen.

    The central banks are another representative example. Their necessary 50-70 billion a month purchases of US and Euro and British debt to keep the macroeconomic saturated system afloat dwarfs the private money flow into the commodity/equity market. Yes, follow the money.

    The ex nihilo debt will stay on the FR and central banks, electronic ledgers and never be repaid. Lower paying replacement jobs populating the jobs report will not produce revenue to repay this debt.

    With the new several trillion dollars on their 2008-2011 ledgers, the central banks have facilitated the greatest ever bubble in the equity/commodity markets. Markets are self correcting and the qualitative political and negative money flow dynamics now exist for retrenchment at the state and local level and PIGS level (sans money printing ability)and at the federal level for entitlement curtailment.

    Follow the money and debt expansion rate – that is exactly what supports the system’s asset valuation curves and the asset valuations’ quantitative time progression.

    Follow the money and follow the footprints of the quantum time evolution of asset valuations supported by that money. 14 April 2011, the final Wilshire high to lower high by the science of saturation macroeconomics.

  63. DeDude says:

    Fred C Dobbs; that was a beautiful summary of part of what happened and how the banks got motivated to do the wrong things. I noted that not a single time did you mention the CRA or anything that could be attributed to the CRA rules. So I don’t understand how you can use that as an argument that Barry is wrong. You just laid out how it was the banksters desire for more profit that drove them to team up with politicians to change the old responsible standards. Mish claims that the politicians used CRA to twist the arms of reluctant banksters to make loans they would otherwise not have made.

  64. patient renter says:

    One line from Mish’s post stands out to me:

    “Forcing banks to lend money is a piss poor idea”

    Whether we’re talking about the CRA or Fannie/Freddie or whatever, there’s merit to this statement.


    BR: Thats the big lie: The CRA does not force banks to lend money.

  65. M_Thomas says:

    Insofar as “Mish” and his expertise in analysis colliding with certain political approaches, in his defense, I must admit that it is near impossible to NOT take a political stand in today’s very agitated and polarized America. But one risks not only losing followers of an opposite political ilk, but muddying waters that need to be remain clear. Some nine months ago when David Cameron announced that 600,000 Government jobs would be eliminated in Britain, Mish wrote, “cheers!” for the British. I asked myself, “Does this man realize how 600,000 Government workers might view his remark?” If I were he, I would not have included my email, address and phone number on the bio of that essay – one that was carried at British market sites. Mish is valuable for what Mish does best. He has frankly admitted that he is not an expert in politics. With due respect, Mish, you show naivety about people also. But I find these failings throughout the neocon-neoliberal psyche at this time. May we all find a way to survive, eat, be sheltered and love one another despite our differences. We are all one.

  66. The reason I did not bother to debunk the silliness is that it is a waste of time with the reality challenged.

    If you really want to see substantive arguments, try these:

    Misunderstanding Credit and Housing Crises: Blaming the CRA, GSEs
    October 2nd, 2008, 7:00AM

    “It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did.”

    -Robert Gordon, American Prospect



    I have been meaning to get back to this issue, but events in the market have kept me a tad busy.

    Making the rounds amongst a certain subset of wingnuts on CNBC, at IBD and other selfconfoozled folks has been the meme that the entire housing and credit crisis traces to the the Community Reinvestment Act (CRA) of 1977. An alternative zombie myth is the credit crisis is due to Fannie Mae and Freddie Mac. A 1999 article from the New York Times about the GSE’s role in subprime mortgages has been circulating as if its the rosetta stone of the credit crisis.

    These memes have become a rallying cry — cognitive dissonance writ large — of those folks who have been pushing for greater and greater
    deregulation, and are now attempting to disown the results of their

    I feel
    compelled to set the record straight about this pseudo-intellectual
    detritus. As we have painstakingly discussed over the past few years, there were many direct and indirect causes of the current financial mess.

    Let’s clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:

    • Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

    • 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

    • What about “No Money Down” Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

    • Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

    • Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

    • Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

    • How exactly did legislation force Moody’s, S&Ps and Fitch to rate junk paper as Triple AAA?

    • What about piggy back loans? Were banks
    required by Congress to lend the first mortgage and do a HELOC for the
    down payment — at the same time?

    • Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn’t have been: Titled How to Get an “Iffy” loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

    • The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

    • Did the GSEs require banks to not check credit scores? Assets? Income?

    • What was it about the CRA or GSEs that mandated fund
    managers load up on an investment product that was hard to value,
    thinly traded, and poorly understood

    • What was it in the Act that forced banks to
    make “interest only” loans? Were “Neg Am loans” also part of the
    legislative requirements also?

    • Consider this February 2003 speech by
    Countrywide CEO Angelo Mozlilo at the American Bankers National Real
    Estate Conference. He advocated zero down payment mortgages — was that a CRA requirement too, or just a grab for more market share, and bad banking?

    The answer to all of the above questions is no, none, and nothing at all.

    The CRA is not remotely one of the proximate causes of the current credit crunch, Housing collapse,and mortgage debacle. As I detailed in Barron’s, there is plenty of things to be angry at D.C. about — but this ain’t one of them.

    If you were to ask me to reveal the prime causative factor for the Housing
    boom, I would point you to Fed Chairman Greenspan taking rates to 1%, and
    then leaving them there for a year. The prime factor in the bust was
    nonfeasance on the Fed’s part in supervising bank lending, allowing banks to give
    money to people who couldn’t possibly pay it back.

    The root legislative cause of the credit crisis was excessive deregulation. From exempting derivatives from regulation (2000 Commodities Futures Modernization Act) to failing to adequately oversee ratings agencies that slapped a triple AAA on junk paper, the pendulum swung too far away from reasonable oversight. By taking the refs
    off of the field and erroneously expecting market participants could
    self-regulate, the powers that be in DC gave the players on Wall
    Street enough rope to hang themselves with — which they promptly did.

    There are too many people who are trying to duck responsibility for the current mess, and seeking to place blame elsewhere. I find this to be terribly important, as we seek to repair the damage amidst an economic crisis. Rather than objectively evaluate the present crisis in an attempt to craft an appropriate response, the partisan hacks are trying to obscure the causes of the current situation. Like burglars trying to destroy the surveillance tape, they are all too aware of their role in the present debacle.

    Shame on them for their foolishness or cowardice.

    Whenever I see a CRA proponent blathering, I have a “Star Trek
    moment.” That’s when Captain Kirk proves to some random alien computer
    that its basic programming is logically inconsistent. It’s the AI
    (artificial intelligence) version of cognitive dissonance. The computer, recognizing the fraud its entire existence was based upon, seeing the futility of its belief system, at least has the dignity to blow itself up. No such luck with the wingnuts, who merely move on to their next piece of spin . . .

    “You can fool some of the people some of the time and some of the people all of the time. That’s usually enough.”



    Note in the Sources section, we have a few subtopics: “Sources” is what I use to show where data, quotes and charts are from. “Previously” discusses commentary on this subject we have written in the past. “Related” is a good jumping off point for further reading; lastly, Consistently Wrong
    is where we point out the willfully misleading tripe written by people
    who should know better, but publish nonsense anyway. In the case where it appears some are trying to mislead the public, the least we can do is call them out.



    A Memo Found in the Street
    Uncle Sam the enabler
    MONDAY, SEPTEMBER 29, 2008

    Download A Memo Found.pdf


    The Ongoing Impact of the Housing Sector
    Barry Ritholtz
    Investor Insight, Aug 27 2007, 11:50 AM

    Real Estate and the Post-Crash Economy
    Barry Ritholtz
    Thoughts from the Frontline,December 29, 2006


    Community Reinvestment Act had nothing to do with subprime crisis
    Aaron Pressman
    BusinessWeek, September 29

    It’s Still Not CRA
    Ellen Seidman
    New America Foundation, September 22, 2008 – 9:36pm


    “The Community Reinvestment Act: Thirty Years of Accomplishments, But Challenges Remain”
    Prepared Testimony of Michael S. Barr
    Professor of Law, University of Michigan Law School
    Before the Committee on Financial Services
    U.S. House of Representatives, February 13, 2008

    The GOP Blames the Victim
    Capitalism sure is fragile if subprime borrowers can ruin it.
    WSJ, OCTOBER 1, 2008

    Did Liberals Cause the Sub-Prime Crisis?
    Robert Gordon
    The American Prospect, April 7, 2008


    After the Deal, the Focus Will Shift to Regulation
    NYT September 28, 2008


    Consistently Wrong:
    Don’t Blame the Markets
    NY Sun, April 18, 2008

    How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable
    INVESTOR’S BUSINESS DAILY, September 24, 2008 4:30 PM

    Wingnuttery on CNBC
    TBP, Wednesday, September 17, 2008
    Michelle Caruso Caberra

    There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem.
    NYT, January 13, 2008



    Global Housing Boom

    By Barry Ritholtz – July 20th, 2010, 9:00AM

    I have been adding some additional charts to my powerpoint for this afternoon.I am choosing amongst the areas I want to discuss, when an email came in regarding my presentation.

    One of the conference participants made the following challenge to me:

    “Can you support your position, in a fast, easy way, why the US housing boom was NOT caused by Fannie and Freddie, or the CRA? I understand all the factors you laid out in the book — but I would like to see more evidence to support your view.”

    Well, its difficult to prove a negative — supporters of the “FNM/FRE/CRA caused it” should have to prove their case, as I did in Bailout Nation.

    However, I have always found this chart to be quite compelling:


    Chart via BIS by way of NewObservations.net


    Pray tell what caused the same boom and bust in these other nations?

    And how could Fannie/Freddie or the CRA be responsible — that only applies to the US — when you have the same, global, coordinated rise in prices? (And you can add Korea and New Zealand to the chart above).

    For those of you who still believe the political talking point that it was FNM/FRE/CRA’s fault, the question remains: What caused these other nations to boom the same time the USA did?

    And if you can’t answer that, then what hope do we have that you will offer up empirical evidence that Fannie/Freddie/CRA caused this in light of the above?

    (This is what I mean by squishy thinking . . .)


    UPDATE: July 21, 2010 10:35am

    In a discussion with some of the more vocal “FNM/CRA caused the crisis” advocates, I made the following point that seems to have resonated with a few of them:

    We must distinguish between US legislative policy — and that includes Fannie/Freddie and the CRA — with the monetary policy of the US Federal Reserve, and its impact around the world.

    American legislative policies had some impact domestically, but the total result of the CRA was not global, not was the GSE impact Global. Hence, how could FNM/FRE/CRA cause a global housing boom & bust? Answer, it didn’t.

    The US Federal Reserve’s monetary policy, on the other hand, did have a global impact. The US has the world’s reserve currency, the biggest economy and the most important central bank. When the Fed took rates down to 1%, it had an ginormous impact on everything priced in debt, dollars or leverage. That includes housing, around the world.


    Most Subprime Lenders Weren’t Covered by CRA

    By Barry Ritholtz – June 27th, 2009, 9:00AM

    The CRA brouhaha last year led the Orange County Register to run an analysis of “more than 12 million subprime mortgages worth nearly $2 trillion” in late 2008.

    What did their data based analysis discover?

    “Most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market – after smaller, unregulated players showed there was money to be made.”

    Among their research conclusions:

    Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.
    State-regulated mortgage companies such as Irvine-based New Century Financial made just over half of all subprime loans. These companies, which CRA does not cover, controlled more than 60 percent of the market before 2006, when banks jumped in.
    Another 22 percent came from federally regulated lenders like Countrywide Home Loans and Long Beach Mortgage. These lenders weren’t subject to the CRA law, though some were owned by banks that could choose to include them in their CRA reports.
    Among lenders that were subject to the law, many ignored subprime while others couldn’t get enough.
    Among those standing on the sidelines: Bank of America, which made no subprime loans in 2004 and 2005; in 2006 and 2007 subprime accounted for just 2 percent of its loan portfolio. Washington Mutual, meanwhile, raised its subprime bet by 20 times to $5.6 billion in 2006 – on top of its already huge exposure through its ownership of Long Beach Mortgage.
    These are facts, adduced from analyzing data.

    Data based analysis, for those of you who may be unfamiliar with the term, is how research and discovery get accomplished in the real world. It is an alternative way of arguing that the “Blame CRA” proponents are blessedly unaware of. However, outside the universe of rabid partisan sniping, its how actual analysis gets accomplished.


    click for larger graphic

    Chart courtesy of OC Register


    Most subprime lenders weren’t subject to federal lending law
    THE ORANGE COUNTY REGISTER, Sunday, November 16, 2008






    Private Sector Loans Triggered the Crisis

    By Barry Ritholtz – December 16th, 2010, 4:59PM

    Here is a blast from October 2008 past: This chart as to who were the underwriters of the subprime loans.

    Federal Reserve Board data show that:

    -More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
    -Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
    -Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

    Here is the table of underwriters:

    click for larger table:


    hat tip Econbrowser

    Private sector loans, not Fannie or Freddie, triggered crisis
    David Goldstein and Kevin G. Hall
    McClatchy Newspapers, October 12 2008



    CRA Thought Experiment

    By Barry Ritholtz – June 26th, 2009, 6:30AM
    Given how thoroughly the “CRA caused everything” meme has been debunked, you have to wonder why some poor souls are still pushing this discredited political talking point (other than as linkbait).

    I’ve already spilled too many pixels debunking Phil Gramm‘s attempt to shift blame from his radical deregulation to other parties (see partial list at bottom). Oh, and I dropped another 322 pages explaining the actual causes of the crisis.

    And yet, these attempts at misplaced fault continue.

    So this morning, I want to try a completely different approach — the opposite of our usual data driven, analytical framework. Rather than show more facts, data and specific details, instead, I want to do a little thought experiment.

    Imagine, if you will, that the discredited far right meme is actually correct: Assume that the CRA was a prime cause of the mortgage, credit and housing related crises.

    Yes, he typed, it was all the CRA’s fault. (Stay with me here).

    Assume arguendo that CRA legislation forced banks into making high risk, ill advised loans. And, let’s further assume a huge percentage of these government mandated mortgages have gone bad. The buyers who could not legitimately afford these homes or otherwise qualify for other mortgages have defaulted, and these houses are either in default, foreclosure or REOs.

    What would this alternative nation look like?

    Given the giant US housing boom and bust, this thought experiment would have several obvious and inevitable outcomes from CRA forced lending:

    1) Home sales in CRA communities would have led the national home market higher, with sales gains (as a percentage) increasing even more than the national median;

    2) Prices of CRA funded properties should have risen even more than the rest of the nation as sales ramped up.

    3) After the market peaked and reversed, Distressed Sales in CRA regions should lead the national market downwards. Foreclosures and REOS should be much higher in CRA neighborhoods than the national median.

    4) We should have reams of evidence detailing how CRA mandated loans have defaulted in vastly disproportionate numbers versus the national default rates;

    5) CRA Banks that were funding these mortgages should be failing in ever greater numbers, far more than the average bank;

    6) Portfolios of large national TARP banks should be strewn with toxic CRA defaults; securitizers that purchased these mortgages should have compiled list of defaulted CRA properties;

    7) Bank execs likely would have been complaining to the Bush White House from 2002-08 about these CRA mandates; The many finance executives who testified to Congress, would also have spelled out that CRA was a direct cause, with compelling evidence backing their claims.

    So much for THAT thought experiment: None of these outcomes have occurred.


    In reality, the precise opposite of what a CRA-induced collapse should have looked like is what occurred. The 345 mortgage brokers that imploded were non-banks, not covered by the CRA legislation. The vast majority of CRA covered banks are actually healthy.

    The biggest foreclosure areas aren’t Harlem or Chicago’s South side or DC slums or inner city Philly; Rather, it hs been non-CRA regions — the Sand States — such as southern California, Las Vegas, Arizona, and South Florida. The closest thing to an inner city foreclosure story is Detroit – and maybe the bankruptcy of GM and Chrysler actually had something to do with that.


    I spent a year of my life researching and writing in painstaking details what the actual causes of the crisis were. I put together all of the moving parts as to what the actual causes were — and wrote them up in Bailout Nation, to wit: Irresponsibly ultra-low rates that led to a huge housing boom; a failure by the Fed to supervise non-bank lenders; An abdication of lending standards by both banks and non-banks; Radical deregulation of financial markets; the now discredited belief that markets can self-regulate; a shadow derivative market allowed to operate unlike every other financial product; Compensation schemes that rewarded short term risk taking over long term profitibility; Increases in leverage to the major investment houses from 12-to-1 to 35-to-1; These were the causes of the collapse — not some 1977 legislation.

    Its not simply that the overwhelming amount of evidence points to many factors outside of the CRA, the actual results of CRA were minor. Relative to these other ginormous factors, the CRA impact is all but irrelevant. And to date, nobody has produced any data based evidence that the CRA was relevant to the crisis. Not one shred.

    Until that evidence is produced, the CRA remains a marker, one that separates proponents of intellectually honest debate versus the parrots of partisan talking points, not worthy of your time or effort.


    More CRA Idiocy

    By Barry Ritholtz – December 11th, 2008, 11:05AM

    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 . . .


    Housing Goals We Can’t Afford
    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




    Kroszner: CRA & the Mortgage Crisis

    By Barry Ritholtz – December 3rd, 2008, 11:53AM

    Sayeth the man:

    “Some critics of the CRA contend that by encouraging banking institutions to help meet the credit needs of lower-income borrowers and areas, the law pushed banking institutions to undertake high-risk mortgage lending. We have not yet seen empirical evidence to support these claims, nor has it been our experience in implementing the law over the past 30 years that the CRA has contributed to the erosion of safe and sound lending practices. In the remainder of my remarks, I will discuss some of our experiences with the CRA. I will also discuss the findings of a recent analysis of mortgage-related data by Federal Reserve staff that runs counter to the charge that the CRA was at the root of, or otherwise contributed in any substantive way, to the current subprime crisis . . .

    “This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.”

    Be sure to read the entire speech by the Fed Governor here. He discusses the result of an exhaustive data analysis performed by the various Fed Banks looking into the CRA issue and sub-prime

    Of course, now that the election is over, the usual parade of reality challenged nitwits won’t be interested in any hard data or professional analyses. The full 233 page report is available here.


    At the Confronting Concentrated Poverty Policy Forum
    Governor Randall S. Kroszner
    Board of Governors of the Federal Reserve System, December 3, 2008



    FDIC Chairman Sheila Bair on CRA: NOT Guilty

    By Barry Ritholtz – December 5th, 2008, 10:15AM

    “Let me ask you, where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.”
    -FDIC Chairman Sheila Bair


    This is old news to readers of the Big Picture, but I wanted to at least excerpt this:

    “I want to give you my verdict on CRA: NOT guilty,” said FDIC Chairman Sheila Bair, according to a press release by the Federal Deposit Insurance Corporation. Before the Consumer Federation of America, Bair said Thursday she wanted to clear up the “myth” that the Community Reinvestment Act caused the financial crisis — and she set out to do so with vigor.

    The Community Reinvestment Act — or CRA — is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. It has largely been criticized by conservative members of the GOP as promoting predatory lending practices.

    “Point in fact,” she said, “only one in four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending. The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.”

    And “Let me ask you,” she proceeded. “Where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.” The facts are simple, Bair said. The lending practices that are causing problems today were driven by a desire for more market share and revenue growth, not because the government encouraged certain lending practices.


    Read the full item at Housing Wire.


    FDIC’s Bair Sets to Shatter CRA “Myth”
    December 5, 2008


    FDIC: Community Reinvestment Act is not cause of financial crisis, FDIC’s Bair said
    Ronald D. Orol,
    MarketWatch, 12:05 p.m. EST Dec. 4, 2008



    More Proof: The Bubble Was in Credit, Not Housing

    By Barry Ritholtz – December 4th, 2010, 9:45AM
    Did the US suffer from a giant Housing bubble?

    Not exactly.

    In his column this morning, Floyd Norris points to a data point that confirms our long standing argument that the bubble was actually in Credit, not housing. Namely:

    “During the great housing bubble boom, it was the least expensive homes whose prices went up the most. And now it is those homes that are suffering the most.

    “That is where the most creative lending was,” said David Blitzer, the chairman of the index committee at Standard & Poor’s, arguing that the lax lending standards played a significant role in the inflation of prices.” (emphasis/editing added)

    Of course, “Lending” is just another word for credit.

    This is consistent with what you would expect from a credit bubble. The higher end homes — often purchased for cash, or with a very substantial down payment — appreciated the least in percentage terms.

    The abdication of lending standards during the 2002-07 period had three significant factors in terms of impacting the housing market:

    1. The impact of the credit bubble was to allow millions of marginal buyers to enter the housing market. These were borrowers low to middle income borrowers, who under normal circumstances, would not qualify for a mortgage.

    2. The homes they purchased were in the bottom quartile (and often bottom tenth) of prices.

    3. The credit bubble caused a massive dislocation — to prices, sales volume, even rental vacancies.

    Thus, it is not a surprise that the housing sector most dependent upon cheap abundant, indiscriminate lending suffered the most when credit standards reverted to normal.

    The data continues to support this thesis. The boom and bust, the price collapses, the underwater homes, and of course, the Foreclosures, are most heavily concentrated in the lower priced homes.

    And with the removal of temporary tax credits, lower cost home prices have fallen even further. This week’s Case-Shiller index showed widespread declines in the prices of lower-value homes. Indeed, prices of lower-cost homes have fallen further from the peak in 16 areas tracked by Case Shiller.

    And as RealtyTrac noted, the overall housing market is still “gloomy:

    • 25% more homes were foreclosed in Q3 vs Q2

    • Nonforeclosed homes saw a sequential quarterly sales decline of

    • $169,523 is the average sales price of foreclosed properties — 32% below the average for nondistressed properties

    • 54% of Nevada home sales were foreclosures in Q3 — worst in the nation
    (Source: RealtyTrak, Barron’s)

    As goes the low end of the market, so goes all of housing . . .


    click for ginormous graphic

    Chart courtesy of NYT


    Value Sinking Fastest on Homes Priced Low to Start
    NYT, December 3, 2010



    “If you were dead, they would still give you a loan”

    By Barry Ritholtz – December 28th, 2008, 7:03AM

    “It was the Wild West. If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

    -Steven M. Knobel, a founder of appraisal firm Mitchell, Maxwell & Jackson


    Interesting article in the Sunday NYTimes about WaMu, the company that could not say no. The Times missed a golden opportunity to proclaim a major bank a “slut” – any opportunity one gets to do so should be taken without hesitation.

    And just how slutty were WaMu’s loans? By the first half of this year, the value of its bad lending had reached $11.5 billion. Here’s why:

    WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

    WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

    Why the disregard for traditional lending standards, the risky mortgages, the lending to unqualified people? Was it the CRA or Fannie/Freddie? To the contrary, it was a relentless drive for sales volume and market share. Loan officers were givens 100s of new loans per day, ensuring review and oversight were minimal. Investigating into loan apps was actively discouraged.

    I know from personal experience that WaMu was amongst a group of predatory lenders and mortgage felons who actively misrepresented loans. I have disagreed with those who called the no doc loans predatory borrowing. It was the banks that actively misrepresented the loan products to borrowers; It was the banks that had the fiduciary obligation to their depositors and investors not to engage in reckless lending.

    My wife has a WaMu account, and we got a sales pitch on mortgages from them in 2004, and again when we sold one house and bought another in 2006. I am pretty savvy about mortgages, and I was aghast about their Option ARM and their Neg Am sales pitch. I spoke with several WaMu salespeople — in person in a NYC branch, and over the phone — and they tried to make the teaser rate sound like this was a non-resetting, permanent payment. If you pressed them about the reset, they would eventually fess up. If you asked them about Neg Am, they never explained the total amount owed went up every month you underpaid principle. But if you were naive about finance or didn’t understand how these loans worked, they steamrolled right over you.

    Here’s the ugliness:

    The ARM Loan Niche: WaMu’s retail mortgage office in Downey, Calif., specialized in selling option ARMs to Latino customers who spoke little [or no] English and depended on advice from real estate brokers, according to a former sales agent who requested anonymity because he was still in the mortgage business.

    According to that agent, WaMu turned real estate agents into a pipeline for loan applications by enabling them to collect “referral fees” for clients who became WaMu borrowers.

    Buyers were typically oblivious to agents’ fees, the agent said, and agents rarely explained the loan terms. “Their Realtor was their trusted friend,” the agent said. “The Realtors would sell them on a minimum payment, and that was an outright lie.”

    This is predatory lending. The FBI, which has already arrested over 1000 people, should be hunting for all of these dirtbags, clawback any and all commissions from them — then toss them in jail.

    And again, what some have termed “predatory borrowing” was in the real world, simply fraud perpetrated by bank employees and mortgage brokers: “[Managers] in the Irvine, Calif, office coached brokers to leave parts of applications blank to avoid prompting verification if the borrower’s job or income was sketchy.”

    I’ve mentioned this many times before: Many of the people who have 2/28 ARMs had no idea they had a mortgage that was going to reset. I’ve spoken to many people who had no idea, and remain convinced its a paper work error. From what I personally saw from the sales staff at WaMu, this was not an accident.

    Excerpt after the jump . . .

    At WaMu, getting the job done meant lending money to nearly anyone who asked for it — the force behind the bank’s meteoric rise and its precipitous collapse this year in the biggest bank failure in American history.

    On a financial landscape littered with wreckage, WaMu, a Seattle-based bank that opened branches at a clip worthy of a fast-food chain, stands out as a singularly brazen case of lax lending. By the first half of this year, the value of its bad loans had reached $11.5 billion, nearly tripling from $4.2 billion a year earlier.

    Between 2001 and 2007, Mr. Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.

    During Mr. Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

    WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.


    Tyler Cowen: “Predatory Borrowing The Bigger Problem” (January 2008)


    Getting Mortgage Fraud Down to an Art (December 2008)


    By Saying Yes, WaMu Built Empire on Shaky Loans
    NYT, December 27, 2008




    Bank of England Allowed ‘Crazy Borrowing’

    By Barry Ritholtz – December 24th, 2008, 12:02PM
    “We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy… and individual supervision and regulation of individual banks. We need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand.”

    -Sir John Gieve


    This appears to be a theme:

    The Bank of England was warned that “crazy borrowing” was taking place during the boom years — but did nothing about it. Partly due to politicas, partly due to their failure to understand the severity of the problem. They did not understand how much the banks had abdicated lending standards, and how that led to a financial crisis.

    Sir John Gieve said the Bank’s policy-makers were well aware that dramatic rises in the price of houses and other assets were unsustainable, but still underestimated the danger this posed to the long-term health of the economy.

    In a television interview Sir John, who sits on the interest rate-setting Monetary Policy Committee, said that rate changes were a “blunt instrument” and admitted that the Bank’s power to alter them was not enough to control the economy.

    Sir John, who is charged with ensuring financial stability and was heavily criticised last year by the Treasury Select Committee for apparently failing to control the Northern Rock crisis, admitted that taxpayers may not get all their money back from the bail-out of the bank and other institutions.

    He said: “There are some books – Northern Rock, Bradford & Bingley – which the taxpayer’s now holding, which clearly have a level of defaults in them, [I'm] not quite sure how that will balance out against the residual of the capital.

    “As for the more mainstream banks, yes I think they’ve got a commercial future and I’m sure that in time they will … revive and start building and growing as commercial entities again.”

    Funny, there is no Fannie Mae, Freddie Mac, or CRA in the UK. However can we explain mtheir boom, bust and credit collapse?


    Bank of England failed to act on ‘crazy borrowing’, deputy admits
    Jon Swaine
    Telegraph, 11:16AM GMT 22 Dec 2008




    Federal Reserve Director on the CRA

    By Barry Ritholtz – October 4th, 2008, 2:00PM
    From the Federal Reserve:

    “Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution’s individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution’s CRA activities should be undertaken in a safe and sound manner.” (emphasis added)

    What about mergers or acquisitions — did the CRA get in the way of that?

    “Since 1988, there have been more than 13,500 applications for the formation, acquisition, or merger of bank holding companies or state-member banks reviewed by the Federal Reserve Board. Over this time, twenty-five applications have been denied, with eight of those failing to obtain Board approval involving unsatisfactory consumer protection or community reinvestment issues.”

    Wow, just 8 out of 13,500. That’s less than one tenth of 1%.

    What about the methods of forcing compliance?

    “The CRA is one of several laws enacted to ensure that consumers and communities have access to financial services and products regardless of location or demographics. Congress sought to achieve that goal not by imposing rigid, prescriptive rules but by charging regulators to use flexible standards that could change, as needed, over time.”

    Gee, this doesn’t sound too onerous; What was all the brouhaha about?

    “The debate surrounding the passage of the CRA was contentious, with critics charging that the law would distort credit markets, create unnecessary regulatory burden, lead to unsound lending, and cause the governmental agencies charged with implementing the law to allocate credit. Partly in response to these concerns, the act adopted by Congress included little prescriptive detail.”

    What are the requirements of the CRA?

    The CRA simply requires the Federal Reserve and the other federal financial supervisory agencies:

    • to encourage federally insured depository institutions to help meet the credit needs of their entire communities, including low- and moderate-income areas, consistent with safe and sound operations;
    • to assess their records of performance under the CRA during examinations; and
    • to take those CRA records into account when evaluating proposals for expansion.

    Hey, that sounds pretty flexible. What sort of discretion exists in applying the CRA:

    The law gives the agencies considerable discretion and flexibility to fashion programs and procedures to carry out the purposes of the law, to issue implementing regulations that include measures of performance, and to modify those regulations in response to changing markets. This flexibility has contributed to CRA’s relevance and adaptability through times of rapid economic and financial change, and widely differing economic circumstances among neighborhoods.

    Wow, this stuff makes the wingnuts and gasbags look pretty foolish. What’s your source for all this?

    All quotes are come from the testimony of Sandra F. Braunstein, Director, Division of Consumer and Community Affairs of the Board of Governors of the Federal Reserve System, before the Committee on Financial Services, or from the Federal Reserve website.


    The Community Reinvestment Act
    Sandra F. Braunstein, Director, Division of Consumer and Community Affairs
    Before the Committee on Financial Services, U.S. House of Representatives
    February 13, 2008

    See also:
    The Community Reinvestment Act: Its Evolution and New Challenges
    Chairman Ben S. Bernanke
    Community Affairs Research Conference, Washington, D.C. March 30, 2007

    Community Reinvestment Act

    The Performance and Profitability of CRA-Related Lending
    Robert B. Avery, Raphael W. Bostic, and Glenn B. Canner
    Federal Reserve Bank of Cleveland, November, 2000
    Economic Commentary


    It was the CRA’s Fault After All!

    By Barry Ritholtz – May 11th, 2010, 9:15AM

    I finally figured out how all of those right wing think tanks went so far off the rails — blaming the Community Reinvestment Act for the housing boom and bust, credit crisis and economic/market collapse.

    This has all been a simple misunderstanding. You see, these Think Tanks screwed up their acronyms! They did not realize at the time that “CRA” stood for Credit Rating Agencies.

    So when they were told to “go forth and lay all of the blame on the CRA” — they simply picked the wrong 3 letter acronym agency. Its funny how these misunderstandings can take on a life of their own.

    Now, if only we can find a high frequency trader named Fred Fannie, we can solve two other mysteries in one fell swoop . . .


    $100,000 CRA Challenge (Jun 29, 2009)
    http:// http://www.ritholtz.com/blog/2009/06/100000-cra-challenge/

    Most Subprime Lenders Weren’t Covered by CRA (Jun 27, 2009)

    CRA Thought Experiment (June 26th, 2009)
    http:// http://www.ritholtz.com/blog/2009/06/cra-thought-experiment/

    More CRA Idiocy (Dec 11, 2008)
    http:// http://www.ritholtz.com/blog/2008/12/more-cra-idiocy/

    FDIC Chairman Sheila Bair on CRA: NOT Guilty (Dec 5, 2008)

    Kroszner: CRA & the Mortgage Crisis (Dec 3, 2008)

    Federal Reserve Director on the CRA (October 4th, 2008)


    See also :

    George Bush on expanding Minority Home Ownership

    Politics Most Blatant: Conservative Ideas Can’t Escape Blame for the Financial Crisis

    Kroszner CRA & the Mortgage Crisis (December 3rd, 2008)

    Federal Reserve Director on the CRA (October 4th, 2008)

    FDIC Chairman Sheila Bair on CRA: NOT Guilty (December 5th, 2008)

    Misunderstanding Credit and Housing Crises: Blaming the CRA, GSEs (October 2nd, 2008)

    George Bush: Goal Increase Minority Homeowners by 5.5 Million in a Decade (October 14th, 2008)

    How Lending Standard Changes Led to the Housing Boom/Bust (October 21st, 2008)

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


    Wallison and the three “des” – Deregulation, Desupervision and De Facto Decriminalization http://www.ritholtz.com/blog/2011/02/wallison-and-the-three-“des”-–-deregulation-desupervision-and-de-facto-decriminalization/

  67. patient renter says:

    “BR: Thats the big lie: The CRA does not force banks to lend money.”

    Indeed you are right. I assume that the connection he meant to draw was from forced lending to the CRA, but a better phrase would have been “incentivized lending”.

    Even incentivized, I noticed that the SF Fed found that CRA lenders were half as likely to produce loans that went into foreclosure as independent mortgage companies – and that a side-effect of the CRA is it promoted responsible lending in an otherwise irresponsible era: