Monetary Policy could never cause inflation

[Cardinal Fang]

Read more at Mish's Global Economic Trend Analysis: How the CRA Fueled the Housing Bubble

LOL! You expect a Mish-troll to be taken seriously, do you? That's about one step up from Tyler Durden!.

 

[JP Hochbaum]

You jump from blaming Clinton for requiring banks to report on their CRA activities, to CRA being responsible for the crash, without supplying any numbers or data for it. Then attack my source via an ad hominem fallacy.

"These loans were made to borrowers with blemished credit, or involved low or no down payments, negative amortization and limited documentation of income. The loans' unprecedentedly high rates of default are what is driving down housing prices and weakening the financial system."

under CRA standards this would never have been approved. These were the types of loans going through mortgage only banks. I know these things because I was actually insuring these loans at the time. Every single loan coming across my desk was a Countrywide loan, and the number of them showing up on my desk skyrocketed out of nowhere.

 

[dnsmith]

Edward Pinto: Acorn and the Housing Bubble - WSJ.com

By EDWARD PINTO

All agree that the bursting of the housing bubble caused the financial collapse of 2008. Most agree that the housing bubble started in 1997. Less well understood is that this bubble was the result of government policies that lowered mortgage-lending standards to increase home ownership. One of the key players was the controversial liberal advocacy group, Acorn (Association of Community Organizations for Reform Now).

Congress's goal was to force these two government-sponsored enterprises (GSEs) to purchase loans that had been originated by banks—loans that were made under the pressure of another federal law, the 1977 Community Reinvestment Act (CRA), to increase lending in low- and moderate-income communities.

From 1977 to 1991, $9 billion in local CRA lending commitments had been announced. CRA lending by large banks increased dramatically after the affordable housing mandate was in place in 1993, growing to $6 trillion today. As Ellen Seidman, director of the federal Office of Thrift Supervision, said in a speech before the Greenlining Institute on Oct. 2, 2001, "Our record home ownership rate [increasing from 64.2% in 1994 to 68% in 2001], I'm convinced, would not have been reached without CRA and its close relative, the Fannie/Freddie requirements."

The flood of CRA and affordable-housing loans with loosened underwriting standards, combined with declining mortgage interest rates—to 5% in 2003 from 10% in early 1991—resulted in a massive increase in borrowing capacity and fueled a house price bubble of unprecedented magnitude over the period 1997-2006. (even if the CRA loans did not default they added to the over heated housing market. But there was a large % which did default)

Inequality and crash: How exactly did inequality fuel the crisis? | The Economist

First of all, the housing bubble bursting caused the economic crisis. The reason for this occurrence is not, as many OWS protesters seem to think, “big, evil banks and corporations.” The cause was actually an extraordinary amount of subprime mortgages and rampant speculation in the housing market. But why did this occur, and why were such a vast number of people who could not afford the homes they owned (the reason for the number of subprime mortgages) actually owners of those homes? The first of the two biggest factors contributing to the housing bubble is the Community Reinvestment Act of 1977, signed by President Jimmy Carter. This legislation’s goal was to eliminate discrimination in giving loans to residents and businesses in low-income areas. An effect of this, of course, was that it encouraged banks to give loans to individuals who could not afford to repay them.

 

[dnsmith]

For what it is worth, I do not give any one of the links total understanding of what happened, But I do believe the WSJ, The Economist, Forbes and the Mises site are all beyond reproach as to economics and what lends itself to cause problems with the economy. If any of you are short sighted enough to not accept reputable sites like those there is no point in discussing an issue with you. As a former Realtor with my feet on the ground I believe I have touched on many bonafide reasons for the housing balloon and subsequent crash.

Government fiscal and monetary policy forcing artificially low interest rates.
Goverment legislation which was designed to make home ownership available to many people who were never in a position to pay back the loans.(CRA)
ARM abuse by otherwise qualified borrowers who used the lower ARM initial interest to buy more house than they could afford when interest went up
Speculators who put an inordinate amount of pressure on a limited supply of housing.
The ultimate issue was the inflation of housing prices going up substantially above the true value of the property.
Another CRA issue was the 6% default rate of multifamily dwellings in red lined areas added to all the other causes.

There is no single cause and to discount any one of the above list is to expose your ignorance of the big picture.

 

[dnsmith]

You jump from blaming Clinton for requiring banks to report on their CRA activities, to CRA being responsible for the crash, without supplying any numbers or data for it. Then attack my source via an ad hominem fallacy.

"These loans were made to borrowers with blemished credit, or involved low or no down payments, negative amortization and limited documentation of income. The loans' unprecedentedly high rates of default are what is driving down housing prices and weakening the financial system."

under CRA standards this would never have been approved. These were the types of loans going through mortgage only banks. I know these things because I was actually insuring these loans at the time. Every single loan coming across my desk was a Countrywide loan, and the number of them showing up on my desk skyrocketed out of nowhere.

But they were approved. And obviously your fantasy about Countrywide being the problem again shows little understanding of the big picture. BTW, the balloon drove UP housing prices so very high above value they could not be sold to relieve the distressed home owner from default.

Another BTW, I didn't jump from anything to anything. I have always said there are multiple causes of the housing balloon and subsequent crash.

 

[JP Hochbaum]

"Using loan origination data obtained pursuant to the Home Mortgage Disclosure Act (HMDA), we find that in 2005 and 2006, independent nonbank institutions—institutions not covered by the CRA—accounted for about half of all subprime originations. (See Table 1.) Also, about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods, populations not targeted by the CRA. (See Table 2.) In addition, independent nonbank institutions originated nearly half of the higher-priced loans extended to lower-income borrowers or borrowers in lower-income areas (share derived from Table 2).

In total, of all the higher-priced loans, only 6 percent were extended by CRA-regulated lenders (and their affiliates) to either lower-income borrowers or neighborhoods in the lenders' CRA assessment areas, which are the local geographies that are the primary focus for CRA evaluation purposes. The small share of subprime lending in 2005 and 2006 that can be linked to the CRA suggests it is very unlikely the CRA could have played a substantial role in the subprime crisis. "

Did the CRA cause the mortgage market meltdown? - Community Dividend - Publications & Papers | The Federal Reserve Bank of Minneapolis

"Another way to measure the relationship between the CRA and the subprime crisis is to examine foreclosure activity across neighborhoods that are classified by income. Data made available by RealtyTrac on foreclosure filings from January 2006 through August 2008 indicate that most foreclosure filings (e.g., about 70 percent in 2006) have taken place in middle- or higher-income neighborhoods. More important, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.9/ (See Table 7.)

Two basic points emerge from our analysis of the available data. First, only a small portion of subprime mortgage originations is related to the CRA. Second, CRA-related loans appear to perform comparably to other types of subprime loans. Taken together, the available evidence seems to run counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis."

 

[JP Hochbaum]

Another BTW, I didn't jump from anything to anything. I have always said there are multiple causes of the housing balloon and subsequent crash.

But you are singling out CRA, who is responsible for about 6% of sub prime loans, and not focusing on independent mortgagees, who are responsible for over 70%.

Why on earth would any rational human being do that?

 

[Cardinal Fang]

Actually low interest rates to the borrower reduces the cost to the buyer. The pressure on prices was caused by too much demand for existing supply.

Take a finance course. Interest rates and asset values are inextricably and inversely related.

The effect which figured into my analysis is the amount that low interest rates drove up demand on a quantity of units such that there was more competition to buy them. But as I said, there were several problems.

So you didn't consider the demand-dampening effects of higher prices at all then.

Abused ARMs in which home buyers bought more than they could afford to pay back if interest went up.

Yes, that's called abuse of credit markets. Talk to Angelo Mozilo about that.

Same thing for speculators who got caught with higher interest rates before flipping the house.

The intentions of the Fed to raise rates were well known in advance. An actual speculator would hardly have been caught by surprise. And mortgage rates did not simply do a reverse of the 2000-2003 plunge. Between 2003 and 2006 they rose by barely 150 basis points and then eased through mid-2007.

All of those things and the CRA which increased demand on home by the less wealthy buyers all put pressure on the market and prices increased above value and homes could not be resold quickly thus catching lots of people between the rock and the hard place.

You think these LMI borrowers were out there bidding on McMansions? They wanted financing to acquire and improve homes in their own communities. This was an already existing market in terms of both borrowers and housing stock. The only difference was that traditonal lenders were replacing the finance companies as the source of credit linking the two.

Most of the problem originated with the government fiscal policies, the Fed's monetary policy but of course there were other issues. I don't presume to be able to list them all here.

Yes, failed tax cuts for the rich and foolish commtmnets to freeze very low interest rates are as good a starting point as any, although the fact that the late-90's Russian and Asian financial crises had the peculiar effect of decimating the finance companies just as Bush would drop enforcement of CRA and just as these hungry private brokers were coming on the scene hungry for new business might deserve some mention as well.

 

[Cardinal Fang]

Do you think there is any reference better than Forbes?
A Government-Mandated Housing Bubble
Peter J. Wallison and Edward J. Pinto, 02.16.09, 12:01 AM EST
Subprime enablers: Fannie, Freddie, HUD and Barney Frank.

LOL! Wallison and Pinto are a couple of Heritage Foundation hacks, Pinto being the worse between the two. They are paid to produce ad copy for the hard-core right-wing. They are among the worst sources one could possibly have. Only the Mises Institute could be counted on to do worse.

There is meanwhile exactly nothing at all wrong with subprime lending. Subprime borrowers present challenges that lenders must account for. Fortunately, subprime instruments can be written under risk-based pricing so that the loans match up in terms of projected extra income amd projected extra risk. You can't do that with prime borrowers. They must all be rated as a class. Subprime lending contributed nothing to the eventual crisis. Abuse of subprime credit makets by unscrupulous profiteers certainly did have a lot to do with the eventual crisis.

The GSE's also had very little to do with the crisis. They were the good guys, actually refusing to buy and resell junk that didn't meet their front-end criteria. As the result, the loans they bought and resold were not the ones that failed. It was the garbage that bypassed the GSE's and entered the secondary markets via Wall Street's free-wheeling private-label shops that did the damage.

Barney Frank had nothing to do with the eventual crisis either, and for that matter, neither did Chris Dodd. The crisis grew up between 2002 and 2006 and Republicans were in charge of everything the entire time. It was their ineptitude and malfeasance that allowed the disaster to come about.

 

[Cardinal Fang]

For what it is worth, I do not give any one of the links total understanding of what happened, But I do believe the WSJ, The Economist, Forbes and the Mises site are all beyond reproach as to economics and what lends itself to cause problems with the economy.

None of them is beyond reproach, and the Mises Institute is perhaps the worst hack right-wing propaganda mill going. The entirely phony it's-all-the-fault-of-CRA meme was fabricated out of whole cloth by Thomas DiLorenzo of that phony front organization in a desperate attempt to deflect blame for the collapse off of the Republicans and cowboy capitalists who actually caused it and onto as many Democrats as possible, including of course the hated Bill Clinton and Jimmy Carter. DiLorenzo's fairy tale was given a trial run at Free Republic, and having earned good marks there, it was slowly slipped into mainstream outlets such as the Washington Times and leveraged into the rest of the media from there. It's all a bunch of crap from top to bottom, but the gullible still fall for it.

 

[Cardinal Fang]

But they were approved. And obviously your fantasy about Countrywide being the problem again shows little understanding of the big picture.

Countrywide did plenty of legit business. It was also the largest issuer of trash paper in the industry. They didn't care. Their game was to strip off the profit and sell off the risk. That's the game they were going to play until somebody stopped them, but nobody ever did.

 

[Missed AB]

Countrywide did plenty of legit business. It was also the largest issuer of trash paper in the industry. They didn't care. Their game was to strip off the profit and sell off the risk. That's the game they were going to play until somebody stopped them, but nobody ever did.

It would seem something did stop countrywide from playing the game you wrote above...

 

[dnsmith]

Also here is Bush saying he will make loans available for people with no savings and bad credit. To also use federal money for people with no down payment.

Home Ownership and President Bush - YouTube

Yep, Bush perpetuated the problems I listed with the same bad policies of selling homes to people who couldn't pay for them.

 

[Missed AB]

But you are singling out CRA, who is responsible for about 6% of sub prime loans, and not focusing on independent mortgagees, who are responsible for over 70%.

Why on earth would any rational human being do that?

This is more rational than blaming it on Bush, who never signed a single subprime note, raised the issue several times through his administration asking congress to do something... and he wasn't the president taht signed CFMA which...

Dimon Lambastes Loans and Expresses His Devotion to Derivatives | New Economic Perspectives

The ongoing U.S. crisis was driven largely by financial derivatives. Nine of America’s systemically dangerous institutions (SDIs) failed or had to be bailed out – Bear Stearns, Lehman, Merrill Lynch, Fannie, Freddie, AIG, Countrywide, Wachovia, and Washington Mutual (WaMu). The SDI failures were primarily due to losses caused or aided by the sale and purchase of enormous amounts of fraudulent derivatives, and deregulation, desupervision, and de facto decriminalization proved exceptionally criminogenic. The Commodities Futures Modernization Act of 2000 and the Gramm, Leach, Bliley Act of 1999, respectively, made credit default swaps (CDS) into a regulatory black hole and repealed the Glass-Steagall Act’s prohibition against banks mixing commercial and investment banking.

So if you are going to blame bush, this is actually a step closer to the cause, at least CW was involved in subprime...

 

[Cardinal Fang]

It would seem something did stop countrywide from playing the game you wrote above...

SomeTHING. Not someBODY. And the thing was the fruits of their own labor. They either never saw it coming or somehow thought it wouldn't affect them. Dumb on all counts.

 

[Cardinal Fang]

This is more rational than blaming it on Bush, who never signed a single subprime note, raised the issue several times through his administration asking congress to do something... and he wasn't the president taht signed CFMA which...

Who was the President who effectively removed leverage limits from the Wall Street big boys and egged them on into more and more promotion of the very lending that would eventually cripple the system?

It's of course been gone through many times before, but CFMA had nothing to do with creating the crisis. It continued a status quo that had existed since 1993, meaning that OTC derivatives would not be explicitly regulated. It also opened up domestic trading in certain types of futures contracts on electronic markets that didn't exist until 2002 and stumbled when they finally were created.

Bush never asked Congress to do anything at all about private broker abuse of subprime credit markets or private-label Wall Street securitizers bundling paper they knew to be bad, then using bogus bond ratings to sell it all off into secondary markets as if it were AAA. In fact, the Bushies stood four-square behind this process until well beyond the point where it began to fall apart. The fundamentals of our economy did not remain strong.

Jamie Dimon gets paid as much as Cole Hamels, but he doesn't perform nearly as well on the field. The synopsis above is a spin-doctor's attempt to shift the more than deserved blame off of Jamie Dimon and his counterparts and onto whatever other elements he can. Such as a supposedly "criminogenic" regulatory environment. No one lauds any of Bush's disastrous so-called regulatory policies, but it was the thieves who committed the bank heist in this case, as in so many others. Jamie Dimon was one of the ringleaders. We couldn't help ourselves is hardly an excuse.

 

[Missed AB]

SomeTHING. Not someBODY. And the thing was the fruits of their own labor. They either never saw it coming or somehow thought it wouldn't affect them. Dumb on all counts.

If you want to play semantics, if some federal agency changed the sub prime laws... that would be someTHING? What paradigm would constitute someBODY? The president? Really can he write laws LOL? You claim superiority in all of you posts, but again, here you don't even have the most basic insight about the topics you write about... Tell me what PERSON were you envisioning in the above post flying from the sky, cape and mask, with his hand firmly out saying "Country wide, stop this now!" And country wide would agree. LOL....

IT sounds like you are writing the market took care of the problem itself...

 

[Missed AB]

Who was the President who effectively removed leverage limits from the Wall Street big boys and egged them on into more and more promotion of the very lending that would eventually cripple the system?

It's of course been gone through many times before, but CFMA had nothing to do with creating the crisis. It continued a status quo that had existed since 1993, meaning that OTC derivatives would not be explicitly regulated. It also opened up domestic trading in certain types of futures contracts on electronic markets that didn't exist until 2002 and stumbled when they finally were created.

Bush never asked Congress to do anything at all about private broker abuse of subprime credit markets or private-label Wall Street securitizers bundling paper they knew to be bad, then using bogus bond ratings to sell it all off into secondary markets as if it were AAA. In fact, the Bushies stood four-square behind this process until well beyond the point where it began to fall apart. The fundamentals of our economy did not remain strong.

Jamie Dimon gets paid as much as Cole Hamels, but he doesn't perform nearly as well on the field. The synopsis above is a spin-doctor's attempt to shift the more than deserved blame off of Jamie Dimon and his counterparts and onto whatever other elements he can. Such as a supposedly "criminogenic" regulatory environment. No one lauds any of Bush's disastrous so-called regulatory policies, but it was the thieves who committed the bank heist in this case, as in so many others. Jamie Dimon was one of the ringleaders. We couldn't help ourselves is hardly an excuse.

Sorry again you are ill informed. Bush called for congress to act on sub prime no less than 10 times, and even mentioned it in state of the unions speeches. He was calling for overhauling fany, freddie, sally (where do you think most of those subprimes were?)... I am not suggesting there is NO accountability with Bush, but you can't blame Bush more than country wide. And you can't blame Bush for policies that you point out were in place for almost a decade before him... And I am not suggesting Clinton signed CFMA to tank the economy. Hind sight is always 20/20, and everyone involved here has made mistakes from the bankers, to congressmen, to the presidents, to the home owners... But there is enough blame to go around. Get your partisan head out of your own @R$E and be objective for a change. The only reason CW made money was because people thought that realestate was a great place to make money and buying property the could not afford was a quick get rick scheme... Blame everyone. IT IS NOT 1 PERSON'S FAULT. AND IT COULD NOT BE AVERTED BY ONE PERSON.

 

[Ed_Saterstad]

Companies can produce an unlimited amount of goods, the only exception possibly being some sort of shortage of materials or labor. We haven't had a 1% unemployment rate since 1945, and technology is typically substitutable, to some degree or another, for human labor. Raw materials come from companies, and companies desire to sell as many goods and services as possible, so it's fairly rare that there is a shortage of raw materials.

When demand changes, businesses strive to increase production to meet demand, and they do so with amazing speed. I own a small company that produces both goods and services, and if I had a sudden surge of demand that I expected to be long lasting, I could double or even triple my production in a matter of weeks. I could increase my production capability by 10 fold in less than 2 months, and by 100 fold in less than a year.

Amazon.com recently opened a new distribution center near my shop. From the time that they broke ground on it till the day that the first shipments started going out was less than 6 months. BMW also has a plant in my county and it took them less than a year to build the plant, install equipment, train workers, and start producing.

In my comment I was referring to the bad example of dumping money from a helicopter. People that come into money without working for it are likely to spend it quickly and foolishly. Companies would try to cash in on this immediately. Most companies can not just instantly produce product due to bottlenecks or barriers - not enough employees, not enough raw material, not enough equipment...... I have no doubt that companies can overcome these obstacles, but the short term burst in spending would not last long enough for a company to invest money in many of these issues - It takes money to train employees, equipment pays off in the long run not the short term, and raw material is not always immediately available.

But I really see no reason to debate that any further, as it is a very unlikely that anyone will start dropping money out of a helicopter. Instead the likely scenario is that the money is printed to pay off foreign debt. Since we buy and sell goods on an international market the value of our money is influenced by those that are buying or selling those goods.

 

[Cardinal Fang]

If you want to play semantics, if some federal agency changed the sub prime laws... that would be someTHING?

Grammar is not your forté. Meanwhile, laws establishing regulatory power over subprime credit markets were passed (with Barney Frank in a lead role) in 1994. The regulator was the Fed. Greenspan was questioned by Congress concerning reports of widespread abuse in these markets, but all he ever said was that his staff was on top of the situation and action would be taken if any were deemed warranted.

 

[dnsmith]

But you are singling out CRA, who is responsible for about 6% of sub prime loans, and not focusing on independent mortgagees, who are responsible for over 70%.

Why on earth would any rational human being do that?

First, I did not single out CRA. I have always listed it as ONE OF THE CAUSES of the housing crash. And it was. . I also did not absolve Bush from blame as he is right up there with Clinton in pushing home ownership to less than credit worthy people using Fanny and Freddie to protect the banks from loss. The chart below shows the data by which one can see what was delinquent.

Table 4: 90-Days-Plus Delinquency
Rates by Relative ZIP Code Income

Relative ZIP Code Income
....................Subprime Loans.......Alt-A Loans....subprime and Alt-A Loans
Lower Income 25.0 ....................16.1 ................21.5
Middle Income 21.3 ....................12.9 ................17.7
Higher Income 19.5 ....................10.9 ................14.5

Let me iterate, CRA was not THE cause of the balloon. But it is ONE of the causes along with government fiscal and monetary policy, artificially low interest, abuse of ARMs and speculators.

 

[Cardinal Fang]

Sorry again you are ill informed. Bush called for congress to act on sub prime no less than 10 times, and even mentioned it in state of the unions speeches. He was calling for overhauling fany, freddie, sally (where do you think most of those subprimes were?)...

You are once again totally out of the loop. The only plan the Bush administration ever had for the GSE's was to chop them up, shut them down, and privatize the mission by turning everything they had over to Wall Street (the people who actually did manufacture the crisis and actually did create the tainted bundles that eventually went south). Everyone at the time recognized that both the real estate and financial services industries were changing rapidly. Everyone agreed that GSE reform was an important objective. But what people on The Hill wanted to talk about was safety-and-soundness issues. Bipartisan bills were repeatedly developed in Congress to address those issues, but the Bush administration shot them all down because they didn't do enough to put the GSE's out of business. Michael Oxley, the Republican Chairman iof the House Financial Services Committee famously referred to having gotten the "one-finger salute" from the White House on his safety-and-soundness related bill. Bush meanwhile tried to box up the GSE's by creating a new GSE "czar" in Treasury who would report directly to him. He tried to cut them off at the knees by setting impractical limits on the volumes the GSE's could hold in their own portfolios. He eventually did get a part of his way by having his henchmen discover accounting irregularities ambiguous enough to sustain a demand for a restatement of earnings. That put a crimp in GSE operations for a while and aided Wall Street in driving GSE original market share from above 70% early in the decade to below 25% by late 2006.

I am not suggesting there is NO accountability with Bush, but you can't blame Bush more than country wide.

Countrywide et al. were the dogs that mauled the baby to death. Who was supposed to be overseeing the dog park but spent all his time taunting the dogs and taking them off the leash?

And you can't blame Bush for policies that you point out were in place for almost a decade before him... And I am not suggesting Clinton signed CFMA to tank the economy.

Redux: GLB and CFMA had nothing to do with the eventual credit crisis.

Hind sight is always 20/20...

Not yours.

But there is enough blame to go around. Get your partisan head out of your own @R$E and be objective for a change.

There is plenty of blame all right, but we don't average it out and spread it around. We assign it only and proportionally to those who in fact earned it -- to those whose sins of omission and commission in fact had tangible and proximate effect on producing an undesirable outcome. In this case, that amounts to Bush along with a bunch of Wall Street cowboy capitalists and a bunch of laissez-faire free-market "regulators" who stood by and did nothing.

The only reason CW made money was because people thought that realestate was a great place to make money and buying property the could not afford was a quick get rick scheme... Blame everyone. IT IS NOT 1 PERSON'S FAULT. AND IT COULD NOT BE AVERTED BY ONE PERSON.

Countrywide's primary business was in prime instruments. They were making plenty of money off of those. But like some folks after gold was discovered at Sutter's Mill, they had to rush off into what appeared to be a new area packed with huge profit potential. Then they and their partners wanted more and more and more of that, even long after the actual capacity to support it had been exhausted. That was their crime. Abusive brokers, crooked appraisers, all of Wall Street, and irresponsible bond rating agencies. These were the hands-on actors, a group supported and encouraged by the god-awful fiscal, monetary, and regulatory policies of a Bush administration that lit the fuse and then proceeded to blow on it.

Your attempts at vilifying misled and unsophisticated borrowers for creating the crisis are meanwhile on par with a "She was asking for it" explanation for rape. Do you recall seeing ads in the paper for new homes with a balloon saying "On-Site Financing Available"? Do you know who those guys were? I'll tell you. They were one time used-car salesmen now working as private mortgage brokers with one and only one objective -- getting a sale. The builder makes no profit until a home is sold. The bank earns no fees until a loan is processed. A securitizer can't slice-and-dice until he has original paper in his hand. That's who those high-pressure brokers were working for. Not the buyer. He didn't give a crap about the buyer. He cared about somehow twisting and bending and pressuring the buyer into signing on the dotted line. After that, the buyer was instant history. And you freaking wonder where bad loans came from.

 

[dnsmith]

Sorry again you are ill informed. Bush called for congress to act on sub prime no less than 10 times, and even mentioned it in state of the unions speeches. He was calling for overhauling fany, freddie, sally (where do you think most of those subprimes were?)... I am not suggesting there is NO accountability with Bush, but you can't blame Bush more than country wide. And you can't blame Bush for policies that you point out were in place for almost a decade before him... And I am not suggesting Clinton signed CFMA to tank the economy. Hind sight is always 20/20, and everyone involved here has made mistakes from the bankers, to congressmen, to the presidents, to the home owners... But there is enough blame to go around. Get your partisan head out of your own @R$E and be objective for a change. The only reason CW made money was because people thought that realestate was a great place to make money and buying property the could not afford was a quick get rick scheme... Blame everyone. IT IS NOT 1 PERSON'S FAULT. AND IT COULD NOT BE AVERTED BY ONE PERSON.

Agreed! Not only was it not just one person who can't be blamed, but not even one specific program or policy.

1. Artificially low interest rates (fueled demand which caused inflationary housing prices)
2. Abuse of ARMs which made payments to high after interest went up.
3. Speculators putting to much pressure on housing (also fueling demand and causing inflationary housing prices)
4. CRA and other government programs pushing lower lending standards on lenders (take your pick, CRA, Fannie,Freddie, Frank/Dodd)

There are other issues involved as well, some related to location/region.

 

[Cardinal Fang]

Instead the likely scenario is that the money is printed to pay off foreign debt.

Why would we want to pay off the foreign or any other component of the public debt? And we currently redeem maturing debt by borrowing enough to accomplish that. Why wouldn't we just continue doing that?

Since we buy and sell goods on an international market the value of our money is influenced by those that are buying or selling those goods.

Both our currency and our debt are claims on the output of real goods and services produced in the US economy. The same is true for the currency and debt of every other signficantly trading country (or area, in the case of the EU). This sets up an intricate balance of relationships involving the comparative GDP, competitiveness, and money supply of major trading countries and the changing preferences of national and international buyers and sellers. There are a lot of moving parts here.

 

[Cardinal Fang]

First, I did not single out CRA.

Yes you did, and you're trying to do it again.

I also did not absolve Bush from blame as he is right up there with Clinton in pushing home ownership to less than credit worthy people using Fanny and Freddie to protect the banks from loss.

Every President since the Great Depression has included expanding home ownership as a goal for his adminstration. The GSE's meanwhile purchase loans from originating lenders at a discount once the latter have collected their fees. Those sales are the means by which originators recapitalize so as to be able to lend again. The GSE's then resell the loans they have purchased to institutional investors (national and international banks, insurance companies, pension funds, money market funds, university endowments, etc.) through the secondary markets. Once upon a time, loans were sold individually, but that was very inefficent, so the practice of bundling them into parcels of maybe 100 loans began, with a number of shares in the repayment stream generated by all of those loans combined being sold off to investors. Those shares are called mortgage-backed securities. The GSE's typically sold MBS's with an agency guarantee. It was the back-end buyers that the GSE's were protecting, not the front-end originators. Any original loans the banks might have held for their own portfolios still had all the risk they had the day they were signed. No protection from the GSE's there.

Bush certainly was a cheerleader for the "bypass the GSE's and their bothersome standards" conglomerate that Wall Street had put together, but even he did not advocate lending to "less than creditworthy" people. To repeat an earlier point, there has never been any law, rule, policy, or court decision to force any loan to be made to any borrower who was not qualified for it under the lender's own underwriting standards and practices.

Once the profitability of lending into the low- and moderate-income neighborhoods that traditional lenders had ignored for decades had been demonstrated, there certainly were calls for the financial industry to use its creativity in finding ways of bringing these subprime but entirely creditworthy borrowers into the credit markets they had been improperly excluded from for so long. Regulators advised lenders of a belief that responsible subprime lending could expand credit access for consumers while offering attractive returns to lending institutions, provided that such institutions recognized that elevated credit and other risks associated with these programs would require more intensive risk management and often additional capital reserves.

Does that sound like pushing home ownership to less than credit worthy people?

The chart below shows the data by which one can see what was delinquent.

No, it shows delinquency rates on non-prime loans by the income level of the zip code of record. What is that supposed to prove? There is no date provided for the data, there is no information on whether financing was CRA or non-CRA, and there are no other data provided to serve as any standard of comparison.

You know if one waited long enough into the crisis (say until August 2008), everything would look bad in terms of delinquency rates. Why, one of the most resilient sectors as the crisis wore on was ITIN mortgages (those extended to borrowers without a Social Security number), almost all of which were held by illegal immigrants. Month after month, their default rates checked in at one-fourth to one-third those of US citizens. But as the recession wore on, production and employment declined, and by August 2008, even ITIN mortgages would have fallen onto hard times. Of course almost all of those would have been originated prior to January 2006, so they wouldn't have shown up in your table, would they? Those data reflect only mortgages originated in 2006, 2007 and the first four months of 2008, isn't that right?

Let me iterate, CRA was not THE cause of the balloon. But it is ONE of the causes along with government fiscal and monetary policy, artificially low interest, abuse of ARMs and speculators.

Let me reiterate, your posts are hacked misrepresentations and deliberate deceits. There isn't a reason in the world why anyone should pay any attention to a single word you have said.

The Actual Table Before dnsmith Altered It