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[Slate]On basso's explanation for the financial crisis

Discussion in 'BBS Hangout: Debate & Discussion' started by SamFisher, Oct 8, 2008.

  1. SamFisher

    SamFisher Contributing Member

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    Oh those FREEPERS, living in a world of good and evil, black and white....

    I've commented extensively on the "blacks and fannie and freddie!" hypothesis, crystallized in a youtube video that is making the right wing rounds and posted here about 10x by guys like basso and some mini-bassos.

    It's for complete idiots and stupid people who are too dumb to be considered idiots - which I guess is why it's now a prominent Republican campaign theme as they stagger down the homestretch.

    Here's a good explanation why it's wrong. And by good I mean great:

    As is the titular hero of this thread's custom, I have bolded things for Deckard

    http://www.slate.com/id/2201641/pagenum/all/#page_start

    Subprime Suspects
    The right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong.
    By Daniel Gross
    Posted Tuesday, Oct. 7, 2008, at 2:08 PM ET


    We've now entered a new stage of the financial crisis: the ritual assigning of blame. It began in earnest with Monday's congressional roasting of Lehman Bros. CEO Richard Fuld and continued on Tuesday with Capitol Hill solons delving into the failure of AIG. On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.

    The thesis is laid out almost daily on the Wall Street Journal editorial page, in the National Review, and on the campaign trail. John McCain said yesterday, "Bad mortgages were being backed by Fannie Mae and Freddie Mac, and it was only a matter of time before a contagion of unsustainable debt began to spread." Washington Post columnist Charles Krauthammer provides an excellent example, writing that "much of this crisis was brought upon us by the good intentions of good people." He continues: "For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity." The subtext: If only Congress didn't force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel's Neil Cavuto put it, "I don't remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."

    Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?

    These arguments are generally made by people who read the editorial page of the Wall Street Journal and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice.{NOTE THIS MEANS YOU - sf} Let's be honest. Fannie and Freddie, which didn't make subprime loans but did buy subprime loans made by others, were part of the problem. Poor Congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem. But none of these issues is the cause of the problem. Not by a long shot. From the beginning, subprime has been a symptom, not a cause. And the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd.

    Here's why.

    The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn't apply. There's much more. As Barry Ritholtz notes in this fine rant, the CRA didn't force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.

    Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), 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. The multiyear plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least-subprime housing markets in the nation.

    Third, lending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all. That's what we've learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent.

    On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity. And here, again, it's difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33 to 1, which instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients' money, and that required its septuagenarian CEO to play bridge while his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Bros. to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can't find it. Did AIG plunge into the credit-default-swaps business with abandon because Association of Community Organizations for Reform Now members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private-equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton's fault?

    Look: There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb-lending virus originated in Greenwich, Conn., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington, D.C. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.

    At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "De minimis."

    Lending money to poor people doesn't make you poor. Lending money poorly to rich people does.
     
    #1 SamFisher, Oct 8, 2008
    Last edited: Oct 8, 2008
  2. El_Conquistador

    El_Conquistador King of the D&D, The Legend, #1 Ranking
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    Thanks Sam, for that race-baiting, demagoguing article written by someone who shows no understanding of financial markets.

    If you don't think that subprime was the match that started this conflagration, then you have your head in the sand. There is no question that groups like ACORN and Obama used racial extortion to sue banks and promote lending to sub prime borrowers. That's a fact. They weren't 100% of the problem, but they were a part of the problem. Obama himself said that Democrats were at least partially responsible for the financial mess last night. You heard him.

    You are trying to wipe away the issue by disguising it as a racial issue. That's an intellectually bankrupt approach.
     
  3. SamFisher

    SamFisher Contributing Member

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    ^ See what I mean about stupid people making this argument?
     
  4. El_Conquistador

    El_Conquistador King of the D&D, The Legend, #1 Ranking
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    Sam, correct me if I'm wrong, but you went from being a lawyer to a journalist. Remind us again what your financial credentials are?

    Did subprime not start this mess Sam? Is that the argument you are attempting to make? That's just hilarious.
     
  5. SamFisher

    SamFisher Contributing Member

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    ^ *Sputter sputter cough cough*.

    Somebody turn the crank, the Model T_Jorge is officially

    OUT OF STEAM

    [​IMG]
     
  6. Fatty FatBastard

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    Nope. The author has no political agenda, whatsoever. :rolleyes:

    Related in Slate:

    Daniel Gross argued for an increase of subprime loans. He also justified why Fannie Mae and Freddie Mac couldn't be allowed to fail. Chadwick Matlin and James Ledbetter explained why Lehman Bros. should have been saved. Brendan I. Koerner explained what Freddie Mac actually does.




    He has worked as a reporter at The New Republic and has contributed to more than 60 publications. Since 1999, he has edited STERNbusiness, the semi-annual management journal published by New York University’s Stern School of Business.
     
  7. SamFisher

    SamFisher Contributing Member

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    That wasn't even a good attempt at an ad hominem attack (which is pretty much all that anybody can come up with at this point).

    He worked for the New Republic and at Stern School of Business? Dude - you don't even know what those two things are - much less explaining your lousy (nonexistent) reasoning. Way to highlight that he has "contributed to over 60 publications" - LMFAO

    You suck at this fatty - but don't worry under the terms of our bet you will soon be posting here no more and will no longer have to worry about it. :)
     
  8. Fatty FatBastard

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    Are you actually stating that this author isn't politically biased?

    Incredible.
     
  9. SamFisher

    SamFisher Contributing Member

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    Yes that is precisely what I'm saying. 27 more days for you in this forum! Better use them more wisely than this :D
     
  10. El_Conquistador

    El_Conquistador King of the D&D, The Legend, #1 Ranking
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    Sam, why start a thread when you can't even mount a superficial, much less a reasoned, rebuttal to the highly predictable questions? What an utter failure. You just don't have any understanding of this issue, which in no way surprises me. From the looks of things, you just want to paint this as a racial topic, not a financial topic. Not sure why that gives you the jollies...
     
  11. pgabriel

    pgabriel Educated Negro

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    he should've just added it to khan's and basso's threads.


    ------> :rolleyes:
     
  12. pgabriel

    pgabriel Educated Negro

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    low income mortgages are not subrime mortgages. period. the cra doesn't force banks to make bad loans, as a matter of fact it discourages it. period. the people who are walking away from these homes in large part are second home wannbe home flippers who thought real estate price would go up forever. period.

    this article is spot on with substance, and the most damning counterpoint to the blame the poor minority argument is that alot of failing entities aren't even banks in large part.
     
  13. Pole

    Pole Houston Rockets--Tilman Fertitta's latest mess.

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    It is amazing to me how the exact same facts can get such different spins. The truth is that there's plenty of blame to be shouldered by all sides.

    And the only difference between SamFisher and Trader_Jorge is I'm pretty sure TJ knows that he's playing a caricature.
     
  14. pgabriel

    pgabriel Educated Negro

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    please explain them to us. please explain how low income loans have led to this crisis.
     
  15. pgabriel

    pgabriel Educated Negro

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    ^^^^you can try to play the both sides are idiots card, but the fact is that the people making the claims about low income loans are not basing their claims in facts, the people who are refuting the claims are.

    please save your card for the next game of bickering. there is one side who is right on this issue, and one side who is blaming minorites (as usual)
     
  16. SamFisher

    SamFisher Contributing Member

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    It's not the case of the same facts being "spun"

    It's a case of false facts being propounded and true facts (or just facts) not being acknowledged

    It's a simple fact that mortgage originators originate mortgages, including many of the subprime/ARM type products, and that private mortgage originators that aren't traditiona banks aren't covered by the CRA.

    Those things are black and white.

    The assumption of these two facts to be untrue is the foundation of the right wing "it's the blacks, fannie, and freddie" theory.

    Read the article - tell me which parts are wrong or being "spun".
     
  17. Pole

    Pole Houston Rockets--Tilman Fertitta's latest mess.

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    If you are going to take a page from SamFisher's book and try to get me to defend a point I never made--nor believe in, why would you be so obtuse as to actually quote me in your goading?

    IF....however.....you are actually asking me how blame can be shouldered by all sides, you really don't have to look any further than the article SamFisher posted. You just have to take off your left-leaning spin glasses.
     
  18. weslinder

    weslinder Contributing Member

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    Sam, You're absolutely right. If we want to blame individuals, then this problem is due mostly to white, middle-class and upper middle-class blue staters, especially in California, New York, and New England. House flippers and yuppies that wanted to live the gilded lifestyle. Y'all screwed the South and West, who created most of the wealth that was created in this country over the past few years.
     
  19. pgabriel

    pgabriel Educated Negro

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    you re read the article. the blame doesn't go to who the right wing are blaming. that's the whole point of the article and it is in direct response to these red herrings



    http://bbs.clutchfans.net/showthread.php?t=154585

    http://bbs.clutchfans.net/showthread.php?t=154586

    http://bbs.clutchfans.net/showthread.php?t=154649

    see this has been discussed ad nauseum and we don't need the condenscension of johnny come lately about this subject when said johnny does not even want to educate himself on the topic.
     
  20. pgabriel

    pgabriel Educated Negro

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    that is not what the article says, it says its not the fault of the usual right wing suspects.

    and again, for you and johnny come lately, the article goes into specifics on repayment rates of low income loans.

    no one ever claimed that the true sub prime borrowers don't include minorities. but nice strawman
     

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