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

I think he's calling them carpetbaggers!

 

First of all Sam........and I'll admit I haven't read every word posted in the D&D lately, but from what I HAVE read, you are the only one who has promoted this "blacks, fannie and freddie" theory. I suppose it is possible that others on the right have come right out and tried to blame this on "blacks," but if they have, I haven't seen it. I've seen it repeatedly from you. This panders to the likes of pgabriel who become cronies for your argument. It is damn smart of you, but I find it offensive. (just re-read this, and it almost sounds like I'm claiming that YOU are blaming blacks and YOU are on the right...........needless to say, don't be confused by my hastily written comments. I know where you stand)

Second of all.........and let me say this first: There most definitely were some people in low income brackets who should have known they were buying more house than they could afford, but minority home buyers were most certainly NOT the root cause of this issue. BUT....I believe the CRA was the root cause, or at least a big part of it. I don't blame Carter; surely the creators of the CRA had their heart in the right place. I don't blame Clinton either as ultimately there has been several administrations and several Congresses and I'm sure pretty much all of the mortgage originators who have built this house of cards. But the CRA was the first step in creating a culture of lending to risky real-estate buyers (please note I said risky, not black or poor or minority, but "risky"--something to do with credit scores and debt to income ratios, etc.). The CRA was the government's stamp of approval on a culture that promoted home ownership for just about everyone. And it worked! For quite a while. The glut of mortgages for just about anyone ensured a great demand for houses. What happens with great demand? Rising prices. What happens when the equity in the underlying collateral is artificially raised for these mortgages? It makes these mortgages viable. For a while at least.
And then the house of cards came tumbling down, and we’re all pointing fingers.

 

It's not a strawman. It's generally the truth. The housing bubble didn't occur everywhere. It occured in pockets all around the country, which were disproportionately upper-middle class, white, and liberal.

 

Pole

All pissing contests aside, there is another article that someone posted that argues that deregulation of CRA helped cause this mess as opposed to the CRA. The CRA mandates a bank make loans in the community it serves. Now think about this, think about what that says. There are so many ways to get around this in the first place.

The CRA is a red herring. admittedly this is from wiki

The CRA mandates that all banking institutions that receive FDIC insurance be evaluated by the relevant banking regulatory agencies to determine if the institution has met the credit needs of its entire community in a manner consistent with safe and sound operations.[2] The CRA does not list specific criteria for evaluating the performance of financial institutions. Rather, the law directs that the evaluation process should accommodate the situation and context of each individual institution. The law also does not require institutions to make high-risk loans that may bring losses to the institution, instead the law emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner.[2][7] There are no specific penalties for non-compliance with the CRA. However, an institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching.[6][8]

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

 

thought you were being sarcastic.

 

People who claim sub prime lending is the real culprit of this crisis have no real economics knowledge. Yes sub prime was part of the problem but only acted as accelerant to this fire. In order to find a true answer, you have to look back at the early 90's and the tech boom which created a bubble in the economy and led it to a growth rate that is abnormal to the 40 year average prior to it. basically this market should have corrected itself around 2002 with the crash of the dot com bubble but we artificially injected it with more tax cuts and easy money so we could live to fight another day. Now we are about to do the same thing with this economic rescue package when in fact we need to let market forces play out and lead us back on a healthy track. Yes it will be painful and people will lose jobs and go broke but that is the price you pay as a nation of living 2 decades worth of prosperity contrived from artificial bubbles and massive debts. Bottom line is that it will happen and has to happen either today or in another 5-10 years, the question is what will you do about it?

Buy more time or pay the price as a sacrifice and move forward?

 

lastly from someone who worked at a bank, the cra is nothing more than window dressing. banks get examined on the quality of their assets. as far as cra regulations, in reality all a bank has to do is keep a cra notice on the wall for customers in each branch (much like the workers's comp notices at your jobs) and keep a cra file. the only other thing is file a cra form for the loans it makes to see if qualifies to get credit for cra standards.


and that's it. the cra isn't mandating any types of loans. it is more window dressing than anything eles, a federal regulation that has not teeth.

 

This brings an important question to mind and I'd like your feedback.

There are few libertarian free-market supporters left who will still think that it would be best to just let the pain run it's course. No bailout, just let the banks fail. I saw a youtube clip of Ron Paul saying as much.

In your opinion, how far would the failure go? What if more and more major banks collapsed like so many dominoes, and FDIC couldn't cover the losses to the millions of Americans who held their cash & savings in them?

Do you feel that even if we faced massive nationwide (worldwide?) banking collapse, bankrupting a significant portion of the population and triggering a worldwide depression, it would be worth it? So that we could get the pain of this necessary 'adjustment' over with now, instead of putting it off?

Or do you feel that the failure wouldn't go that far in the big picture?

 

Yes.........THIS is a reach. You even put it inside quotations.

 

Well things are much more complicated than one could argue in short response so I will try to keep things simple.

Debt - We are already a nation of over spending and very little monetary discipline. The government and citizens alike are in over their head with debt. Nobody has a solution to this problem and until we find one, we will always face financial meltdown whether its now or 10 years later. This bailout package saves us from the now and pushes it further with the Treasury now becoming a printing press and shoving money left and right into the economy. Who is going to pay for all this new money? Perhaps that is a later concern but has to be accounted for. All this is a result of an economic bubble fuel by cheap credit where the average American had consumption far greater than income.

Trade Deficit - We produce no real goods to balance our huge consumption of products from foreign countries. We confuse this with what we call a "service economy" when in fact all we are doing is buying up more debt each and every day from the rest of the world.

Petro-Dollar Reserve - Oil on the world market is denominated in US Dollars, So if you are a country like lets say China you must keep a reserve of Dollar in your central bank to purchase oil. Now in return for those dollars we buy all sorts of product from the Chinese without ever trading equal amount of goods in return. This is the greatest achievement of the US economic genius. Force each country to maintain a stockpile of worthless paper so they can meet their energy demand. While back home Americans think of all the things to buy from other countries with their artificial prosperity. It has created a market of the American Dollar and what it can buy leaving everyone else to act as producers to our consumer-driven economy.

Under this kind of market manipulation it will be unhealthy and unwise for the US to continue its course of action. We need this market to correct itself, let the average American burden the price of living in artificial prosperity. It will be painful but a necessity. Americans have to learn to live their income and manage a balanced budget. If that means you have to learn it the hard way by going bankrupt, losing your job and starting all over again then so be it. We have been through a depression before and can get through one again but we need to let the market decide where it wants to go without trying to create another short lived hyper-credit bubble. The consequences of ignorance could lead to global warfare for precious resources if they rest of the world decided to monetize their reserves or switch to something more stable such as the Euro.

 

Is more complete data available out there? The way the media has been reporting leaves me with the impression that the example of Nehemiah Homes cited by Daniel Gross is rather untypical.

 

the way the media has been reporting what? remember, sub prime doesn't mean poor.

 

To put it this way, *poor mortgage borrowers nationwide* don't seem to hold nearly as well as what Daniel Gross was trying to emphasize with his working poor in subprime areas of New York's outer boroughs example.

 

i would like to see more complete data also, but it doesn't matter to his main point which is that the sub prime mortgages that ARE failing are a mix of second homes, people over extended on homes they can't afford, people caught in the flipping houses phenomenon.

we may not have complete data on initiative to make more poor people homeowners, we do have info on what mortgages are failing.