Welcome to History
It’s helpful to think of how to address the current financial crisis (and I don’t use that word casually) in terms of the end-state we want to achieve, and the transition plan to get there.
The problem we face is often described as mind-bendingly complex, but in its essentials, it is simple.
It is well known, in retrospect, that we had a classic speculative bubble in home prices. As is typical in a bubble, its later stages were characterized by reckless investment, excess debt and shady-tending-to-illegal business practices. As cheap credit pushed up the market price of houses, homeowners began to incur lots of debt (i.e., promises to pay other people on Tuesday for a hamburger today), which they were comfortable doing because they believed that they had sufficient equity value in their homes to make good on the debt if required. Some of this debt was mortgage debt. Many people who previously would not have received credit for a mortgage got them. Simultaneously, many homeowners were offered and accepted mortgages that approached all-debt at floating interest rates, rather than the traditional 20% down 30-year fixed rate mortgage. In the worst instances, these mortgages had payments that were all-but-certain to rise in the future. These homeowners were betting that they would get raises, inherit money, or, more likely, would be bailed out by an increasing home price that would allow them to roll over the debt. Other debt was incurred by existing homeowners for the purpose of consumer expenditures, which had the net effect of hollowing out the equity they had in their homes. All these effects are just examples of greater levels of debt secured against the market prices of homes.
Here’s the problem with having lots and lots of debt and no savings, whether in the form of passbook savings or equity in your house: Sooner or later Tuesday comes around when you happen to have had a bad week, and the guy who sold you your hamburger wants his money, but you don’t have it. Once home prices began to decline (or for the most over-leveraged homeowners, simply stopped rising fast enough), therefore, it was a big problem when Tuesday started to come around and lenders and vendors started to ask to get paid for the hamburgers.
Normally this would have been bad for both the homeowner and the guy who wanted to get paid for his hamburger, which might very well be the mortgage lender, but not really a big deal for you or me. (If enough of this occurred, of course, it could lead to a general slowdown and hurt pretty much everybody.) But this impact was magnified by the fact that most of the mortgage lenders sold the right to the payments under the mortgage to third parties. These third parties broke up the rights to the payments from the mortgages into lots of little pieces, combined these pieces with the rights to payments for little pieces of lots of other mortgages, repacked these in “creative” ways, and re-sold them to fourth, fifth and sixth parties. Four, five and six then used these promises as their own equity in order to raise further debt of their own. This would be like you using an IOU from your neighbor as your down payment for a mortgage. So when lots of these over-leveraged homeowners started to miss mortgage payments, parties four, five and six had less money than they expected, and they had problems making their own debt payments if they themselves had taken out enough debt. Oh yeah, many of these debt contracts are in fact between parties four, five and six.
Unfortunately for you and me, parties five and six are the financial institutions where we have our life savings deposited.
The end state that we want to get to is pretty clear.
The price of the average home in America has fallen a lot, and is likely to fall further (although there will be huge regional differences). Some very over-leveraged homeowners are going to declare bankruptcy. Others are going to sell the boat and eat out less in order to avoid this. We need prices to mark to market (which they will eventually do anyway), as rapidly as possible consistent with not causing a depression caused by a collapse of consumer activity.
Many financial institutions have both profitable commercial businesses, and financial instruments that are wildly unprofitable, housed under one roof. We want the executives of these companies to lose their jobs, and the shareholders and bondholders in them to lose their money, while preserving the productive parts of the businesses and preventing a depression caused by a collapse of credit.
The trick, of course, is how we get these excesses purged from the system without tanking the economy worse than anything we have seen at least since the 1930s. What makes this especially tricky is that we don’t have a lot of visibility into how exposed each of parties four, five and six are to collapse.
This is what Paulson and Bernanke are trying to manage. They have done three big things in the past couple of days:
1. Proposed a huge RTC-like government “bad bank” that banks can dump all their bad loans into. (Apparently, though, unlike the case with the RTC, they will not need to declare bankruptcy to do it.)
2. Provided a federal guarantee on money-market accounts.
3. Promulgated a temporary ban on naked shortselling for about 800 financial stocks (in related news, the new recommended medical practice when you discover that you have a fever is to smash the thermometer against the wall, since this makes the problem go away).
All of these things are, in theory, bad. In practice, all will have very negative consequences over time. Here are some of the problems:
1. We’re getting pretty close to nationalizing (hopefully temporarily) a reasonably big piece of the U.S. housing finance market, as well as other financial sectors that are put at risk by it.
2. Time will tell, but likely medium-term implications include higher government interest payments, worse deficits and higher taxes. This certainly reduces the probability of making the Bush tax cuts permanent in a couple of years, no matter who is in the White House.
3. This is obviously unfair. It bails out irresponsible behavior, and by implication, punishes responsible behavior. Longer-term, unless there is a lot of pain felt by financial company executives – who, remember, don’t look like they have to go bankrupt to dump their bad loans on taxpayers – this creates a massive moral hazard problem. Further, if such a situation develops, it won’t be lost on voters, who will likely demand greater socialization of consequences of reasonably-foreseeable bad behavior by people who don’t make a million dollars per year. The ideological consequences of the last few weeks will take many years to play out, and conservatives are unlikely to happy about them.
4. It’s also unclear how much of the problem, and what problem, this really solves until home prices hit bottom. As the market price of the underlying assets keeps dropping, more and more debt instruments become “bad”, with cascading effects. Though not likely, it is a lot more plausible than it was five days ago that the federal government may become a buyer of the actual housing assets. In that case, welcome to the introduction of large-scale public housing for middle-class Americans.
These all sit on one side of the scale. Against all of this we have one huge consideration. If investors lose confidence in the safety of money market funds, mutual funds, demand deposit accounts and the other storehouses of value in the modern economy, we would have a problem that would make somewhat higher taxes and moral hazard seem like child’s play. Trust me – you do not want to experience a full-scale bank run in contemporary America. I’m not sure how many people realize how close we were to the wheels coming off at about noon yesterday, as major commercial-paper processing banks like State Street lost 30% – 60% of their value in about 2 hours. Want evidence: When was the last time you heard of the U.S. government identifying a problem, developing a multi-hundred-billion-dollar program and announcing it within about 48 hours?
It seems to me that these are prudent actions as temporary, emergency measures. What will be essential is that:
1. These are temporary, and these positions be unwound as rapidly as possible. This includes not just the actions of the past two days, but also getting the federal government out of the insurance business (AIG) and the home lending business (Freddie and Fannie) as rapidly as is consistent with orderly unwinding of these positions.
2. The ultimate resolution assures that prior investors in these financial institutions and their executives bear very large financial penalties. Irresponsible homeowners should as well. Expect big political battles over the definition of “irresponsible”.
If done in this way, we can (in the hopeful case) work through the problem with limited actual costs to the taxpayers as assets are sold off, while limiting moral hazard and long-run government control of financial assets. But there are many very bad downside cases.
“these [subprime loans] had payments that were all-but-certain to rise in the future. These homeowners were betting that they would get raises, inherit money, or, more likely, would be bailed out by an increasing home price that would allow them to roll over the debt”
(a) I like to add some empirics to this. (Numbers from Subprime Outcome, a Fed paper from the summer that really changed some of my thinking on the matter.) Subprime loans seem to be taken out by two types of people:
(1) People refi-ing from a prime to a subprime – 27% of all subprime defaults. That income volatility we hear about – middle-age guy loses his job overseas, wife gets sick with no insurance, tough Post-Fordist breaks. Re-fi subprime is a huge penalty (too much to just consumption smooth) but it gives them some breathing room.
(2) People with awful credit. Now a distinction here: the idea wasn’t that they’d be in the loan at the time of the reset, but that paying their loan for 2 years would raise their FICO enough to qualify for a prime loan. They (they = the person and the bank) were betting that they’d qualify out – the loans were ‘bad faith’ in that sense all along. And it worked for 80% of people. If people would buy it, would you sell a car that broke 20% of the time?
(b) I’d really like to see (or conduct, if given the chance) how much of the housing boom was a result of people bidding up the price of access to high-end primary and secondary education. Elizabeth Warren and Robert Frank have already done some interesting stuff on this.
— rortybomb · Sep 19, 09:25 PM · #
I bought a Wall Street Journal yesterday to try to understand this. I feel like I’m listening to ten blind men describing the part of the elephant they touched, watching the financial news, at times.
I understand what you’re saying here. I wonder if this will have greater long-term effects than the results of the presidential election. Don’t know.
— Julana · Sep 19, 09:57 PM · #
this will impact the election.
the republicans have betrayed their stewardship.
this will take years to resolve, and there will be pain.
a lot of pain.
an additional half trillion debtdollars of pain to start with.
what will that do to interest rates?
perhaps America’s lender cohort will lose their tast for bad paper as well.
really good analysis Jim, and profoundly depressing.
— matoko_chan · Sep 19, 10:34 PM · #
Jim, I keep reading that an important factor in the housing crisis was the weird, nebulous status of Fannie and Freddie; that they encouraged a lot of the bad mortgages you are talking about by implying the government would guarantee risky loans. Both the Obama and McCain camps have latched on to this point, and your analysis is remarkable for excluding it. Any reason?
— Blar · Sep 19, 11:32 PM · #
I don’t think I probably agree with much of your political views Mr. Manzi, but this is the best explanation I’ve seen of the current crisis, the choices before us, and the possible fallout. My knowledge of economics is cursory at best, but I found this explanation to be straightforward and easy to follow.
It still makes my head explode trying to fathom the enormity of the mess we’re in though.
— J.W. Hamner · Sep 19, 11:47 PM · #
Jim,
As always Mr. Manzi, your analysis is lucid and persuasive. I would encourage you to write more about the financial crisis—I have been doing my best to sort it all out this week, and few pieces are as clear and straightforward as this one. Here is my question for you: what, in your view, is the correct “conservative” answer in terms of long term regulation? Do we limit leverage? regulate mortgage practices much more stringently? Regulate the hell out of derivatives? Do little or nothing at all? And what do you see as the adverse consequences of these solutions? I consider myself a fairly free-market type guy, but some of the causes of this crisis seem like straight up gambling—with taxpayer money, it turns out. I see little percentage in allowing that to continue; freedom is pretty awesome, but the freedom to play russian roulette with weird financial instruments doesn’t necessarily seem like one I want to go to the mattresses to protect. I always enjoy reading your stuff (particularly your work on global warming, which has shaped how I understand the policy options), and if you write more on this, I would encourage you to tackle topics like these. Thanks for all your good work!
— brendan · Sep 20, 01:45 AM · #
“…how much of the housing boom was a result of people bidding up the price of access to high-end primary and secondary education…”
I too think this is an angle worth exploring. The system of linking public schools to place of residence buries the high cost of a city’s better schools in home prices.
— Matt Frost · Sep 20, 02:01 AM · #
We’re essentially being told that now our economy is a mere game of confidence. If we close our eyes and believe (pray, maybe) then everything will be OK.
The adage of floating on a wing and a prayer is now reality.
Who in the heck would buy long-term U.S. treasury bonds without a high rate of interest reflecting the instrument’s risk. Answer: they won’t for long. The math isn’t there, neither is the money in the U.S. Treasury.
Hyper-inflation is on the way. I don’t know when it will start but when our currency starts to deflate then inflation is bound to shoot up. A huge current account deficit, a huge budget deficit, and interest owed on debt that we can’t pay from borrowing (selling more bonds) or from tax revenues = bad news.
Thank you George Bush.
— chunnel quack · Sep 20, 08:52 AM · #
A very great deal of what has happened stems from CLINTON’s deregulations of Wall St. Blaming Bush for these things shows how little you know. Dopes.
— Duh · Sep 20, 04:52 PM · #
I must commend to you all the analysis on short sellers and market corrections from Friday’s Lex, by the way. I’m not a comic-book guy (read: “loser”) but I think it’ll make i that much deeper for y’all.
— Sanjay · Sep 20, 07:30 PM · #
I’ve seen the ‘we’re nationalising a lot of stuff’ meme on American blogs a few times in the last few days. What I don’t get is that this seems to forget that fannie and freddie always were nationalised (via an implicit federal guarantee). When I lived and worked in the US (in the late 90’s) it always seemed odd that mortgages were managed through a pseudo-nationalised institution.
From what I read, it was the existence of these (implicit) federal guarantees that enabled the ‘private’ freddie and fannie to over-stretch so badly. Perhaps without these two huge nationalised players, the housing crisis would have played out quite differently.
— John McAleely · Sep 22, 12:31 PM · #
Duh-
I love it— it’s not Bush’s fault. It didn’t happen on his watch, it is all Clinton’s fault. That’s rich.
Was the repeal of Glass-Steagal pushed through at the 11th hour of the Clinton administration by republicans like Phil Gramm and supported by McCain? Yes.
Are we agreeing that deregulation is what got us into this mess? Yes.
Bottom line is this— which party is the party of deregulation?
Only a serious GOP partisan hack would look at this and try to blame the Dems. The one thing the Dems are on the hook for is not doing more to prevent this— but deregulation (and its consequences) is the GOP’s baby.
— zoe kentucky · Sep 22, 12:53 PM · #
Bottom line is this— which party is the party of deregulation?
Only a serious GOP partisan hack would look at this and try to blame the Dems. The one thing the Dems are on the hook for is not doing more to prevent this— but deregulation (and its consequences) is the GOP’s baby.
— zoe kentucky · Sep 22, 08:53 AM ·
*****
So whose “baby” is the concept of fighting “redlining”? Where lenders are basically FORCED to lend to UNQUALIFIED (mostly minority) borrowers who may not be able to pay back the loans? ANSWER: DUMOCRATS, that’s who. “Affirmative action” in the home-mortgage business……..GREAT IDEA, DUMOCRATS!! 8-)
— JC · Sep 22, 01:45 PM · #
I’m so untutored in this area that I’m grasping for the way-distant birds-eye-view of things, but it’s pretty apparent that “regulation” either was absent or was ineffective. Several people who seem to know have said that the framework from this catastrophe was put into place during the Clinton years. Don’t know if that’s true (or, if so, whether it was Clinton or the Rep. Congress) but let’s accept that that is so. And I’ll assume (being generous) that there was regulation to prevent the then-foreseeable problems with the altered framework. ——— But one thing I DO know, from work elsewhere, is that if there is money involved, in any way, there are going to be a host of wealthy people and skilled lawyers poking around and finding the weak spots in any kind of regulation or restriction. Their job is to “game the system” and make it (whatever shape ‘the system’ takes at any given point) work well for them, give them an advantage and therefore more money than others. This is one reason that tax law is so fascinating and the Tax Code so cumbersome: whenever there are rules, there are some very good minds looking for the loopholes, which leads to more rules, leading to a search for new loopholes in the revised landscape. —— So what I’m gathering happened is that a new financial frame-work came into being, probably during the Clinton years; regulations and restrictions were adopted that, in theory, took care of the problems that could arise from that framework; and then ………. during the Bush years, with the Republicans’ disinterest in and dislike for regulations, no one paid attention to the possible need for new or revised regulations to take care of the problems created as the wealthy and their lawyers found loopholes and started exploiting them. For example, this selling mortgages to the fifth and sixth person makes sense only as something that wasn’t planned to be part of the original arrangement but came into being because someone found out that it was a technique possible under the existing regulations and that got them more $$. As a mortgage-holder, I’ve known for years that they no longer stayed with one bank or mortgage company — and I bet there were economically-wise people who could (maybe did) predict the eventual end-result. But …. unless you are willing to enact regulations that would cut off such ultimately-harmful behavior, all you can do is sit and watch while it all plays out (and/or jump in and hope you can take advantage of the “game play” before it crashes). — Serious question, is this anything near an accurate or sort-of accurate bird’s-eye-view of what went on?
— Elizabeth · Sep 22, 02:30 PM · #
What you leave out, Jim, is that the government, Bush, especially, pushed the idea of an, remember this, “ownership society.” Not just a chicken in every pot but a home in which to put the pot on the stove. The government encouraged the lowering of standards for loans so that there would be a rise in home prices. These rising prices gave people the idea they had more money so they could get an loan against the increased equity and go out and spend on non necessities. As we’ve heard over and over again, our economy is based on consumer spending.
What Paulson seeks to do is take whatever action he can to make loans more available to the people. One way, stabilize the housing market and allow the banks to lend money to people who can’t afford to pay them back but the banks can sell these bad loans to the federal government. The idea is to get more money to the consumers so they can spend. All this does is to postpone for a few years another melt down. We really need an about face. We need to tell people to stop spending for a while and to save. But no one will do this because this will show we have an “emperor without clothes” economy based solely on loans and consumer spending. If Paulson and company were on the level, why don’t they state that every American home is now worth twice its fair market value. Then we can all go out and borrow against our equity and spend it keeping the society going. They won’t do that because it would be too transparent. So we go through these voodoo dances to cover the major problems in an economy that does not produce anything but borrows to spend.
— Matt Conn · Sep 22, 02:57 PM · #
I see it much more simply – For want of a nail, the shoe was lost, for want of the shoe, horse was lost, for want of the horse, battle was lost and so on and so forth until we took down the entire edifice of the US banking system. What also needs to be looked at is the faith these firm put in the rocket scientist sophistication derivatives that they based so many trades on pure mathematical theories that relied on expectations that events would occur as they always did. Derivatives brought down LTCM yet no one learned from that episode.
Also, take a little fraud, add a little stupidity, mix up with hubris, and top with dreams of unbelievable riches and there you have it.
— nclwtk · Sep 22, 03:02 PM · #
Very lucid analysis.
Here is the real bottom line: The days of easy credit are over. It is time to pay the piper. Setting up shop in Washington merely guarantees that those with the best lobbyists will get to pay less to said piper.
— centercut · Sep 22, 03:04 PM · #
If the Republicans did not like the Clinton administration’s deregulation they had 8 years to change it to a more regulated system. If they were concerned about excessive greed on Wall Street they could have taken this on but instead wanted to privatize Social Security. After this fiasco who wants their Social Security money managed by Wall Street?
— Leslie · Sep 22, 03:23 PM · #
@ Leslie: Apparently the Republicans tried.
— Blar · Sep 22, 03:37 PM · #
By the way, ignorance and humility keep me from endorsing Kevin Hassett’s view that the crisis was the Democrats’ fault, or from saying the Republicans’ bill was a good idea. I don’t know enough either way. But at least we can deflate the self-assured certitude that a chimeric Republican allergy to regulation is what made the banks sick.
— Blar · Sep 22, 03:45 PM · #
One of the more disturbing aspects of the bailout is that U.S. taxpayers are being asked to bailout foreign banks. Even AIG – my understanding is that of the 440 billion
in credit default swaps underwritten by AIG, over 300 billion are held by foreign entities. European banks, and I assume Asian as well as sovereign wealth funds, that
hold our mortgage paper will also be able to have their bad assets redeemed. I wouldn’t be surprised to learn that Bin Laden has investments in a Swiss bank that
included paper that the bailout covers. That’s how insane this has become.
— Tom Paine · Sep 22, 03:45 PM · #
What makes you think we aren’t experiencing bank-runs currently? People aren’t rushing into banks to demand cash; financial players are clicking buttons with their computer mice and transferring funds. The run is less visible, takes longer to play out, can be delayed and manipulated if not avoided and is much more powerful in real terms, if not psychological ones.
— WH Smith · Sep 22, 04:08 PM · #
“Redlining.” It is the practice of refusing to lend in an entire geographic area. This includes not lending to people who qualify for a loan, many of whom are trying to live the American dream and have a nice neighborhood. If you can’t get a loan, you’re not going to live in — and improve — a neighborhood.
Let’s not confuse that unethical and racist practice with lending to unqualiifed borrowers. Clinton was trying to eliminate redlining, not force stupid lending practices.
“Mostly minority” borrowers — of course we knew we’d hear this.
— Catherine K · Sep 22, 04:39 PM · #
Great article, very informative and easy to read, thanks! It amazes me that so many financial and investment institutions didn’t see the housing meltdown 5 years ago High and rising housing prices, plus crazier and crazier loans being made screamed “something’s got to change”.
It’s going to be an interesting next few weeks, months, year(s).
http://iwiLetter.com – send real letters, write online
— iwiLetter.com · Sep 22, 04:39 PM · #
JC — are you talking about CARTER-era reforms, that went into effect more than 30 years ago?? That’s where you’re laying the blame for this fiasco, and suggesting that it took 30 years to manifest? Give me an effing break. We know it was deregulation — the type McCain was praising just weeks ago — that caused this mess. Hence McCain’s sudden rebirth as a regulator who believes unrestrained greed is bad.
— RR · Sep 22, 04:45 PM · #
I think you’re missing a big key to the whole problem: leverage.
In 2004, the SEC specifically excluded the five major investment banks from previous leverage requirements. This meant that they were given the ability to lever-up to many times their balance sheets. This is the real problem, and the source of their huge gains during the good times.
It isn’t necessarily the mortgages that are the biggest problem here. It’s all the leverage that has been applied to those and other financial instruments relative to the level of capital.
— inthewoods · Sep 22, 04:49 PM · #
Fascinating analysis. I think that any attempt at making this a partisan issue is hugely shortsighted. The question in my mind is, where were the critics when this problem was developing?
— Joel · Sep 22, 04:57 PM · #
“ … in its essentials …”
Almost.
The fundamental cause of the current financial troubles is that bankers were making ill-advised home loans to people with minimal credit worthiness. Why would a “greedy” banker do such a stupid thing? Isn’t the idea behind greed to make loans that you believe will be payed back, with interest?
The answer is: bankers were coerced into making these loans by the Community Reinvestment Act, which made chartering and expansion moves (not to mention general political acceptibility) contingent upon having some percentage of loans out to individuals who were KNOWN to be less likely to repay them.
As an added bonus to this irrational policy, Fannie and Freddie were then there to repurchase bundles of these bad mortgages (with some reasonable loans thrown in), with the implicit knowledge that they were not going to be allowed to go under, because of their status as essentially nationalized lenders. Let the good times roll!
This “crisis” has the fingerprints of government control and meddling all over it. Since the reaction seems to be heading toward even more such meddling, we can expect more such crises in the future.
That mattress is starting to look like a pretty good bet.
— Roger_Z · Sep 22, 06:13 PM · #
The ‘ownership society’ was just a euphemism for ‘the Permanent Republican Majority’. The idea was to encourage enough people to have a stake in Republican policies that they would vote Republican despite an obvious stake in New Deal Democratic policies (which, by the way, the Republicans would love to dismantle for largely the same reason – to eliminate the stake in Democratic policies).
The most revealing quote I’ve heard in years was Alan Greenspan in response to the question “Do you think homeownership is always a good investment for individuals?”. His answer: “…in a Capitalistic society, it’s important for people to have a stake in the system”. Nothing about whether owning the home makes financial sense for the individual, just an inadvertently honest ideological response.
— littlenoodles · Sep 22, 07:01 PM · #
I think it’s pretty darned unfair to counter the it’s-all-Clinton’s-fault “conservatives” by asking them why their party didn’t fix the problem in the 7 1/2 years Bush has been in charge. I mean, gee whiz, where the heck would they have found the time to deal with something like the bubble while they were so busy screwing up everything else…
— BobN · Sep 22, 09:41 PM · #
This study from Jan 2008: http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf “The Community Reinvestment Act:
A Welcome Anomaly in the Foreclosure Crisis” suggests that the “it’s the fault of the Democrats and the CRA” argument should be uhm reevaluated.
— Bill Arnold · Sep 22, 11:56 PM · #
And then we have banks like BB&T who’s stock is at a five year high….And why???
Because they followed sound logical (9th grader level) practices in their lending and operations. What are they rewarded with….??
— Rick Crago · Sep 23, 12:58 AM · #
If this financial crisis had happened in the Republic of China, the clowns responsible would be taken to the nearest courtyard and unceremoniously given a bullet to the back of the head, even without having the opportunity to say good-bye to their spouses and kids. See how lucky it is that they live in a country where the government just says oh heres money to fix the problem we don’t know who’s responsible or who’s accountable…take this tax payer money and start over.
It really gets me mad that these rich bastards just grab their piggy bank and sail off into the sunset and say ‘what…me worry? Um, not my problem’.
— Michael J. Kovac · Sep 23, 05:35 AM · #
JC,
“So whose “baby” is the concept of fighting “redlining”? Where lenders are basically FORCED to lend to UNQUALIFIED (mostly minority) borrowers who may not be able to pay back the loans? ANSWER: DUMOCRATS, that’s who. “Affirmative action” in the home-mortgage business……..GREAT IDEA, DUMOCRATS!! 8-)”
We are talking about hundreds of billions to trillions of dollars in loans here. If this was the case then every poor black person in the US would have be living in million dollar mansions.
— Boonton · Sep 23, 12:58 PM · #
I notice with interest your use of the phrase “socialization of consequences”. It has been obvious but unspoken for a long time that conservatives are fine with socialization of RISKS as long as BENEFITS are privatized. One way or another, we need to balance that equation.
— Lee · Sep 23, 05:24 PM · #
Boonton, asked and answered by Bill Arnold’s post above: http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
Please read this, and if you still assert that it was the Democrats forcing the poor banks to put a bunch of unqualified minorities into homes they couldn’t afford that caused all this, please refute this study factually instead of name-calling.
— essbird · Sep 23, 06:49 PM · #
Deregulation is not the problem. The market would have stayed at appropriate risk levels had the government (read Democrat) not pressured loan agents into offering mortgages to people who could not repay them. So thank you Carter and Clinton and the members on both sides of the isle who supported the policy. In 2005 there was a bill to amend this whole situation, S.190, which Democrats, in love with socioeconomic equality, struck down. And, this didn’t happen merely under the watch of Bush, but under those in charge of the financial end of government, Chris Dodd (Senate Banking Committee Chairman) and Barney Frank (House Financial Services Committee Chairmen), both Democrats who should be forced to resign…Blame falls on them before it reaches the White House…
— A.T. · Sep 23, 07:05 PM · #
BobN and Essbird:
This study from Jan 2008: http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf “The Community Reinvestment Act:
A Welcome Anomaly in the Foreclosure Crisis” suggests that the “it’s the fault of the Democrats and the CRA” argument should be uhm reevaluated.
Boonton, asked and answered by Bill Arnold’s post above: http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
Please read this, and if you still assert that it was the Democrats forcing the poor banks to put a bunch of unqualified minorities into homes they couldn’t afford that caused all this, please refute this study factually instead of name-calling.
>Can this study measure CRA banks influence on non-CRA banks?
That is:
1. Do CRA lenders and non-CRA lenders have to compete with one another?
2. If yes to (1), then the CRA has had an indirect and tragic influence on the market, i.e. by arbitrarily forcing unwarranted market competition.
3. Also, do CRAs receive any compensation for falling under the CRA bill?
4. If yes to (3), then this would would give CRAs an unfair market advantage, thus forcing other non-CRA lenders to compete.
5. (3) reinforces (1) from which (2) follows, and (4) follows from (3). If (1) is true, then we have the CRA intervening on the free-market, thus indirectly causing the crisis, and therefore still the fault of liberal policies…
6. But if (1) is false, then I cede the point, namely that the core of the crisis is not the CRA. I will then look for other causes…
— A.T. · Sep 23, 08:44 PM · #