Saturday, September 27, 2008
Barack Obama asked that we explore the origins of the present financial crisis, and blamed the failed policies of the Bush administration. This video, while a single-minded in its identification of the villain, is the antidote.
I am not persuaded that the CRA was the only cause of the current crisis -- I think not -- but it is a lot more persuasive than blaming the "failed policies" of the Bush administration.
CWCID: Power Line. And Miss Ladybug!
I like the "Mish" blog ... Mitchell Shedlock, or something like that, at globaleconomicanalysis.blogspot.com ... months back he had a thread going that showed how debt-to-income had been allowed to grow at staggering proportion to the size of loans. And when one considers what isn't included in debt compared to historical periods, it's really scary. As I posted yesterday on a diff thread, speaking to whether we live better than our parents, think of all those things in modern budgets that weren't there in the 70s. Car lease payments, cellular bills, internet service, cable TV, not to mention lifestyle items like IPODs, designer clothing, bling.
Only thru derivative products (ARMs, interest only, pick-a-pay/Alt-A, 80-10-10/piggybacks, Option ARM, etc.) could you loan more and more, and drive prices of houses up. And with higher house valuations, you got HELOCs to run up even more. The bottom was due to fall out, and the people who couldn't qualify under the conventional products? big surprise they still didn't when they went to re-fi.
Boys, don't beat around the bush -- this financial meltdown was caused by greed. Pure simple greed.
All the changes in banking and investments were authorized so that the big players could make even more money. The consumer was being milked like a cow and the consumer was about as smart as a cow being milked.
Even the overseas banks who were prohibited by their national laws participated in the housing market derivatives because they thought they could make a fast buck. One of the banks on Malta just got stung because they were heavily invested in Lehman Brothers. Again they wanted to make a quick buck.
This has been building for years and the bottom line is greed. So don't bail out the greedy bankers with taxpayer money.
McCain really should take on the CRA as a well intentioned , but ultimately flawed, and poorly regulated program that fed into the DC corruption he has been battling his entire career. He can even admit how the Keating episode sobered him and set him off on this mission. He can state with authority that it is not unique to Republicans to be antithetical to regulations. It usually depends on who the regulatees are.
I thought you Princeton grads were smart enough to know that CRA covers only regulated depository institutions. The largest originators of subprime were not regulated financial institutions. Countrywide did not become a bank until most of its subprime orignations had already been sold to Fannie.
CRA provides none of the mechanisms that resulted in this crisis. Very few banks or thrifts ever received a poor CRA rating. Frankly, banks and thrifts had to do very little to obtain a satisfactory CRA rating. They could easily obtain such a rating without making any motgage loans to subprime borrowers. For all practical purpuses CRA includes no
penalties for a poor rating. A more frequent exam perhaps but there is no risk tied to a poor CRA rating that would cause regulated lenders to make such risky loans. The ACORNs of the world have been whining for years that not enough banks were being given poor ratings.
Further if CRA were repsonsible wouldn't the crisis have been more widespread geographically since CRA applies to all regulated lenders everywhere. The bad loans are concentrated in California and a few other states. I'm convinced there is yet to be uncovered mortgage lending practices that for whatever reason flourished in these hard hit states.