Anybody heard of the “Community Reinvestement Act”? This went in under Clinton-banks were “encouraged” to write mortgages for people who could not afford them. Later, the fact that Ginnie Mae and Fannie Mae would underwrite marginal mortgages, led to a huge inflation in house prices-all of a sudden dumpy houses were selling for big bucks. Then, people started “flipping” houses-and this drove prices up more.
So it was financial “musical chairs”-and the whole rickety structure collapsed-once the borrowers began to default. Now we have a huge amount of unsold housing, which will depress house prices for years. It was a typical boom followed by a bust.
Business journalist Steven Pearlstein seems to think so:
(Link is to Washington Post – requires an email address to register, but is free)
Bolding mine.
Going back to the CRA is total BS. That act was passed 30 YEARS ago and only applied to banks, not the mortgage vultures that were the primary perpetrators of the crisis. The act did not encourage loans to those that could not pay. Do your homework. There was plenty of time to make adjustments if there were errors in the initial act. The CRA also produced a lot of results that are readily apparent to those that have witnessed the reconstruction of urban areas that were otherwise beyond redemption. The CRA had nothing to do with condo flippers and speculators in Florida, Las Vegas and other “hot” real estate developments.
As for “W” Bush:
Benign neglect!
There were those that saw this coming but he and his administration chose to ignore it because it was the only thing that was propping up economic policies that were doomed to fail. At least the dot-com bubble was supplying some technological advances. The housing bubble was just building shit for people that couldn’t afford the prices they were paying. Along with that, there was a mad rush to get people to take equity out of their only source of equity. How is this not a train wreck waiting to happen?
The weird thing is, and as you might have guessed, I have almost nothing good to say about the “W” Bush Administration, if his privatization of Social Security had passed it might have worked for all of the wrong reasons. He structured the plan so that it would not take effect until after he was out of office (which came none too soon). We could have been awaiting the day when a lot of money would start flowing into the stock market and would rescue the current nosedive. The massive investment would have occurred when the market was at a low and those making the investment might have profited handsomely because of the bounce. Just a thought.
How many mortgages did Ginnie and Fannie write.?The answer is zero. they backed them. The mortgages were written by lots of fly by night mortgage companies that took their billions and ran. They wrote unregulated, ridiculous mortgages which they sold off in minutes.A vlittle bit of regulation would have prevented the mess.
Don’t much cotton to your tone, there, pardner. Seems like you using “cite” for a ploy, less about engaging debate than offering a pre-emptive sneer. Its entirely true, I’ve read about “deregulation” from several lefty sources, plus some centrist, and not a few just to the left of Otto Von Bismarck. So you can take your snotty innudendo about my dependence on biased sources and give it my best regards.
And this just after you say (and I quote)
Without so much as a hint…not a shadow of the whisper of an authority outside of your esteemed self. And then you turn around and insist I do the Dance of the Seven Googles for your approval!
Really, pal, who are you kidding?
I believe that they bought a lot of them.
Would you agree that Fannie and Freddie bought a lot of these? Or do you think Fannie and Freddie had problems recently for some unrelated reason?
Regulation such as that being proposed in the video I linked to?
That’s the best post I’ve read on this Board in a long, long time. Thanks for taking the time to write it up.
Read what gonzomax said. They didn’t write them, they backed them. That’s what they were told to do. Did the Bush Administration do anything in their eight years to put the brakes on the idiocy? Eight year is enough time to do some analysis to avoid a crisis. Again, the housing boom was the only thing that was keeping the economy looking somewhat respectable but it was all a house of cards (excuse the pun). It’s not like there haven’t been housing busts in the past. There was a housing bust around 1980. Chicago condos busted, ski resort condos busted, then New York co-ops busted. You could have made some lucrative deals at the time. It’s just that those busts were more localized. The lesson wasn’t learned, the greedy started up again and took it to a national level. Now we all suffer.
In the same sense the S&L crisis should have taught us a lesson about too much deregulation. Was the lesson learned? No! Now the consequences are hundreds of times more severe.
I think timing played a huge role as well. The election cycle simply could not have come at a worse time. Bush was going out of office and then an official lame duck at a time when it was VITAL someone be at the helm. I think he could have done a hell of a lot more than he did, but I don’t think anyone would have been as strong as a president not on the cusp of becoming a ‘librarian’.
*I believe it’s Gore Vidal who refers to ex presidents as librarians, the men whose main power left is over building of their presidential library.
It has to be added that Republicans have done their damnedest to assign almost all the blame of the meltdown on the democrats in congress, the ratio of the blame is in reality the reverse:
Hey, since this is GD and not IMHO, can we stop with the “nobody could have seen this coming meme please?” It was bad enough to hear it from Dick Fuld, and even worse that it’s repeated ad nauseum. It is true that the global financial markets were all skewed to short term profit from the greatest Ponzi scheme in human history, but it is simply not true that no one said the ‘emperor has no clothes.’ Warren Buffet being a prominent example.
Here’s what I don’t get about the whole mess. Why did Lehmans, UBS, Merrill et al have so much of this crap on their proprietary books? When I worked at Lehmans, the golden rule was you keep the sprinkles on top of the icing on the cake, and you give the rest of it into your clients. You never ever take anything less than the frosting onto your own books, and you proudly jam radioactive waste into your client base. Instead Lehman’s took on the radioacctive waste themselves, and of course it didn’t help that Dick doubled down about a year ago.
The Glass –Steagall Act was intended to curb wild speculation and prevent an economic catastrophe that only an unchecked all in one financial sector can cause.
The Gramm-Leach-Bliley Act allowed banking conglomerates to control deposits, loans, insurance, securities, and real estate. Consequently, the depository banks essentially became giant hedge funds, investing large sums of highly leveraged bank deposits in risky speculation for financial gain. Hedge funds made enormous profits and eventually unthinkable losses by partnering with the largest federally insured depository banks.
The Commodity Futures Modernization Act of 2000 gave banks unregulated authority to create hybrid investment instruments which led to the esoteric derivatives upon derivatives that no one understands, and both Gramm-Leach-Bliley and Futures Modernization gave lucky California rolling blackouts thanks to Enron and energy trading.
Sarbanes-Oxley changed corporate governance, allowing limited liability partnerships. Rating agencies as well as Law and Accounting firms hired to protect share holders and the public with honest disclosure can now enabled cheating by one partner without any shared liability or financial risk to the firm.
I consider all of these examples of the deregulation or reregulation that helped set the stage for the grand finale of a global economic collapse.
True. Warren Buffet’s warning about derivatives in 2002 could have been written yesterday.
Somebody came up with a new and improved Ponzi scheme. That is precisely the kind of thing that absolutely does need to be regulated.
It is impossible to know if any other administration would have heeded the warnings about impending systemic collapse. On the other hand, you can’t just assume they would have ignored them like the Bush administration did.
Similarly, it is unclear how much the anti-regulation stance of the Bush administration, along with giving the private sector anything they wanted (such as giving banks the new bankruptcy laws they asked for), contributed to the problem.
What is clear is that the Bush administration did about as bad a job as possible. Inaction in the face of impending disaster, except for occasionally acting to make the problem worse.
Please don’t perpetuate this lie. From The Federal Reserve:
Fannie and Freddie started with more stringent requirements on the loans they bought than most. They did go astray, partially because they were privatized, and partially because of the demand for high yielding crap loans from the market, helped on by the improper rating of these loans. Plus, as Spartydog said, the worst culprits were not covered by CRA, and so CRA cannot be blamed. CRA also does not explain why brokers were incentivized to push risky loans. The increased profit from their high interest rates explains it quite well.
Did they buy (much of) them or not? And were their policies a significant part of the problem or not? And a few years ago, were the democrats defending those policies or not?
From the video, I gather that something was done, but I understand that Bush was also pushing the “idiocy” along with the democrats. Or at least not objecting very much to it.
As noted above, I think Steve Sailer has an interesting point.
In terms of the Community Reinvestment Act, here is a graph which purports to show CRA Dollar commitments (by banks) over time. Assuming the graph is correct, one can ask why a 30-year old law would suddenly start having such a big effect on dollar commitments roughly 10 years ago and rise dramatically over the last few years.
What’s nice about the here and now is that Republican attempts to protect their sacred cows and blame their favorite targets are not holding sway.
In fact, they are being exposed for fools. John Sununu went on The Daily Show, and his agenda was clear. He said “Fannie and Freddie” in nearly every sentence, but nobody was buying.
For the moment, responsible people are in charge. I can only hope at how long.
Perhaps a memory issue. Does anyone else recall how often GW waxed rhapsodic about the wonderful, wonderful housing market, how it was an “engine” for the economy, and the wonderful, wonderful “ownership society”?
Not object very much? I daresay.
If you say so. I’m certainly not trying to argue that Bush (and the Republicans) are innocent in this.
There is a local story 9leominster, MA), about a Brazilian alien who was able to obtain 3 “jumbo” mortgages, on three houses. He then sold all three, and kept the profits (he has since disappeared). What manner of financial institution would grant a mortgage (or three0 to such a client? What sort of lawyer would recommend granting a mortgage to such a man?
odf course, the bank/financial institution is now stuck with the houses-which are now orth a fraction of the mortgage debt.
Just asking.