Subprime Scandal...spin this boutons

[TheSanityAnnex]

http://news.investors.com/ibd-editorials/012215-735877-whistleblower-reveals-pelosi-covered-up-government-role-in-housing-crisis.htm#disqus_thread


Subprime Scandal: We've long suspected the Financial Crisis Inquiry Commission wasn't honest in examining events before the meltdown. But an ex-commissioner says the probe was actually a full-blown political cover-up.
In a just-released book, former FCIC member Peter Wallison says that a Democratic Congress worked with the commission's Democratic chairman to whitewash the government's central role in the mortgage debacle. The conspiracy helped protect some of the Democrats' biggest stars from scrutiny and accountability while helping justify the biggest government takeover of the financial sector since the New Deal.
Wallison's sobering, trenchantly written "Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis and Why It Could Happen Again" reveals that the Democrat-led panel buried key data proving that the U.S. Department of Housing and Urban Development and other federal agencies pushed the housing market over the subprime cliff. The final FCIC report put the blame squarely on Wall Street.
In 2009, then-House Speaker Nancy Pelosi appointed her California pal Phil Angelides, a long-time Democrat operative, to lead the commission. The fix seemed to be in, and Wallison's account of the inner workings of the 10-member body confirms it. Here's what took place during the FCIC's 18-month, $10 million probe:
• Angelides provided no staff to help Wallison and other Republicans interview witnesses, conduct research (http://research.investors.com/) or draft the report. But commission Democrats were assigned almost 80 staffers to help formulate their single theory that bank risk-taking and greed unleashed by deregulation caused the crisis.
• Angelides never notified Wallison or other commissioners about the hundreds of witnesses he called to testify in closed-door interviews with his staff, denying them the chance to cross-examine the witnesses.
• Staffers failed to put these private witnesses under oath, even though the final report was based almost exclusively on their testimony with little or no documents or data to back up their statements, which simply validated the Democrat narrative.
• Angelides buried evidence revealing that by 2008, three in four high-risk mortgages wound up on the books of HUD-controlled Fannie Mae and Freddie Mac or agencies such as the Federal Housing Administration. A data-rich memo by former Fannie Mae chief credit officer Ed Pinto proved that government, not the private sector, drove risky lending. But Pinto's research "was never formally made available by the chair or staff to the other members of the FCIC," Wallison writes.
• Angelides withheld the final draft of the report from Wallison and other commissioners until eight days before sending it to the printer, never giving them the time they needed to go over the wording or content of the almost 900-page draft.

Angelides effectively censored any hard evidence that the government's housing policies were the predominant cause of the financial crisis. The best-selling report was cooked up from the start.
"The FCIC majority misused its mandate for political purposes," Wallison writes, adding that the panel made sure its findings supported Democrat demands for a "new New Deal" that would put even more of the banking industry under federal control.
Democrats passed the Dodd-Frank Act in July 2010, six months before the FCIC released its report — "a clear demonstration that the Democratic Congress knew well in advance exactly what this well-controlled commission would say." After Dodd-Frank shockingly left Fannie and Freddie untouched, the FCIC excused the glaring oversight by exonerating the toxic twins and their affordable-housing masters at HUD.
As a result, Fannie and Freddie, now under full federal control, are back making low down payment loans to low-income borrowers, and the Dodd-Frank-mandated Consumer Financial Protection Bureau is forcing banks to ignore credit risks in the name of affordable housing.
A corrupt investigation led to corrupt reforms. What we need now, in light of Wallison's revelations, is an investigation of the investigation, along with a top-to-bottom review of Dodd-Frank rules. It's necessary that Republicans hold public hearings so Americans will know how they were lied to about the crisis and how they're being led down the garden path.


Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/012215-735877-whistleblower-reveals-pelosi-covered-up-government-role-in-housing-crisis.htm#ixzz3Pge318FP
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[boutons_deux]

IBD still blaming the govt for the housing crisis?

what "hard evidence" does IBD or anybody have that the govt policies caused the financial/housing crisis?

[CosmicCowboy]

Fannie and Freddy encouraged and lapped up the shit loans. It is what it is boo. They wrote the rules.

[FuzzyLumpkins]

Fannie and Freddy encouraged and lapped up the shit loans. It is what it is boo.

Fannie and Freddy didn't originate the derivatives of said debt. If that had been all it had been it would have been contained fiscally. Bad debt is one thing and lord knows the feds work with it but it was the repeated doubling down and dispersals that caused the destruction of everyone's wealth.

[CosmicCowboy]

Fanny and Freddy helped launder the shit loans into A paper. The rest followed.

[ElNono]

That was a mess with many fathers... OP looks like he wants to sell books...

[Th'Pusher]

That was a mess with many fathers... OP looks like he wants to sell books...
No shit. Are we still trying to assign blame for 2008?

[The Reckoning]

what's fucked is how we're brainwashed into believing everyone has to go to college and grad school so the loaners (freddie and fannie included) can charge 6%+ on student loans and enslave the millennials to decades of debt to pay off the clusterfuck that CC's generation gave us.

[ElNono]

No shit. Are we still trying to assign blame for 2008?

well, why not? But that was such a massive clusterfuck, a lot of people were just looking the other way...

[pgardn]

There were a number of financial institutions that did not touch those loans. They knew exactly how bad those things were and how deceptively packaged they were. It's sad that so many individuals in financial institutions clearly made greedy knowingly deceptive decisions and still have winter and summer homes.

So many people participated individually knowing how deceptive the whole mess was. And they are walking around totally unscathed. That... Pisses me off.

[boutons_deux]

Fannie and Freddy encouraged and lapped up the shit loans. It is what it is boo. They wrote the rules.

encouraged? evidence

I suspect they kept buying shitty loans that they suspected were shit, but they weren't the originators, and they weren't the only buyers of that shit. IIRC, the vast majority of the toxic loans weren't bought by them, but by Wall st, private investors, non-regulated banks, etc.

Yoni, tell us again how the housing crisis was CAUSED by "RACIST" CRA! :lol

[m>s]

The bankers rule this country and every other in the west. You want justice? You'd better grab your rifle and organize into militias because that's the only way you'll be getting it. These guys could buy you 1000 times over.

[spurraider21]

The bankers rule this country and every other in the west. You want justice? You'd better grab your rifle and organize into militias because that's the only way you'll be getting it. These guys could buy you 1000 times over.
you must be so damn miserable. i pity you

[m>s]

Yeah I would ask you to explain how any of that is anything but the total truth but you and I both know you can't do that. Sometimes you have to be a man and face reality even if its "miserable." If you don't like something its up to you to make that change, don't just sit around waiting for an indictment that'll never come

[spurraider21]

Yeah I would ask you to explain how any of that is anything but the total truth but you and I both know you can't do that. Sometimes you have to be a man and face reality even if its "miserable." If you don't like something its up to you to make that change, don't just sit around waiting for an indictment that'll never come
if that's really how you feel then get the fuck off of spurstalk and go do something instead of ranting here and occasionally posting pictures of black dick

[m>s]

I currently taking more measures than you that's for sure. Spurstalk is like something I do when I'm taking a dump.

[spurraider21]

I currently taking more measures than you that's for sure. Spurstalk is like something I do when I'm taking a dump.
any examples you'd like to share?

[m>s]

Lol no not here or with you. It's all legal though

[m>s]

Actually I could probably be thrown in jail in a lot of european countries, especially in London those cocksuckers are hardcore authoritarian leftists masquerading as socialists. Fuck the queen that old ****!!!

[spurraider21]

so nothing. ok

[Winehole23]

Fanny and Freddy helped launder the shit loans into A paper. The rest followed.That's not quite right. The dealer-brokers laundered it into A paper, Fannie and Freddie were used as sponges to soak up the bad paper when the credit crunch hit in 2007.

[CosmicCowboy]

Danny and Freddy set the guidelines of what they would and would not accept. Those shit "don't have to prove income" loans? Fanny and Freddy approved. Those toxic ARMs where the buyers clearly didn't have the income for the escalation? Fanny and Freddy approved. You can blame it on the loan originators (which admittedly were dishonest) but it was the equivalent of F & F leaving a few thousand dollars (per loan) just laying on the sidewalk and expecting everyone to be honest and not pick it up and keep it.

[CosmicCowboy]

F & F were totally complicit in acquiring, packaging, mislabeling as A paper and then flipping the shit loans to investors.

[CosmicCowboy]

"Success" and bonuses at F&F were based on volume and not quality. The financial incentive for F&F managers was to accept and package as many loans as possible, bad or not. These were not innocent bureaucrats victimized by mortgage originators and brokers. They were all in it together but if F&F guidelines had been tighter they could have never pulled it off.

[ElNono]

Danny and Freddy set the guidelines of what they would and would not accept. Those shit "don't have to prove income" loans? Fanny and Freddy approved. Those toxic ARMs where the buyers clearly didn't have the income for the escalation? Fanny and Freddy approved. You can blame it on the loan originators (which admittedly were dishonest) but it was the equivalent of F & F leaving a few thousand dollars (per loan) just laying on the sidewalk and expecting everyone to be honest and not pick it up and keep it.

No shit. F & F did not rate those loans, they were mandated to trust banks/ratings agencies to do that. Certain banks went as far as filing made up documents.

This whole thing was an historic gaming of the system. You could argue the "system" was flawed/rigged to begin with, but the fact remains that the perpetrators not only got bailed out, they also just paid some slap in the wrist fines (not even all of them) and moved along. Now they're fighting to remove the regulations that came afterwards to stop a lot of this. It's ridiculous, if not for the reality that they're likely going to get away with it again.

[CosmicCowboy]

Individual loans were packaged into bulk loan packages by F&F which were then "rated" by the agencies so they could be converted to bonds. F&F was all over this. They weren't "duped" by dishonest originators. They were all dirty. Everybody got paid.

[ElNono]

It wasn't F&F forging documents about those loans to make them seem better than they were. They were also not in charge of putting a rating on them.

It was certainly a fairly unregulated system open to abuse, and that's exactly what happened.

[Winehole23]

Blaming the mess on public policy and GSEs is a smokescreen. They played a role, but the bust was global. The banks got too greedy and soaked us twice ---in the mortgage bubble and then in the bailout. It was financial fraud. The Commodities Modernization Act and countercyclical Fed policy had far more to do with it than unqualified buyers.

[Winehole23]

http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/

[boutons_deux]

http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/

The Community Reinvestment Act of 1977 is a favorite boogeyman for some, despite the numbers that so easily disprove it as a cause." PussyEater, you readin'? :lol

[Winehole23]

related threads:

http://www.spurstalk.com/forums/showthread.php?t=186162
http://www.spurstalk.com/forums/showthread.php?t=179914
http://www.spurstalk.com/forums/showthread.php?t=181967
http://www.spurstalk.com/forums/showthread.php?t=182465
http://www.spurstalk.com/forums/showthread.php?t=163727

[Winehole23]

A study by the Federal Reserve (http://www.federalreserve.gov/pubs/feds/2011/201136/index.html)shows that more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. The study found that the government-sponsored enterprises were concerned with the loss of market share to these private lenders — Fannie and Freddie were chasing profits, not trying to meet low-income lending goals.so much for the GSEs, the CRA of 1977, irresponsible poor folks and minorities causing the Great Panic of 2008.

[boutons_deux]

so much for the GSEs, the CRA of 1977, irresponsible poor folks and minorities causing the Great Panic of 2008.

and those criminal mortgage clients, LYING on their mortgage applications! horrors!

The good-faith mortgage originators trusted the applicants on their word and whatever the fuck they put on their applications, required no other docs, and had no way to verify any of the info.

[Winehole23]

fiduciary responsibility was not upheld, due diligence, pointedly overlooked.

[Winehole23]

the GSEs were subsequently used as a heat sink for systemic fraud.

[Winehole23]

the implicit guarantees of the government were upheld. the GSEs made all the bad paper they acquired payable.

[Winehole23]

TSA: nothing to say about his own OP or the various replies to it.

[RandomGuy]

http://news.investors.com/ibd-editorials/012215-735877-whistleblower-reveals-pelosi-covered-up-government-role-in-housing-crisis.htm#disqus_thread


Subprime Scandal: We've long suspected the Financial Crisis Inquiry Commission wasn't honest in examining events before the meltdown. But an ex-commissioner says the probe was actually a full-blown political cover-up.
In a just-released book, former FCIC member Peter Wallison says that a Democratic Congress worked with the commission's Democratic chairman to whitewash the government's central role in the mortgage debacle. The conspiracy helped protect some of the Democrats' biggest stars from scrutiny and accountability while helping justify the biggest government takeover of the financial sector since the New Deal.
Wallison's sobering, trenchantly written "Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis and Why It Could Happen Again" reveals that the Democrat-led panel buried key data proving that the U.S. Department of Housing and Urban Development and other federal agencies pushed the housing market over the subprime cliff. The final FCIC report put the blame squarely on Wall Street.
In 2009, then-House Speaker Nancy Pelosi appointed her California pal Phil Angelides, a long-time Democrat operative, to lead the commission. The fix seemed to be in, and Wallison's account of the inner workings of the 10-member body confirms it. Here's what took place during the FCIC's 18-month, $10 million probe:
• Angelides provided no staff to help Wallison and other Republicans interview witnesses, conduct research (http://research.investors.com/) or draft the report. But commission Democrats were assigned almost 80 staffers to help formulate their single theory that bank risk-taking and greed unleashed by deregulation caused the crisis.
• Angelides never notified Wallison or other commissioners about the hundreds of witnesses he called to testify in closed-door interviews with his staff, denying them the chance to cross-examine the witnesses.
• Staffers failed to put these private witnesses under oath, even though the final report was based almost exclusively on their testimony with little or no documents or data to back up their statements, which simply validated the Democrat narrative.
• Angelides buried evidence revealing that by 2008, three in four high-risk mortgages wound up on the books of HUD-controlled Fannie Mae and Freddie Mac or agencies such as the Federal Housing Administration. A data-rich memo by former Fannie Mae chief credit officer Ed Pinto proved that government, not the private sector, drove risky lending. But Pinto's research "was never formally made available by the chair or staff to the other members of the FCIC," Wallison writes.
• Angelides withheld the final draft of the report from Wallison and other commissioners until eight days before sending it to the printer, never giving them the time they needed to go over the wording or content of the almost 900-page draft.

Angelides effectively censored any hard evidence that the government's housing policies were the predominant cause of the financial crisis. The best-selling report was cooked up from the start.
"The FCIC majority misused its mandate for political purposes," Wallison writes, adding that the panel made sure its findings supported Democrat demands for a "new New Deal" that would put even more of the banking industry under federal control.
Democrats passed the Dodd-Frank Act in July 2010, six months before the FCIC released its report — "a clear demonstration that the Democratic Congress knew well in advance exactly what this well-controlled commission would say." After Dodd-Frank shockingly left Fannie and Freddie untouched, the FCIC excused the glaring oversight by exonerating the toxic twins and their affordable-housing masters at HUD.
As a result, Fannie and Freddie, now under full federal control, are back making low down payment loans to low-income borrowers, and the Dodd-Frank-mandated Consumer Financial Protection Bureau is forcing banks to ignore credit risks in the name of affordable housing.
A corrupt investigation led to corrupt reforms. What we need now, in light of Wallison's revelations, is an investigation of the investigation, along with a top-to-bottom review of Dodd-Frank rules. It's necessary that Republicans hold public hearings so Americans will know how they were lied to about the crisis and how they're being led down the garden path.


Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/012215-735877-whistleblower-reveals-pelosi-covered-up-government-role-in-housing-crisis.htm#ixzz3Pge318FP
Follow us: @IBDinvestors on Twitter (http://ec.tynt.com/b/rw?id=dW0sw4iSyr3P7iab7jrHtB&u=IBDinvestors) | InvestorsBusinessDaily on Facebook (http://ec.tynt.com/b/rf?id=dW0sw4iSyr3P7iab7jrHtB&u=InvestorsBusinessDaily)


Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/012215-735877-whistleblower-reveals-pelosi-covered-up-government-role-in-housing-crisis.htm#ixzz3PgdpuS6B
Follow us: @IBDinvestors on Twitter (http://ec.tynt.com/b/rw?id=dW0sw4iSyr3P7iab7jrHtB&u=IBDinvestors) | InvestorsBusinessDaily on Facebook (http://ec.tynt.com/b/rf?id=dW0sw4iSyr3P7iab7jrHtB&u=InvestorsBusinessDaily)

Shocking. An editorial uses a book by someone with every motive to exaggerate for sales as evidence.

I'm convinced.

[boutons_deux]

New Study Shows Why It Makes Absolutely No Sense to Blame the Poor for the Financial Crisis


Irresponsible lending might have been one of the many causes of the financial crisis—but not just irresponsible lending to poor people, according to a new study.

“The large majority of mortgage dollars originated between 2002 and 2006 are obtained by middle- and high-income borrowers (not the poor),” the authors write.

“In addition, borrowers in the middle and top of the distribution are the ones that contributed most significantly to the increase in mortgages in default after 2007.”

Rich people tend to take out larger mortgages, of course, but the fact is that the amount of money poor borrowers failed to pay back was just never that significant, as this chart from the paper shows.

In case you have a hard time believing that so many larger mortgages could have gone into default, The Washington Post just published a series of stories on subprime, sometimes predatory lending in relatively affluent places such as Prince George’s County, Md., outside Washington, D.C.

http://www.truthdig.com/eartotheground/item/study_shows_makes_no_sense_blame_poor_financial_cr isis_20150128?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%253A+Truthdig+Truthdig%253A+Dril ling+Beneath+the+Headlines

[boutons_deux]

the 1%, VRWC, Repugs blaming the poor and the fed govt for the Banksters Great (Jobs) Depression is just one of their NON-STOP LIES that the their base swallows as Bible "truth".

I'm looking at you, Yoni! :lol CRA! :lol

[Agloco]

Spurstalk is like something I do when I'm taking a dump.

And it definitely reflects in your postings.

[m>s]

Nuclear be@ner

[Winehole23]

Nuclear be@neryours continually circles the drain

[boutons_deux]

Breaking Silence, Richard Fuld Speaks on Love, Putin and ‘Rocky’

‘You can say whatever you want about me. I’m O.K. because I know my mother loves me,’ ” he said to a crowd of 1,300 financial professionals. “And my mother still loves me. She’s 96.” :lol

Explaining the origins of the financial crisis, Mr. Fuld avoided any mention of investment banks’ eagerness to issue subprime mortgages. (Lehman had an enormous portfolio of subprime loans.) :lol

At the root of the crisis, in his view, was the government’s push for homeownership. :lol ( here's to you Pussy Eater and CC! )

capitalism only works if it starts at the top and filters down. :lol

“Lehman Brothers at the point of 2008 was not a bankrupt company.” :lol

http://mobile.nytimes.com/2015/05/29/business/dealbook/richard-fuld-breaks-his-silence-since-lehmans-collapse.html?_r=0

trickle down works! :lol

govt FORCED lenders, esp non-regulated/shadow-bank lenders, to write, AND FLIP, all those toxic mortgages! :lol

He obviously, from the stupidity above, didn't get to the head of Lehman with smarts, so he must be one nasty, back-stabbing, cheating, filthy sonofabitch.

[RandomGuy]

http://news.investors.com/ibd-editorials/012215-735877-whistleblower-reveals-pelosi-covered-up-government-role-in-housing-crisis.htm#disqus_thread


Subprime Scandal: We've long suspected the Financial Crisis Inquiry Commission wasn't honest in examining events before the meltdown. But an ex-commissioner says the probe was actually a full-blown political cover-up.
In a just-released book, former FCIC member Peter Wallison says that a Democratic Congress worked with the commission's Democratic chairman to whitewash the government's central role in the mortgage debacle. The conspiracy helped protect some of the Democrats' biggest stars from scrutiny and accountability while helping justify the biggest government takeover of the financial sector since the New Deal.
Wallison's sobering, trenchantly written "Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis and Why It Could Happen Again" reveals that the Democrat-led panel buried key data proving that the U.S. Department of Housing and Urban Development and other federal agencies pushed the housing market over the subprime cliff. The final FCIC report put the blame squarely on Wall Street.
In 2009, then-House Speaker Nancy Pelosi appointed her California pal Phil Angelides, a long-time Democrat operative, to lead the commission. The fix seemed to be in, and Wallison's account of the inner workings of the 10-member body confirms it. Here's what took place during the FCIC's 18-month, $10 million probe:
• Angelides provided no staff to help Wallison and other Republicans interview witnesses, conduct research (http://research.investors.com/) or draft the report. But commission Democrats were assigned almost 80 staffers to help formulate their single theory that bank risk-taking and greed unleashed by deregulation caused the crisis.
• Angelides never notified Wallison or other commissioners about the hundreds of witnesses he called to testify in closed-door interviews with his staff, denying them the chance to cross-examine the witnesses.
• Staffers failed to put these private witnesses under oath, even though the final report was based almost exclusively on their testimony with little or no documents or data to back up their statements, which simply validated the Democrat narrative.
• Angelides buried evidence revealing that by 2008, three in four high-risk mortgages wound up on the books of HUD-controlled Fannie Mae and Freddie Mac or agencies such as the Federal Housing Administration. A data-rich memo by former Fannie Mae chief credit officer Ed Pinto proved that government, not the private sector, drove risky lending. But Pinto's research "was never formally made available by the chair or staff to the other members of the FCIC," Wallison writes.
• Angelides withheld the final draft of the report from Wallison and other commissioners until eight days before sending it to the printer, never giving them the time they needed to go over the wording or content of the almost 900-page draft.

Angelides effectively censored any hard evidence that the government's housing policies were the predominant cause of the financial crisis. The best-selling report was cooked up from the start.
"The FCIC majority misused its mandate for political purposes," Wallison writes, adding that the panel made sure its findings supported Democrat demands for a "new New Deal" that would put even more of the banking industry under federal control.
Democrats passed the Dodd-Frank Act in July 2010, six months before the FCIC released its report — "a clear demonstration that the Democratic Congress knew well in advance exactly what this well-controlled commission would say." After Dodd-Frank shockingly left Fannie and Freddie untouched, the FCIC excused the glaring oversight by exonerating the toxic twins and their affordable-housing masters at HUD.
As a result, Fannie and Freddie, now under full federal control, are back making low down payment loans to low-income borrowers, and the Dodd-Frank-mandated Consumer Financial Protection Bureau is forcing banks to ignore credit risks in the name of affordable housing.
A corrupt investigation led to corrupt reforms. What we need now, in light of Wallison's revelations, is an investigation of the investigation, along with a top-to-bottom review of Dodd-Frank rules. It's necessary that Republicans hold public hearings so Americans will know how they were lied to about the crisis and how they're being led down the garden path.


Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/012215-735877-whistleblower-reveals-pelosi-covered-up-government-role-in-housing-crisis.htm#ixzz3Pge318FP
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Follow us: @IBDinvestors on Twitter (http://ec.tynt.com/b/rw?id=dW0sw4iSyr3P7iab7jrHtB&u=IBDinvestors) | InvestorsBusinessDaily on Facebook (http://ec.tynt.com/b/rf?id=dW0sw4iSyr3P7iab7jrHtB&u=InvestorsBusinessDaily)

Meh. Another half-truth rehash.

"government is all to blame, and Democrats bad".

Plenty of blame to spread around for the financial crisis. Government, private sector both played a part.

If all you got is an op ed, blaming one party, and just the government, it is either being deliberately dishonest, or shockingly ignorant.

Which is it, dishonest or shockingly ignorant?

[boutons_deux]

"Plenty of blame to spread around for the financial crisis. Government..."

govt? how so? F & F? they don't lend money, they insure mortgages, and buy mortgages already written by regulated and UNregulated lenders who are required to qualify borrowers against Federal regulations.

[Winehole23]

Which is it, dishonest or shockingly ignorant?false dilemma, the two can coexist. in fact, the latter is a common precondition of the success of the latter. posters lap up newspaper lies like milk in the saucer if it flatters their political preference.

[Winehole23]

No shit. Are we still trying to assign blame for 2008?yep.

Trump's economic gurus let the zombie out of the closet. It never died:


Two of Donald Trump’s economic advisers, Lawrence Kudlow and Stephen Moore, have revived an idea about the source of the financial crisis that really should have been put to rest long ago.


In a column (http://www.cnbc.com/2016/05/28/are-the-clintons-the-real-housing-crash-villains.html) published and rebroadcast by many politically sympathetic sites, they lay the blame for the credit crisis and Great Recession on the Community Reinvestment Act (https://www.ffiec.gov/cra/), a 1977 law designed in part to prevent banks from engaging in a racially discriminatory lending practice known as redlining (http://www.investopedia.com/terms/r/redlining.asp). The reality is, of course, that the CRA wasn’t a factor in the crisis.


What’s so wonderful about their article, which is an attempted take down of the Clintons, is that they miss the very obvious ways Bill Clinton’s administration did contribute to the financial crisis. But doing that would have been at odds with their anti-regulatory philosophy.

http://www.bloomberg.com/view/articles/2016-06-22/lending-to-poor-people-didn-t-cause-the-financial-crisis

[Winehole23]

Here’s the heart of the Kudlow and Moore case:


The seeds of the mortgage meltdown were planted during Bill Clinton’s presidency. Under Clinton’s Housing and Urban Development (HUD) secretary, Andrew Cuomo, Community Reinvestment Act regulators gave banks higher ratings for home loans made in “credit-deprived” areas. Banks were effectively rewarded for throwing out sound underwriting standards and writing loans to those who were at high risk of defaulting. If banks didn’t comply with these rules, regulators reined in their ability to expand lending and deposits.



They then argue that this was part of a broader campaign to make loans to unqualified low-income folk, which in turn caused the crisis.


Let’s just be clear about what the CRA does and doesn’t do. It simply says that if you open a branch office in a low income neighborhood and collect deposits there, you are obligated to do a certain amount of lending in that neighborhood. In other words, you can’t open a branch office in Harlem and use deposits from there to only fund loans in high-end Tribeca. A bank must make credit available on the same terms in both neighborhoods. In other words, a “red line” can’t be drawn around Harlem, a term that dates to when banks supposedly used colored pencils to draw no-loan zones on maps.


Showing that the CRA wasn’t the cause of the financial crisis is rather easy. As Warren Buffett pal Charlie Munger says, “Invert, always invert.” In this case, let’s assume Moore and Kudlow are correct, and the CRA did require banks to lend to unqualified, low-income buyers. What would that world have looked like?


Here’s what we should have seen:


Home sales and prices in urban, minority communities would have led the national home market higher, with gains in percentage terms surpassing national figures;
CRA mandated loans would have defaulted at higher rates;
Foreclosures in these distressed urban CRA neighborhoods should have far outpaced those in the suburbs;
Local lenders making these mortgages should have failed at much higher rates;
Portfolios of banks participating in the Troubled Asset Relief Program should have been filled with securities made up of toxic CRA loans;
Investors looking to profit should have been buying up properties financed with defaulted CRA loans; and
Congressional testimony of financial industry executives after the crisis should have spelled out how the CRA was a direct cause, with compelling evidence backing their claims.

Yet none of these things happened. And they should have, if the CRA was at fault.

[Winehole23]

If that isn’t enough to dismiss the claim, consider this: Where did mortgages, especially subprime mortgages, default in large numbers?

It wasn’t Harlem, Philadelphia, Baltimore, Chicago, Detroit or any other poor, largely minority urban area covered by the CRA. No, the crisis was worst in Florida, Arizona, Nevada and California. Indeed, the vast majority of the housing collapse took place in the suburbs and exurbs, not the inner cities.


Now consider that much of the rest of the developed world also had a boom and bust in residential real estate that was worse than in the U.S. Oh, right -- those countries didn’t have the CRA.


What's more, many of the lenders that made the subprime loans that contributed so much to the collapse were private non-bank lenders that weren’t covered by the CRA (http://ritholtz.com/2009/06/most-subprime-lenders-werent-covered-by-cra/). Almost 400 of these went bankrupt (http://ml-implode.com/) soon after housing began to wobble.

[Winehole23]

Quotes from The Big Short

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