Marching Toward Another Meltdown
Forcing banks to lend to people with bad credit set the table for the recession. A bunch of lefties say, "let's do it all over again."
posted by Michael at
4:53 AM
The Pajamahadin
"The penalty good men pay for indifference to public affairs is to be ruled by evil men." - Plato
Friday, December 24, 2010
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- Name: Michael
- Location: Pullman, WA, United States
I was born in Tombstone, Arizona, but moved to California in 1959 when labor strikes at the copper mines devastated the Arizona economy. I've been moving north ever since. Pullman is as far north as I care to live and I'm looking toward reversing the drift.
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2 Comments:
The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”
Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses
The Village Voice is hardly a house organ of conservatism, but it reached and entirely difference conclusion and lays the blame at the feet of Andrew Cuomo and his radical 1999 reinterpretation of the CRA. (http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/) Investor's Business Daily had a long series of articles on how federal threats forced banks to issue loans to people with bad credit. The Wall Street Journal also covered this. Of course, this contagion was spread throughout the financial system through the derivatives market (another Clintonista creation). I don't think that this is a history we care to relive.
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