C'mon Steve, you and I both know that this isn't about CRA. What word keeps popping up? Minorities. When your standard mouth-breather hears the word "minority", what does he think? Nigger, mexican, etc. You can bet your sweet ass that this is just another way for those fine folks at McCain HQ to rile up the rubes at the thought of "minorities" stealing our hard-earned wealth through guvmint handouts...

Jonah Goldberg had no trouble blaming Clinton, Obama, Democrats...anybody but a Republican.

He's funny that way.

It's got to be colored people's fault.

It just has to.

Logic doesn't even enter into it. Redlining and anti-redlining are battles from the 60's and '70's -- this is severe atavistic regression.

Wow. So, racism is just going to come right on out in the open now, huh? Not even using code words this time.

I agree with ckelly-- this is not really about the CRA, it is straight up racist.

The Republican answer to everything, blame minorities and then have the temerity to wonder why your Minority Outreach program is a complete flop.

The bush admin was generally hostile to Fannie and Freddie, because they represented a public subsidy of the mortgage market. Fannie and Freddie were financially sound when the bush admin came to power, but the bush admin kept trying to strangle Fannie and Freddie. Even ‘pubs in congress, however, wouldn’t get behind the bush admin efforts to strangle Fannie and Freddie.

Then in 2004 HUD suddenly reversed itself and precipitously increased the number of low-income, subprime loans that Fannie and Freddie were required to purchase. The only way the GSEs could meet the HUD mandated increase in the percentage of their assets dedicated to subprime loans was to REDUCE their purchases of sound, conforming prime loans.

The bush admin saw a two-fer in this scheme. In the short run, the increased Fannie and Freddie subsidy of subprime loans would fuel the subprime boom, thereby feeding a housing bubble that was keeping the economy afloat even as reckless bush admin fiscal policies were undermining the economy. In the long term, the HUD mandate would restrict Fannie and Freddie growth by limiting the number of GOOD loans it could acquire, and Fannie and Freddie would ultimately be forced into a financial crisis that would achieve the bush admin’s objective of strangling the public subsidization of the housing market. They figured they’d be out of office before the crisis hit. Their timing was only slightly off.

The cynical HUD machinations in 2004 were widely reported at the time. Dems and low-income housing advocates realized that the HUD mandate to increase the percentage of GSE assets dedicated to subprime loans would force Fannie and Freddie to slow their growth, because even with the growing subprime market there weren’t enough subprime loans to meet HUD’s rapid ratcheting up of the GSE allocation to subprime loan purchases.

The New York Times had an article on the proposed rule change:

An obscure rule intended to promote affordable housing has become the Bush administration's latest weapon in its effort to tighten the rules on Fannie Mae and Freddie Mac, the giant mortgage finance companies.

The Department of Housing and Urban Development has proposed forcing the companies to purchase more mortgages from lower-income households. The companies must now buy half of their loans from people making less than the median income in a region, or from developers building apartments that will probably be rented by those people.

The housing department has proposed raising that target to 53 percent next year and to 57 percent by 2008. It also wants to raise several other closely related targets.

The companies have not publicly opposed the changes, which will take effect on July 2 unless the administration rescinds them. But they are quietly worried that they will be unable to meet the new goals unless they refuse to buy some loans from people making more than the median income, in effect slowing their growth.

Clinton severely restricted Fannie and Freddie’s purchase of subprime loans in 2000, refusing to credit Fannie and Freddie for purchases of mortgage loans with irrational underwriting standards. The impact on the subprime market was profound, and it immediately contracted as a proportion of the overall mortgage market. Bush reversed those rules in 2004, and also forced Fannie and Freddie to purchase more subprime loans without regard to whether the loans had rational underwriting standards! Fannie and Freddie got credit for virtually every subprime loan is acquired.

As a result of a 2000 regulatory change by the Clinton administration that denied credit to Fannie and Freddie for purchases of abusive subprime loans (i.e., loans where underwriting standards were irrational and did not consider whether the borrower could repay). As a result, there was severe contraction in the subprime market, and the subprime market steadily declined as a percentage of the overall mortgage market, from 13.2% in 2000 to 8.2% in 2001. This represented sensible regulation, which encouraged Fannie and Freddie to purchase subprime loans but only those that were originated with rational underwriting standards.

In 2004 HUD forced Fannie and Freddie to increase their purchases of subprime loans and in order to facilitate this rescinded most of the restrictions on Fannie and Freddie’s purchases of abusive loans. Although the increase appeared marginal, increasing the GSEs obligation to purchase low-income loans by only 6% over four years, it was in practice far larger because HUD simultaneously narrowed the definition of low-income loans. Accordingly, many loans that had qualified as “low-income� and had counted toward the GSEs low-income obligations no longer did after 2004! Between the narrowed definition of “low-income� loan and the increased GSE obligation, Fannie and Freddie were forced to explosively increase their purchase of subprime loans.

In 2004 Fannie and Freddie more than doubled their purchases of subprime loans, and purchased an astounding 44% of the subprime market originations. Fannie and Freddie purchased more subprime loans in 2004 than were originated by the entire market in 2001.

Fannie and Freddie purchased another $169 billion in subprime loans in 2005, or 33% of the entire subprime market. By 2006 Fannie and Freddie reduced its purchases of subprimes to $90 billion because the looming crisis was already becoming apparent. But it was too late. The massive purchases of subprime loans in 2004 and 2005 started defaulting in 2007 as the first wave of subprime ARM loans (Greenspans’ favorite mortgage loan product) began resetting and mortgagors began defaulting.

The following is from an article by a fellow at the rightwing American Enterprise Institute in 2004. It discusses the new HUD regulation. The cynicism I’ve described is on full display here. It moans about Fannie and Freddie’s resistance to the new regulation. It cynically faults Fannie and Freddie for not wanting to purchase more risky, subprime loans. It recounts the resistance of the GSE’s to these new regulations. It acknowledges that the GSE’s were afraid that being forced to purchase more of these loans would be dangerous and unprofitable.

In recent years, study after study has shown that Fannie Mae and Freddie Mac are failing to do even as much as banks and S&Ls in providing financing for affordable housing, including minority and low income housing. After studying the issue for years, HUD has finally proposed regulations that would tighten the definitions of such terms as “low and moderate income,� “underserved areas,� and “very low income families.� Then HUD set a goal that required Fannie and Freddie to devote increasing percentages of their total business to assisting families in the affected groups to become home owners.

On its face, the idea that Fannie and Freddie should be generous in support of minority and low income housing seems unexceptionable. A recent analysis by the Congressional Budget Office estimated the subsidy they received from the federal government--as a result of their implicit government backing--at around $20 billion. That would fund $100,000 mortgages for 200,000 minority and low income families. Why should the government provide any backing for Fannie and Freddie unless they were doing something that the market itself would not do?

But Fannie and Freddie don’t see it that way. They have complained that raising their obligations with respect to affordable housing could reduce their ability to finance middle class homes. In the political context in which statements of this kind are made, this is an important and serious charge--somewhat akin to threatening to close the Washington Monument if Park Service appropriations are cut. It is a signal that those who support the regulations may one day find that they will have to answer to an opponent who accuses them of supporting higher mortgage rates. To the financial community, however, the message is different. In speeches there, Franklin Raines says that the HUD regulations threaten to “change the nature of the company.� What this means is that if the regulations take effect Fannie will be less profitable.

Both approaches are designed to stimulate political support to prevent the erosion of profitability because of the greater financial risks that are associated with buying and holding or securitizing minority and low income housing.

But companies that are chartered by the government to perform a government mission should be devoted to achieving that mission. Tough regulations such as those HUD has proposed should not be necessary. The regulations are required because Fannie and Freddie--despite their advertising about such things as Fannie’s “trillion dollar commitment�--will not perform their mission voluntarily

The continuing attempt to blame Democrats for this Republican disaster is shameful, but the racism is disgusting. "Loaning to minorities ... is a disaster." Fox says, matter how wealthy and creditworthy the minority, loaning to them "is a disaster." They must mean that if minorities move into the neighborhood, it would be "a disaster."

No, actually, the CRA was little used until the Clinton Administration. You might read this piece for an explanation.

Damn skippy, Everett.

The main problem here is that, on one hand, Yglesias's rebuttal makes perfect sense but uses facts which give low-info voters and Republicans headaches. And when hearing that rebuttal, it's hard to conjure a mental picture of who the culprit is.

But, those Republicans have named who the problem is and told you what they look like too. And the scared white people will lap it up. If Rush says minorities took down Wall Street with the help of democrats, why on earth would they need to listen any further?

This is just another cynical genius stroke from the right that will muddy up the current crisis, just like Drill! Drill! Drill! did, and Palin did, and so on. I fully expect to see some needle movement with this asshole move.

Smooth way to bring in the race bait too! I've got to hand it to the uglies; they can get very ugly if necessary, uglier than I can imagine I'm sure.. Loaning to the minorities, that's what made this crisis! I had nothing to do with agencies so fucking out of whack that they were allowed to "short sell" and gamble away with credit default swaps at 30:1 over values. It wasn't greed, it was minority irresponsibility!

Handing out mortgages like free toasters was one thing. Borrowing $30 to bet on every $1 of those mortgages was crazy.

This is going to work until all of those homeless or near homeless white people start saying, "wait, I am not a minority!"

It all comes back to the culture war.

"Something is wrong, Blacks did it. Barack Obama is Black (and plays basketball), but NOT READY TO LEAD!"

Rush Limbaugh was ranting on this a couple of weeks ago along with attacks on Franklin Raines. It all sounded very racist to me at the time. The only motive I could see was to tie Obama with Clinton and minorities as a classic wedge.

Note that this places a new light on the Obama/Raines ad, which Karen Tumulty took so much flak for calling "racist." If McCain is actually feeding this stuff [Two sinister black guys teaming up to steal an elderly white lady's nest-egg] the big problem with Tumulty may have been that she didn't know the half of it.

I have read this explanation for the financial crisis in comments at Political Animal. It is how conservatives pervert progressive intentions. Red lining and discrimination against Blacks and Hispanics is what liberals wanted banks to stop. The finance scammers used the good intentions of ending bankers' discrimination against geography and race by selling mortgages to those without the means to repay them. But in order for this scam to work they had to be able to sell those mortgages as securitzed debt, since they knew they were making bad loans on property that was overpriced. The Wall Street geniuses obliged the loan sharks by creating all kinds of ways to securitize these bad loans, but since the scam was so complicated the Wall Street scammers were ensnared in their own scam. Now they want to scam the entire nation with a bailout of biblical proportions.

As we approach early November, a little history lesson is in order.
"The Republicans have suffered no political consequences for destroying the nation's balance sheet, after all. Why should they take the painful efforts needed to fix the mess they created? No one is holding them accountable. It leaves those yearning for some return to fiscal sanity in the perverse position of hoping for a crisis in the bond or currency markets to shock the faith-based crowd back into reality. And when that adjustment comes, I can't wait to see how conservatives try to find a way to blame it on the (demoncrats)* Clinton.
http://www.slate.com/id/2109203/

This from 11/4/04!

I guess Wealthcare is the repugnacans version of "fiscal sanity."
* :-)

So...here we are 4 years later. The economy is tanking. How in the world can you lay the blame on "liberals"? On democrats?

Bring it on Rush and Co. Just try and explain this mess as a meltdown due to damn liberal socialistic commee politically correct demoncrats!

Yglesias said, "Beyond that, the mere existence of "subprime" loans -- i.e., mortgages given to less-creditworthy individuals at higher interest rates -- isn't the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays."

I was with Yglesias on the first paragraph. The Community Reinvestment Act has nothing to do with today's problems.

And yes, subprime loans, per se, are not to blame. However, a large portion of the subprime loans are loans that were made on overinflated home values (e.g. Washington Mutual), based on the false "stated income" of the borrower at the encouragement of the mortgage broker (e.g. Countrywide) , to persons who were actually eligible for prime loans, and to persons who didn't have the income to make payments after rate increases on variable rate loans.

In short, such loans, that were later packaged and sold, should never have been made in the first place. The CRA was designed to prevent redlining. The abuse of subprime loans is another issue altogether...and without proper regulation, they'll be back someday.

I wonder how long Bush has been planning this meltdown.

That's Just What I Said

You know who's responsible for Wall Street melting down? Poor people! Especially the black ones!

QED.

thomas c (3:19) - Holy Cow!!

1) I hate comments this long.
2) I hate comments with such strong contentions without links or specific attributions.
3) Here's an article that backs up just about everything you write.

http://goliath.ecnext.com/coms2/gi_0199-3381382/Goal-oriented-Fannie-Mae-and.html

In summary, thanks.

This line of attack actually goes back several months when the mortgage meltdown really started looking like it was going to be bad and start impacting the rest of the economy. Sorry, I don't have links, but I do recall hearing this from several right wingers including a friend of mine who didn't know what the CRA was. He had just heard the talking point that the mortgage meltdown had to be the result of liberals via anti redlining laws.

It didn't really gain much traction then, so it looks like they're going to trot it out again. Hopefully, it will have the same result this time around as well.

I thought the whole point conservatives made about the Ownership Society was that we should become a nation of homeowners instead of renters.

Steve Benen wrote: "Sorry, conservatives, you'll have to keep looking for a way to blame Democrats for this mess."

Blatant, sickening racism works just fine to motivate the weak-minded, ignorant, neo-brownshirt mental slaves of Rush Limbaugh who comprise the Republican Party's "base", so why do "conservatives" need to "keep looking"? They are not trying to convince the Steve Benens of the world of anything.

You just might be a racist if you vote for McCain and you normally vote Democrat.

This is ominous. In my little Iowa town, a guy up the street, life long Democrat, Iwo Jima hero(2 purple hearts and silver star), long term alderman, always has a sign up for Democratic candidates, hates Bush as much as any of us, but he has no sign up for Obama.

Even if he votes for Obama, he may be afraid to have an Obama sign up. Lots of people here, especially older ones, still use the N word.

At this point, deep into the campaign and beginning to fall behind, John McCain is channelling Tucker Eskew just as sure as Shirley MacClaine channels Coco Chanel.

McCain claims this is a "tough" campaign and a lot of "tough" things are going to be said. But he forgets the toughest Americans are the honorable ones.

Isn't Nevada one of the states with the highest foreclosure rates in the nation? Tell me again what percentage of 'minorities' live in Nevada???

My first job in 1981 was with the FDIC and we had to review compliance with the CRA.

The CRA wants to make sure that you lend to qualified people in poor areas. Well, guess what??

There are fewer qualified people in poor areas which means that banks lend less in poor areas than rich areas. there is nothing wrong with that.

The problem with the sub prime mess was that people made loans to people who weren't qualified EVERYWHERE. That bid up the price of houses EVERYWHERE. It also means that people who made loans to qualified people still got burned because prices have come down so much in some places.

thomas c,
I ditto Danp about length and links.

Links please. Thanks.

Bringing up the elimination of red lining is not dog whistle racism. It is racism with a loud bark.

Bringing up the elimination of red lining is not dog whistle racism. It is racism with a loud bark.

C'mon Steve, you know better. The more our privilged class can seperate themselves from the rest of us, the better it will be for everyone.

It's not your fault if you give a loan to a known credit risk, even if you make it impossible to meet the final terms of the deal.

You get their assets, which makes it all worthwhile. When you get so many of these assets that it wrecks this deal, it's got to be the fault of minorities. What else could it be?

Sorry, conservatives, you'll have to keep looking for a way to blame Democrats for this mess. Good luck with that.

It's worked very well in the past:

- Blame the other guy
- Ignore your own culpability
- Attack, attack, attack

Rove wrote this book, everybody's read it. The trolls will eclipse the sun with the amount of bullshit at the ready, today is just the first day.

A sample: From on high, and from down low (comment thread).

How do they explain all the balloon mortgages taken by my sister and other low-income whites in Ohio?

People of all colors and classes have trusted that banks are not allowed to give them enough rope to hang themselves with. The government has betrayed that trust.

Worth pointing out that CRA only applied to traditional banks and trusts ... not the shadow banking system that's evolved since Gramm-Leach-Bliley replaced Glass-Steagall.

thomas c - I had to reread your last three paragraphs, and I draw different conclusions. It would seem that the Bush/HUD regulations not only did make F&F less profitable, thus making them unable to continue to help middle class families, but also that they were used as a garbage pail for what were already known to be bad debt. In other words, it seems it was always part of the Bush plan to kill F&F, either at the expense of their stock holders, or through a government takeover as we recently saw.

Check out Digby's latest post. The Republicans have found a way to pay off their Wall Street buddies AND blame the whole mess on the Democrats -- it's called the Paulson bailout plan.

Pelosi and Reid pass it; Bush signs it (and rides into the sunset); and then McCain and rest of the Republicans run against it.

Watch out...

he has no sign up for Obama.

I don't either...yet. Haven't seen any McCain signs either. I can't wait to see what happens when I display an Obama sign, my Kerry yard sign was set on fire in 2004.

Beyond that, the mere existence of "subprime" loans -- i.e., mortgages given to less-creditworthy individuals at higher interest rates -- isn't the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays.

And that's why the timeline doesn't make sense: Because the problem isn't minority loans that have been going on since the '70s, it's the "innovative new financial products" that Wall Street created in the wake of the Republicans' deregulation.

Why the conservative message machine would want to draw attention to this fact via their dishonesty is a mystery.

So, racism is just going to come right on out in the open now, huh? Not even using code words this time.

That depends -- does "uppity" count?

actually, the CRA was little used until the Clinton Administration

Thank you, Mike K, for admitting the malfeasance of Reagan and Bush Sr. in not enforcing the law.

I can't wait to see what happens when I display an Obama sign, my Kerry yard sign was set on fire in 2004.

Sorry, that was me. I was trying to light a little fire in Kerry's belly and I didn't notice your yard sign was so close and downwind.

So...here we are 4 years later. The economy is tanking. How in the world can you lay the blame on "liberals"? On democrats?

Because everything is the fault of liberals. If a conservative does something bad, he was forced to do it by a liberal. QED.

If a conservative does something bad, he was forced to do it by a liberal.

Or he wasn't a "true conservative" and therefore he was a liberal all along! Even when he was doing stuff that conservatives liked, he was just biding his time until he could reveal his true Liberal Self!

I've had family members tell me that Bush is actually a liberal, because look at how much he's expanded government! They voted for him twice, of course, but now that he's a Miserable Failure they want to absolve themselves of the bad choice they made without calling their ideology into question. Conservatism cannot fail, after all, it can only be failed...

Excellent analysis of the CRA issue:

http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

Well, there is this article on Bloomberg that was captioned on Drudge:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0

The byline is:

How the Democrats Created the Financial Crisis

Quick summary: The Democrat controlled Senate in 2005 nixed the Freddie/Fannie Reform Bill on a party-line vote. Ergo... the crisis.

Someone with more time or initiative than I should take a look at current foreclosure and underwater mortgage patterns to see where (geographically) the trouble is. I'd have to guess that, with $700 billion on the table, not much of it is in impoverished areas.

How the Democrats Created the Financial Crisis
Quick summary: The Democrat controlled Senate in 2005 nixed the Freddie/Fannie Reform Bill on a party-line vote. Ergo... the crisis. Posted by: pencarrow

The only problem being is that the Dems didn't gain numerical (as opposed to real) control of Congress until after the 2006 election, and then it was only a one vote majority in the Senate.

"The only problem being is that the Dems didn't gain numerical (as opposed to real) control of Congress until after the 2006 election, and then it was only a one vote majority in the Senate."

He's saying it was killed in Committee. I have no idea if that's true or not.

The only motive I could see was to tie Obama with Clinton and minorities as a classic wedge.
Posted by: lou

The clock is running out for shit like this. "Whites" comprise less than 50% of the population. Aren't these idiots afraid that this is going to back fire with minority voters in general and Hispanic voters in particular?

Maybe I'm wrong, but I think this is pretty easy to understand actually. Many bad loans were made. It doesn't matter how many times these bad loans were repackaged and sold, loans were made which were predicated on one thing and one thing only. That housing prices would continually go up. Given the cyclical nature of markets, this is an assumption which is completely void of any basis in reality..

Blaming the bundlers does not make sense. All they did was make the securities so complicated no one knew where the risk was. The blame lies in how the original bad loans were made.

Yglesias' statement that it can't have anything to do with the CRA because it worked before is a stupid statement. The CRA was greatly changed in the Clinton years. Matt, you lost me with your very first statement.

All of this financial wizardry was all done in the name of a very good cause. Helping more people afford a home. But as has become one of the most useful proverbs, "The road to hell is paved with good intentions."

You simply can't build into the base of your system a time bomb. Whoever was responsible for enabling the market to open these bad loans is to blame. I am not sure whether it was lack of regulation, prodding by agencies, corrupt Enron style management in Fannie and Freddie, or skirting of regulation and reform by bribing congress, or a combination of all of these, but the time bomb was there all the time. It just took a significant downturn to set it off.

He's saying it was killed in Committee. I have no idea if that's true or not. Posted by: inthewoods

Nothing gets killed in committee unless the (majority) chairman kills it or it is unanimously agreed upon. I don't remember there being a lot of across the aisle collegiality on much of anything in 2005.

In short, the Dems didn't have the power to do anything in either house in 2005.

Of course, the Bloomberg article ignores HR1427:

"The regulatory regime envisioned by H.R. 1427 is an improvement over current law. The bill enhances the regulatory oversight of the housing GSEs [government sponsored enterprises, which Fannie Mae and Freddie Mac were at the time] by establishing a new Federal Housing Finance Agency (FHFA) and providing this new housing GSE regulator with: (1) greater authority to set capital standards; (2) authority to place a troubled GSE into receivership (mandatory in some cases); and (3) authority to approve new activities and oversee mission compliance. In addition, H.R. 1427 grants the new housing GSE regulator specific authority to regulate the retained mortgage portfolios of Fannie Mae and Freddie Mac. This authority is grounded in considerations regarding the mission of and safe and sound operations of Fannie Mae and Freddie Mac, but would also authorize the new regulator to consider all potential risks posed by the portfolios. This provision helps to address the systemic risk that Fannie Mae and Freddie Mac pose to our financial system and ensures that they will better address their core affordable housing mission. "

http://mediamatters.org/items/200809210007?f=h_top

CRA loans were less risky, lower cost and more likely to be retained by the originator. In addition, they only made up about twenty percent of the total.

http://www.reuters.com/article/pressRelease/idUS135259+07-Jan-2008+BW20080107

Didn't Bush reward the King of Subprime Loans with an ambassadorship? I can't remember his name offhand, but wasn't his company one of the worst and the first?

John McCain pals around so much with lobbyists and insiders that he doesn't seem to realize the problems of typical Americans. So, what does he do to meet our current challenge? He blames the typical Americans who tried to buy a home, but got caught up in the mortgage crisis.

Americans need a leader who understands the whole world, not just a smoke-filled room full of lobbyists.

Blaming the bundlers does not make sense. All they did was make the securities so complicated no one knew where the risk was. The blame lies in how the original bad loans were made.

Yes, Hansen, you're wrong. For one thing, your second sentence completely contradicts the first and shows why blaming the bundlers makes perfect sense: if no one knew where the risk was, then the securities were inehrently more risky than any individual mortgage. Individual defaults would only have affected banks; it's the financial industry that aggregated this risk, pocketing the profits and now screaming to socialize the risk.

But more than that, all these "innovative financial products" made sure that banks had little interest in vetting the risk of a loan, since they wouldn't be liable for any default, and as you yourself point out, made it difficult for these so-called financial wizards -- who I'm sure were happy to cash their bonus checks when things looked rosy -- from rationally assessing risk -- especially when they more than any individual home buyer should have been sensitive to the markets' cyclical nature.

Real estate prices have fluctuated before, and often, without resulting in this kind of crisis. It's expected that you'd be desperate to latch onto any semi-plausible reason not to have your erroneous and evil conservative belief system challenged, but for you to come in here and lecture your betters so smugly when your pathetic arguments are so effortlessly shot down -- when they've been shot down time and again before -- marks you as that special breed of dishonest, and not merely deluded, conservative, Hansen.

...All of this financial wizardry was all done in the name of a very good cause. Helping more people afford a home.

No, because again, the CDA has been in existence since 1977, even if Reagan and Bush Sr. were malfeasant in not doing enough to force lenders to stop redlining. And New Deal programs were helping people afford a home, just without representing huge profits to investors, for a long time before Wall Street created this crisis.

All of this financial wizardy was done in the name of one cause only, and that's making money for the investors. And now that the party's over, these titans of capitalism -- Ayn Rand's mythical heroes -- are crying for a taxpayer bailout to the tune of a $700 billion dollar upward redistribution of income -- with no strings attached, yet! -- all facilitated by an Administration that claims we can't afford to provide health insurance to all American, a mendacious, corrupt, incompetent and tyrannical Administration that the so-called "conservative" John Hansen supports.

And since there's a big industry in propaganting comforting falsehoods to idiots like Hansen, whose cognitive dissonance prevents them from seeing the obvious flaws even if they have the critical thinking skills to recognize them. These dishonest blockheads then dutifully parrot these falsehoods in order to justify their faith in the false god of capitalism.

No, Hansen, blaming it on individual mortgages simply won't do -- that'd never have resulted in a crisis of this magnitude. I don't know if Jesus condemned the ignorant, but no one who calls himself a Christian should be a liar. Shame on you.

Posted by pencarrow: "How the Democrats Created the Financial Crisis": Quick summary: The Democrat controlled Senate in 2005 nixed the Freddie/Fannie Reform Bill on a party-line vote. Ergo... the crisis."
===================
Posted by Jeff II: "The only problem being is that the Dems didn't gain numerical (as opposed to real) control of Congress until after the 2006 election, and then it was only a one vote majority in the Senate."
==============
Posted by inthewoods: "He's saying it was killed in Committee. I have no idea if that's true or not."
=================
two quick points
the original article "How the Democrats Created the Financial Crisis" was writted by one of McCain's advisors....

second....the freddie/fannie reform bill passed the committee. the gop leadership never brought it to a vote on the floor....

As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA.

A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.)

Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

One can only wonder about the race of those who packaged and sold the loans and then used them to make leveraged plays....

Blaming the bundlers does not make sense. All they did was make the securities so complicated no one knew where the risk was. The blame lies in how the original bad loans were made.

Take a look at what Washington Mutual was up to and tell us again with a straight face that the problem was the people taking out the loans and not the lenders. When you have mortgage brokers falsifying paperwork, you can't argue that the problem was that we were just giving too darn many loans to the "wrong" people.

The problem wasn't that sub-prime loans exist -- the problem is that the way they structured the financial instruments gave mortgage brokers and lenders a strong incentive to engage in fraud. Now they're running around wringing their hands and crying, "But how were we to know that people would try and cheat the system just because we left loopholes big enough to drive a truck through!?!"

They gave banks and mortgage brokers incentive to make bad loans. Don't blame the borrowers for the stupid and/or criminal actions of the lenders.

By the way, John, the Federal Bureau of Investigation disagrees with you about where the blame lies. Maybe you should call them and tell them they're wasting their time investigating fraud by lenders when clearly the problem is the borrowers.

All they did was make the securities so complicated no one knew where the risk was.

No, what they did was they made it so that the people making the lending decisions (and who had the best capacity to evaluate the risk) were not the people most exposed to the risk, which created an incentive for fraud and simple laxity.

When you create massive structural incentives for fraud and laxity, and isolate the costs from the decision makers that are in the best position to evaluate the risk, you get market failure. Its absolutely predictable. (And, in fact, I think it was predicted by a number of people during the bubble, but as long as the prices kept going up and people were able to pay their loans, no one involved in lending cared that there was a ticking time bomb.)

The Orwellian Hannity had a radio segment attempting to align democrats with years and years of deregulation-- way back to our beloved Jimmy Carter. It was such a stretch, I kind of felt bad for old Hannity, with such incipient craziness. As such, I listened briefly to the insanity of hannity thenlogged off, preferring loud music to this craziness!! The right wing absolutely seems desperate/dateless.
Thanks for asking

I've been warning bloggers etc. not to just chuckle dismissively at those talking points - large swaths of the electorate will find them credible, so they have to be brutally debated and debunked. It is deadly serious business. Here's a talking point, from a comment by Bill Arnold" in a MoJo Drum thread, pardon any mangled HTML:

Re the CRA, this study from Jan 2008 is fascinating. Study title:
"The Community Reinvestment Act:

A Welcome Anomaly in the Foreclosure Crisis

Indications that the CRA Deterred Irresponsible Lending

in the 15 Most Populous U.S. Metropolitan Areas"

Also search on the title of the study for an addendum and some glowing news accounts.

Blaming the bundlers does not make sense. All they did was make the securities so complicated no one knew where the risk was.

Try again. Try to remember that WE are not as stupid as you apparently are. "All they did" indeed; they call that fraud in criminal law.

All of this financial wizardry was all done in the name of a very good cause. - John Hansen

Idiot, or parodist, I will try to get some sense through what's left of your brain. The "wizardry" was done after the fact to make tricky investment vehicles out of the loans regardless of the direct incentives for making the loans. There was no need to allow the wizardry, at least without sufficient oversight: banks have been lending people money for house in the dumb, old-fashioned way for decades, centuries even.

And even the supposed pressure to lend to lower-class folks did not justify additionally risky practices like not even asking for verification of income etc. I mean, it's one thing to make a modest loan to a blue-collar schmuck making 30k who at least tells the truth on his app, it's another to not even verify the information, and yet worse to cheat and give AAA bond ratings to the package deals thereof.

Then there's the ARMs, with payments ballooning up in so many years. Look, people making lower incomes can usually keep up with modest payments that stay the same, or if they don't get into health cost crunches - which they wouldn't have, if the health insurance system was doing its job right. Furthermore, fewer of the workers would be losing jobs etc. if less jobs were going overseas, something McCain didn't help did he?

tyrannogenius

One of the important talking points to distill out of the long and cogent comment from thomas c upthread is: HUD had large responsibility for things going wrong. Well, correct me if I'm wrong but aren't those agencies the basic responsibility of the Executive Branch?

(PS: I don't see the combined level of effort and erudition that's on WaMo threads *anywhere* else, even academic's blogs, OK? That is great, it's something for this commentariat tribe to be proud of.)

actually, the CRA was little used until the Clinton Administration

Thank you, Mike K, for admitting the malfeasance of Reagan and Bush Sr. in not enforcing the law.

Posted by: Gregoryasters?

So we should have had the Fannie-Freddie crisis 20 years ago ?

Fair enough.

A total newbie here so forgive me if this has been pointed out. I just came from a gathering where someone tried to spring this new spin on me (that this financial blowup had its origin in "some piece of legislation from the Carter administration".

It seems to me that this is the easiest and most direct rebuttal to any talking point that anyone, anytime, anywhere encouraged the type of behavior suggested by Cavuto any more than the Bush administration. It doesn't get much more direct than these White House Press releases from a few years ago:

#############################

http://www.whitehouse.gov/news/releases/....

"In June 2002, President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities."

Or : http://www.whitehouse.gov/news/releases/....

"A third major barrier is the complexity and difficulty of the home buying process. There's a lot of fine print on these forms. And it bothers people, it makes them nervous. And so therefore, what Mel has agreed to do, and Alphonso Jackson has agreed to do is to streamline the process, make the rules simpler, so everybody understands what they are -- makes the closing much less complicated.

We certainly don't want there to be a fine print preventing people from owning their home. We can change the print, and we've got to. We've got to be wise about how we deal with the closing documents and all the regulations, but also wise about how we help people understand what it means to own their home and the obligations and the opportunities...........(shortened here)..........And let me talk about some of the progress which we have made to date, as an example for others to follow. First of all, government sponsored corporations that help create our mortgage system -- I introduced two of the leaders here today -- they call those people Fannie May and Freddie Mac, as well as the federal home loan banks, will increase their commitment to minority markets by more than $440 billion. (Applause.) I want to thank Leland and Franklin for that commitment. It's a commitment that conforms to their charters, as well, and also conforms to their hearts."

############################################

Culpability doesn't get much more plainly stated than that.

Were I not so pissed at what these "leaders" have wrought, sad for my country and who will pay vs who really benefited - I'd have to laugh at the beautiful irony in both of those releases. "Conforms to their hearts" does it?......Fine print "makes people nervous" eh? Fucking flawless!

Geez, could this sort of thinking lead to liar loans or unsound lending ratios?
The "Ownership Society" was the last, and most egregious, straw on the back of a number of policies which have led us to this breaking point. It has turned out to be hypocrisy on a grand scale. At the end of this road is not poor deadbeats getting something for nothing - it is the pigmen being made whole by the middle class. Same as it has always been.

The magic is getting decent, middle class folks fired up about something else whilst their pocket is picked.

I also commonly shut up "free market" apologists with a little phrase they have a hard time denying -- "fiduciary responsibility". How can you blame the "stupid people who took out loans they can't repay" without blaming those who are supposed to be the fiduciaries in the transaction? A lawyer or doctor or stock broker doesn't get to take my 95yr old grandmother's money and claim she should have known better. At least they cannot claim so and claim to be the "grownups" or "moral" or whatever in my presence.

Shuts'em up every time.

"Maybe I'm wrong, but I think this is pretty easy to understand actually. Many bad loans were made. It doesn't matter how many times these bad loans were repackaged and sold"

You're wrong. The primary issue was not the bad loans, it was the leveraged crap that was generated from them, as much as $30-$40 for every actual dollar worth of loan value.

"In short, the Dems didn't have the power to do anything in either house in 2005."

It's even worse than that. According to Republican Oxley, the sponsor of the House bill, the bill was killed in the Senate because of:

1. Opposition by the Bush administration.

2. Opposition by Alan Greenspan (who stated that *no* bill would be preferable to the Senate bill).

3. Lack of a "champion."

CRA applies only to banks, not mortgage companies or other parts of the "shadow financial system." (Nourial Roubini's term.)

When people go to a mortgage broker to find out how much they can borrow, and the broker tells them that they can actually get twice as much money as they initially thought...

Now it takes a lot of restraint for those people to say: "I don't need that much money, I'm fine with the 3 bedroom, I don't need the 4 bedroom house"

The mortgage broker says: "You can go on a vacation with the extra money" Again not all people can resist the temptation for that extra money.

The mortgage broker could care less, because as soon as he collects his very nice commission, the loan gets bundled and it's someone else's problem.

The institutions in trouble right now, happen to be the ones holding the bag, and weren't able to pass it on to the next dope.

You're wrong. The primary issue was not the bad loans, it was the leveraged crap that was generated from them, as much as $30-$40 for every actual dollar worth of loan value.

This can't be emphasized enough. The problem isn't that people are defaulting on their loans. The problem is that the number of people defaulting on their loans suddenly made financial institutions realize that they're holding a bunch of worthless paper and not 30 years of guaranteed income.

It was a giant game of Hot Potato, and we're still figuring out who got left holding the potato. Oh, yeah -- THE TAXPAYERS.

True. Liberals support illegal aliens, for example, which is rather corrupt, and illegal aliens account for a grossly disproportionate share of mortgage deadbeats.

I guess it was hard to figure that if interest rates were at a historic low, and you got a variable rate mortgage, that rates might go up?

Hansen wrote: Blaming the bundlers does not make sense. All they did was make the securities so complicated no one knew where the risk was. The blame lies in how the original bad loans were made.

This gets it bass ackwards. The reason it was possible to offer loans to extremely risky borrowers was because deregulation had allowed Wall Street banks to create complex new investment vehicles which the bond rating agencies and insurance companies (all with various conflicts of interest) underwrote, allowing them to raise vast sums of capital to pour back into making shifty loans, thereby earning everybody huge commissions and bonuses. It was a money pump primed not by the poor borrowers, but by the lack of oversight of the way mortgage-backed CDOs could be underwritten, sold, and leveraged for capitalizing other deals. Subprime loans are not a problem as long as investors know where they are and can make decisions based on clear information.

What a lack of regulation does is allow people to game companies and markets by concealing information, in this case about the risk of shady or subprime mortgages bundled into massive investment vehicles -- just like Enron's accountants found ways of concealing that company's risky ventures in a bunch of shell companies and accounting gimmicks made possible by lax regulations of both the energy and accounting industries.

Did we blame the collapse of Enron on electricity consumers? No. Neither are poor people who thought they'd have a shot at the American Dream when a Countrywide rep called them one evening to blame for this.

So we should have had the Fannie-Freddie crisis 20 years ago ?

Mike K, you idiot, haven't you learned that the propaganda you suck up from right-wing media, however comforting to your cognitive dissonance at supporting an incompetent and corrupt political party, is utter bullshit, and you only get embarrassed when you repost the talking points?

The CDA had little or nothing to do with the Fannie-Freddie crisis. Mortgage defaults are not restricted to minorities, you blockhead. The mortgage market has handled bubbles and downturns before; the difference this time is the "innovative financial products" and excess consolidation thanks to Republican-driven so-called "regulatory reform." We wouldnt' have had this problem 20 years ago, because the Republicans hadn't screwed up the regulatory system yet.

If it were just mortgage defaults and 20 years ago, individual banks would be holding bad paper and fail, and the rest of the financial system would be unaffected and able to fill the gap. Since the Republicans undid Depression-era reforms separating banks from investment banks, though, the risk permeates our entire financial structure. Again. Nice going, Phil Gramm.

But thanks again for your tacit admission that the Reagan and Bush Administrations allowed their financial cronies to violate the law preventing them from redlining. That's a swell Party you shill for.

Jackass.

related fake news

SUB-ROSA NEWS

Some of the News
That may be True

MCCAIN PINPOINTS CAUSE OF CRISIS

Earlier in the week Senator John McCain called for the creation of a 9-11 type commission to
investigate and study the causes of our current financial crisis. Today, the Republican candidate amended his proposal to limit the commission's study to finding solutions.

The reason? Senator McCain said that he realized that the cause was just like the one creating other negative developments. Wall Street, financial institutions , and the government must come to the realization that the whole credit meltdown would have been avoided if only Senator Obama had accepted his invitation to engage in a series of town hall debates.

homer www.altara.blogspot.com