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Fed study says Bush and the banks didn’t cause the Great Recession. The Fed did

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It’s probably President Obama’s most politically effective line of attack against Mitt Romney.

The president argues that it was the unchecked, reckless, casino capitalism of the George W. Bush years — bank deregulation, tax cuts for the rich — that lead to the nation’s worst economic downturn since the Great Depression. And if Mitt Romney is elected in November, the Republican will bring those policies right back, risking another financial collapse.

Here’s what Obama said during that same speech where he told America’s entrepreneurs that “you didn’t build that”:

But I just want to point out that we tried their theory for almost 10 years … and it culminated in a crisis because there weren’t enough regulations on Wall Street and they could make reckless bets with other people’s money that resulted in this financial crisis, and you had to foot the bill. So that’s where their theory turned out.

But a book by Robert Hetzel, a senior economist at Federal Reserve Bank of Richmond, says it wasn’t Bushonomics or greedy bankers or broken markets that caused the Great Recession. In The Great Recession: Market Failure or Policy Failure, Hetzel pins the blame squarely on the Federal Reserve and Team Bernanke.

Oh, the downturn first started with “correction of an excess in the housing stock and a sharp increase in energy prices” — the housing bust and the oil shock. Indeed, those two things were enough, in Hetzel’s view, to cause a “moderate recession” beginning in December 2007.

But only a moderate one. It was the Fed’s monetary policy miscues after the downturn began that turned a run-of-the-mill downturn into a once-in-a century disaster. Hetzel:

A moderate recession became a major recession in summer 2008 when the [Federal Open Market Committee] ceased lowering the federal funds rate while the economy deteriorated. The central empirical fact of the 2008-2009 recession is that the severe declines in output that in appeared in the [second quarter of 2008 and the first quarter of 2009] … had already been locked in by summer 2008.

Not only did the Fed leave rates alone between April 2008 and October 2008 as the economy deteriorated, but the FOMC “effectively tightened monetary policy in June by pushing up the expected path of the federal funds rate through the hawkish statements of its members. In May 2008, federal funds futures had been predicting the rate to remain at 2% through November. By mid-June, that forecast had risen to 2.5%.

And it wasn’t just the U.S. central bank. Hetzel thinks all the major central banks — the European Central Bank, the Bank of England, the Bank of Japan, sat on their hands as the global economy weakened. “The fact that the severe contraction in output began in all these countries in 2008:Q2 is more readily explained by a common restrictive monetary policy than by contagion from the then still-mild U.S. recession, Hetzel writes in a Fed paper that inspired the book. “Restrictive monetary policy rather than the deleveraging in financial markets that had begun in August 2007 offers a more direct explanation of the intensification of the recession that began in the summer of 2008. Irony abounds.”

Here’s another reason Hetzel lets Wall Street off the hook. If a banking collapse was the true villain rather than the Fed, bank lending should a) have been a leading indicator and b) should have declined more significantly than in past recessions. But this chart of bank lending, adjusted for inflation with recessionary periods shaded, shows “bank lending behaved similarly in this recession to other post-war recessions.”

The irony here, of course, is that Federal Reserve Chairman Ben Bernanke is a much-noted student of the Great Depression and of the work of the late Milton Friedman whose landmark book, A Monetary History of the United States, pinned the blame for the Great Depression on a too tight Fed. As Bernanke told Friedman and his co-author, Anna Schwartz, on the economist’s 90th birthday a decade ago, ”You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

But if Hetzel is right, the Fed blew it again.

The analysis will be much debated and probably won’t have much impact on the election or public perception of the Bush years anytime soon. And bankers are unlikely to see their approval ratings rise. But Hetzel’s work suggests policymakers should take notice and perhaps think twice about placing more faith and power in regulators or abandoning pro-market polices because they somehow caused the financial crisis and Great Recession.

98 thoughts on “Fed study says Bush and the banks didn’t cause the Great Recession. The Fed did

  1. Complex phenomena—climate, jungles, societies and economies—make idiots out of experts and their necessarily imperfect modelling and knowledge. After all, savants are not omniscient or omnipresent as is the composite of ALL the participants in a complex system, with their multiple and diverse interactions influencing delicate and intricate balances in a jungle ecology or modern economy.

    Mr Bernanke studied and studied the Great Depression and learned the lessons so well that he has been able to replicate nearly all of them in detail. Well, at least enough of them to leave us in chronic economic malaise.

  2. I have an apology to make. In serveral previous postings I have referred to Ben Bernake as “the Village Idiot”, and even gone so far as to ask the Village that was missing it’s idiot to come get Ben. So to all you village idiots out there, I apologize for slandering you by comparing you to Ben Bernanke. Clearly you do know more about economics than he does.

  3. While you rightly criticise the FED, also remember that 2 other government entities, Fannie Mae, and the community Redevelopment Act, had a major role in facilitating the subprime loans that created the housing bubble. And interestingly enough, when the dems pased the Dodd/Frank bill that supposedly would prvent future problems, it did nothing about either Fannie Mae, or the Community Redevelopment Act. In fact recently, Obama has been filing suit against small banks, unsong the Comunity Redevelopment Act, because they have not been making ENOUGH subprime loans. So much for the dem lies that the Bush tax cuts caused the crisis, and the dems have fixed it.

    • Not only will Dodd/Frank not fix it, it’ll cause a second, more severe collapse. It gives the CRA (per Clinton’s 1995 HUD rules) even more power that is already being abused by mandating the same dysfunction lending standards.

      • No doubt. Dodd/Frank was a total overreaction and has made the problem worse by removing a lot of diversity in the market through forcing smaller banks to fail or merge. The “too big to fail” operations are now even bigger.

        What will really be interesting will be what happens when the economy goes a little bit inflationary. If you look at the US monetary base (M0) you will see there is a huge amount of money sitting in reserves of banks. M0 went through the roof but M1 didn’t. When those mortgages start coming up above water it will be a race to see if the Federal Reserve can pull that money back fast enough before it floods into the market creating a massive wave of inflation. By the time they notice it is happening, it might be too late to stop it.

        • It was a operations under the CRA where HUD reset guidelines of what percentage of loans should go to “non-traditional” borrowers that set the conditions for the first domino. In effect, the government was telling banks what percentage of loans had to be let under those guidelines. Say you have a small bank that doesn’t do a lot of business in places where there are such borrowers. In order to meet the quota of those loans, they would have to give practically anyone who asked for one a mortgage just to meet their quota. That’s when you saw absolutely ridiculous lending practices as Washington Mutual’s “The Power of Yes” where one didn’t even need to provide proof of having an income. If you applied for the loan, you got it.

          If they didn’t make their “quota” of these loans, you were prohibited from issuing government guaranteed loans. As a result, we saw reverse amortization loans, interest only loans, short ARMs at low rates. The reasoning seemed to be “interest rates are going to be low forever and housing values will rise forever”. But when interest rates began to rise and these people began to default on the loans, the housing values began their collapse.

          This hurt people with reverse amortization the hardest as they were now on the hook for more than they originally paid for the house. The rationale here being (at least it was in California, Arizona, and Nevada) that housing prices were rising so rapidly that one would gain more equity from price appreciation than they would lose from not paying all of the interest due on the loan and rolling that extra amount into the loan balance. When the initial ARM expired, they would have enough equity to refinance into more traditional loan.

          The loans given out under the CRA defaulted and the damage spread to people who got more traditional loans when the value of THEIR property fell and went under water. Their home equity was gone and in many cases they walked away from their mortgages. I know personally two people who walked away from their loans when $600,000 homes were suddenly worth something in the $200,000 range.

          At the same time this is going on, Americas largest demographic, the baby boomers, are moving out of their last large family house and into smaller retirement housing. Now their nest egg is blown. We now have a larger demographic problem. The generation moving out of single family housing is larger than the generation coming into that market *and* the generation coming into that market is now saddled with student loans to the extent that the income that used to go to a first mortgage is now going to pay off those student loans.

          We have a huge housing problem that is going to be with us for a decade or three. We just have too much housing in many markets. Markets with huge supplies of surplus housing are only now getting around to razing those homes. They should have started doing that in 2008, it is now 2012.

          The loan quotas were absolutely nuts. The loan terms themselves were nuts to meet the quotas. Adjustable loans meant payments adjusting beyond their ability to pay, default and foreclosure meant the entire market lost value and we had a huge amount of destruction of equity. The ones in the worst bind are those whose houses are just barely under water or just barely above who are still paying on a mortgage 2 or 3 times the value of the home.

          TARP should have: Identified mortgages where the borrower could pay the original payments but was unable to pay adjusted payments as interest rates rose. Government takes those loans, converts them to a fixed rate loan at a payment the borrower can afford, after enough payments to make back the cost of processing the loan, government sells the mortgage back on the private market. On foreclosures in areas with dramatic drops in housing values and excess inventory, raze the home and sell the property as a building lot. As it would not be a sale of a home, the sale would not impact the surrounding market median home price and would set the stage for new home construction as whoever bought those lots would be doing so with the notion of building on it at some point. By reducing the supply of housing and not impacting the surrounding median home values, it would have placed some support under housing prices.

          As most jurisdiction get their income from property taxes, this decline in home values greatly reduced local government revenue. This would have put a stop to the free fall of tax revenue that followed the free fall of housing values. Detroit should have been razing homes four years ago.

          • Ibid my comments to “Center Right Margin” above. To paraphrase Mary McCarthy speaking about Lillian Hellman, “Everything you wrote is a lie, including the words “and” and “the.”

            No Doc loans have been around for ages and WaMu was a big originator of them. WaMu was also a NON-AGENCY lender that did not use Fannie and Freddie underwriting matrices.

            And this statement reflects horrifying ignorance: “As a result, we saw reverse amortization loans, interest only loans, short ARMs at low rates.”

            Rubbish. NegAm loans have been around for YEARS and again, were never a Fannie/Freddie product, nor would the loans be securitized by the agencies. There are so many falsehoods in your statement I won’t spend the time to answer them, but whoever gave you this information knows less than nothing about the mortage business.

  4. Mr. Hetzel’s analysis is wrong right off the bat. He states: “Not only did the Fed leave rates alone between April 2008 and October 2008 as the economy deteriorated” a simple check on Google shows this is not the case at all. Fed funds were dropped from 3.00% to 2.25% on March 18th, to 2.00% on April 30th, to 1.50% on October 8th, at which point the economy was already getting flushed down the toilet in the Lehman aftermath. So Hetzel’s entire theory rests on rates being pulled down while hawkish member of the Fed were “talking” rates up.

    Preposterous.

    In response to Richard40′s ignorant statement, neither Fannie or Freddie, or the (sic) Community Redevelopment Act had anything to do with the housing crisis. Non-agency lenders, emboldened by the flow of hedge fund and Wall Street money to securitize junk mortgages, along with the rating agencies’ connivance, among other things, created the debacle.

    To hang this disaster on the Fed- as if a few basis points in one direction or another could blow up a $15 trillion economy is laughable on its face. More AEI pseudo-economics.

    • Max, you are not being honest. First, you state that Mr. Hetzel’s analysis is “wrong off the bat” that the Fed kept rates steady between April and October. Except that your next sentence shows that…. the Fed did not change rates between April and October! That they reduced them in March, and again after October began, is relevant, but what Mr. Hetzel said is accurate, while your coment is massively overstated.

      Additionally, the notion that fed language does not have an impact is belied by the amount of interest given in meeting minutes and statements, and in actions taken based on “reading the tea leaves” from those statements. Further, the impact of a change in 500 basis points is quite significant.

      Finally, it is plain fact that the CRA led to an increase of sub-prime loans and weakend underwriting. That was the only way the goals of the act could be achieved. Further, it is plain fact that teh GSEs purchased billions and billions of MBS – more and more being subprime over time – and in doing so created the impression that their was greater government backing of the MBS than could actually be reasonably supported (encouraging excessive risk taking).

      While ultimately it was a combination of excessive risk taking, along with rating agency negligence, that feuled the bubble, that does not mean that the Fed escapes blameless. The fed raised interest rates in 2007 to levels that accelerated the “pop,” along with the oil shock. The fed also did not react quickly enough to the impact of the pop. That said, I think that underscores a tangential Austrian Economic Theory point (of which I am not truly one, though I do respect) – that it is folly to rely on monetary policy to accurately and adequately react to the business cycle, and instead you are likely to see more harm than good due to human error, unintended consequenes, etc.

      • Sir: I said “Fed funds were dropped from 3.00% to 2.25% on March 18th, to 2.00% on April 30th, to 1.50% on October 8th.”

        There was a 75 bp drop on April 30th- how did you miss that? And there is no “500 basis point” change, as you stated.

        On CRA, you are DEAD WRONG, and this is a narrative that has so permeated the “Conservative” blogosphere it has become the equivalent of dislodging anti-Semitism in Hitler’s Germany.

        For one, on SHEER LOAN VOLUME ALONE, CRA could not have been responsible for the housing crash, and CRA was not a Sub Prime loan program, which many people who know nothing about the mortgage business claim. Barry Ritholtz sums it up nicely and describes what CRA is, and isn’t.

        http://www.ritholtz.com/blog/2008/12/more-cra-idiocy/

        The fact that places like Arizona, Florida and Nevada were the major foreclosure “hot zones” tells you that policies made to fight loan discrimination could not have possibly been the cause. It also leaves people like to to explain how COMMERCIAL real estate went through PRECISELY the same “boom and bust” cycle with absolutely no public policy input into that market.

        Lastly, you’re dead wrong on the GSEs as well. First, as Wallison and Pinto often state, in order to mislead people, is that they use the term “SubPrime” to describe ANY mortgage that falls out of GSE conforming standards. This is nonsense, and easily apparent to any 22 year old loan officer at a bank.

        Secondly, by 2003, the GSEs share of loan securitization had plummeted by half. REAL Sub Prime loans underwritten by NON-GSE mortgage originators were spiking prices and wrecking underwriting standards. NOT Fannie or Freddie. And we see this today: non-agency foreclosures run at nearly five times the rate of agency underwritten mortgages. THe GSEs underwriting performance in the midst of peak to trough home pricing as high as 60% in some places is astoundingly GOOD.

        “Tangential Austrian Economic Theory?” You people make me laugh.

          • Actually, Max, it is you who make me laugh. You talk about someone who’s drank the kool-aid, but you yourself are guilty of that. The responsibility of the CRA and housing standards for increasing sub-prime mortgages is legendary, and claimed by every politician who ever voted for it or against it. For you to try and deny it is what is laughable.
            Why do you ridicule “tangential Austrian Economic Theory”? Do you even know enough about it to realize what it is, or what he’s talking about? I think not, since you completely ignored it. The answer would have been easy, and readily apparent, if what you say is true and if you actually know what you’re talking about. However, your response of “ha!” leads me to believe we’ve hit the end of your knowledge base, maybe even passed it on the first comment.
            I am not sure about the generic ‘monetary policy’ rule, but I can say for certain that it is the basing of our money on a valuable metal, and the fractional banking system, that are the two causes of the depression, and alll depressions. Until we realize that our money is ‘borrowed’, and must be paid back with interest, we will forever be regulated invisibly by bankers.
            Who caused this crisis? The bankers. In case you didn’t notice, the trouble hit, and they rescued everybody but….Bear Stearns and Lehman. The ones they wanted to take out. They did it in the 1900′s, right after the Fed was established, they did it in ’29, and they’ll do it whenever they want.
            Of course, I’m just a nutjob, right?

          • In response to Doc Neaves:

            CRA was NEVER a “SubPrime” program. It was a program to make certain that those who lived in redlined neighborhoods were not denied credit or forced into higher interest rate mortgages that they did not deserve.

            You state: “The responsibility of the CRA and housing standards for increasing sub-prime mortgages is legendary, and claimed by every politician who ever voted for it or against it.”

            Yet, you provide no evidence of this, and again, here is what CRA is, and what it is not:

            http://www.ritholtz.com/blog/2008/12/more-cra-idiocy/

            As I said, this narrative is so throughly ingrained into the “Conservative” narrative, it would be like convincing the Pope there was no such thing as Virgin Birth. And it is just that: an article of faith, not backed by reason or experience.

            I ridicule “tangential Austrian Economic Theory” because it is not the slightest bit germane to this conversation and it is the attempt of someone struggling to sound intelligent.

            Please see my other comments in response to contributors here. Again, you have to answer how Commercial real estate went through the same cycle with no public policy input to point a finger at. CRA is the bogeyman of the Right, but it is the very policies the Right pushed us into that got us into this mess.

          • No, Max, you ridicule it because you don’t understand it, which is the response of every tantrum filled child when faced with undeniable fact, such as the CRA. How do you think the CRA wasn’t responsible (I don’t care what their stated purpose, mission goals, or dreams from their fathers OR mothers were, the effect is what is GERMAINE) for forcing lower standards when it was the standards that “redlined” neighborhoods in the first place? No, Max, it is you who is being patently dishonest here. Why do you keep shilling the same “explanation” of what the CRA is? I can show you hundreds of people who’ve explained exactly why the conclusions we state are real and valid, yet you can’t show ANY economist who can prove otherwise. How do we know? Because in all the years since the collapse, all of the people who have investigated it (except, of course, the whitewashers and apologists, not only Keynesians, but communists, as well, with their own axes to grind) have found the same thing. Standards kept people with low incomes, unsteady jobs, erratic payment histories, and poor future prospects from buying homes with insufficient capital investment, insufficient capital savings, paying too much for rundown houses in poor neighborhoods, that, when foreclosed on, wouldn’t sell for half what they were loanded against. Sound familiar? By the way, I just wonder, how come we had the Mark to Market rule when the property was being foreclosed on by NON-FEDERALIZED BANKS, but once a Federal Bank got the property, they could revalue it? Hmmm? Because the whole thing was a bankers scandal, set off by Chuck Schummer’s comments about one of the banks, WaPo, I think it was. They tried a few weeks earlier, with Harry Reid and his comments about Indy Bank. Destroyed Indy Bank (a conservative supporter, btw), but it didn’t start the panic they’d hoped for. Once they ran the next bank, it was easy to pile on, and they saved all the members of the club, and left Bear Stearns and Lehman Brothers hanging out to dry. They essentially did the whole thing to steal those two, and a few other, companies. Outright theft. By the government, controlled to help the international bankers, the ones who are really in control.

          • Let’s try this a THIRD time: You write: “How do you think the CRA wasn’t responsible (I don’t care what their stated purpose, mission goals, or dreams from their fathers OR mothers were, the effect is what is GERMAINE) for forcing lower standards when it was the standards that “redlined” neighborhoods in the first place?”

            Again: CRA was NOT a SubPrime program, it did NOT affect Fannie or Freddie underwriting standards, and again in sheer numbers, if every single CRA loan went into foreclosure, it would not have amounted to a footnote in housing history.

            This is precisely what I mean about the cognitive dissonance you people show on this issue. You further state: ”
            I can show you hundreds of people who’ve explained exactly why the conclusions we state are real and valid, yet you can’t show ANY economist who can prove otherwise.”

            You haven’t shown me ONE person who can back up your claim, and if you want proof of CRA not being culpable in this disaster, not one single CEO of any money center bank, whether under grilling from Congress, or in any public forum or public statement, of which there have been dozens, have EVER accused CRA or even the GSEs, for that matter in forming the housing bubble.

            You steadfastly ignore my points as to how COMMERCIAL real estate followed PRECISELY the same boom and bust track with near PERFECT CORRELATION without a scintilla of public policy inputs, and instead, deflect with this pseudo intellectual horsehockey about Austrian economic theories. You may as well bring in the infield fly rule. It has no relevance here whatsoever.

            Not only that, did you know that CRA underwritten loans have the LOWEST foreclosure rates of almost any mortgage class? If the underwriting was so reckless, why other mortgage classes have far higher delinquency rates?

            You’re swatting at air here, friend. I was a mortgage broker for 8 years, and I have invested in tradin and investing in collateralized mortgage paper for the better part of a decade. I’m telling you straight up: you don’t have a clue as to how things played out on the ground, you bring no evidence besides accusations not based on any facts, and you’re ideological bent has blinded you from evem CONSIDERING your narrative might be wrong.

            Answer the points I made. Don’t tell me “someone told me” as a response.

            Instead of flying into a rant, why don’t you try addressing specific questions I have brought up, and try to answer them?

          • Oh, so since I don’t detail chapter and verse, quotes, email addresses, video links of people talking about it, then nothing I say is valid, and every lame claim you make is good until I somehow overcome your standard of proof.

            What a frigging idiot you are.

            You claim things with no proof. Things that every economist in his right mind has said, from both sides of the aisle. YOU then offer NO proof as to how they are wrong, merely assert that they are.

            Who the heck are you? You can refute a claim with no evidence, no reasoning, other than “the cra didn’t have anything to do with that because that wasn’t stated in it’s mission goals” or some such malarkey.

            You live in your fantasy world all you wish, the rest of us want you communists to jump off the nearest cliff before you drive all of us off of the cliff with you.

          • Let’s try this again:

            “Who the heck are you? You can refute a claim with no evidence, no reasoning, other than “the cra didn’t have anything to do with that because that wasn’t stated in it’s mission goals” or some such malarkey.”

            The evidence is as I have laid it out, and for the sake of brevity, will pose to you the same questions I did before. And instead of calling me names, you can attempt to answer them:

            Sir, you are not “explaining” anything except to make an assertion not based on any evidence or facts. Apparently to you, just insisting constitutes “evidence.”

            Again:

            1) If CRA or any public housing policy initiatives caused the housing bubble, how did commercial real estate’s price correlation match almost perfectly? That is a legitimate economic question.

            2) If the government “pushed” lenders into making mortgages with shoddy underwriting, why is it that those mortgage lenders who were not GSE affilliated, or not under the control of the Office of Thrift Supervision, experience delinquency and foreclosure rates that are nearly five times as high as those that WERE regulated?

            3)Why are CRA foreclosure rates so low, and why are the greatest amounts of foreclosures in areas like Nevada, Arizona, Florida and California that were nowhere NEAR communities that fell under CRA aegis? Henderson Nevada is not what anyone would describe as a “redlined” neighborhood.

            Start with that before accusing me of not providing evidence. Because those questions are evidence enough that you can’t debate your way out of a paper bag, and you know less than nothing about housing, mortgages, underwriting, securitization or derivatives.

            Impress me. I’ll be waiting.

          • Let’s try this a THIRD time: You write: “How do you think the CRA wasn’t responsible (I don’t care what their stated purpose, mission goals, or dreams from their fathers OR mothers were, the effect is what is GERMAINE) for forcing lower standards when it was the standards that “redlined” neighborhoods in the first place?”

            Again: CRA was NOT a SubPrime program, it did NOT affect Fannie or Freddie underwriting standards, and again in sheer numbers, if every single CRA loan went into foreclosure, it would not have amounted to a footnote in housing history.

            Now, here is where you start lying. First, you open your mouth. Next, you completely avoid my statement by claiming that I said it was a Sub Prime Program. Straw Man Argument number one. I didn’t. You claimed I did. I said the effect was X, you said I claimed the program was designed to do X. Two different things, and you’ve repeated this when it was pointed out to you, so you are a liar, plain and simple.

            Next:
            “it did NOT affect Fannie or Freddie underwriting standards”

            I never claimed that it did. Strawman argument number two. Fannie and Freddie set their own standards, which were the same, and done for the same reasons, but you’re are technically right, the CRA didn’t change those standards, Franklin Raines et al changed those standards to be the same as the banks.

            Next:
            “in sheer numbers, if every single CRA loan went into foreclosure, it would not have amounted to a footnote in housing history”

            It wouldn’t need to. Only a large enough percentage of them. When the law requires that fifty six percent of your loans are CRA-quality loans, then only ten percent of them, or five to eight percent of your total, need to go bad in order to effect your bank. The numbers were much higher than that in some places. Strawman argument number three, is it? Lie number three, I’ll call it.

            “This is precisely what I mean about the cognitive dissonance you people show on this issue. You further state: ”
            I can show you hundreds of people who’ve explained exactly why the conclusions we state are real and valid, yet you can’t show ANY economist who can prove otherwise.”

            You haven’t shown me ONE person who can back up your claim,”

            Take any conservative pundit, talk show host, or commentator, and I’ll bet you can find a story or piece that they did on the CRA and the housing crisis. I’ll bet, if you looked, you could even find a few Dems who’ve admitted it, since I’ve seen those quotes in the headlines. But of course, it’s not true because I don’t cite specifics. Only in your world can you claim the invalidity of something because your head is buried too far in the sand to see it.

            “and if you want proof of CRA not being culpable in this disaster, not one single CEO of any money center bank,”

            You mean the guys who brought you this disaster won’t take responsibility for it? Shocked, shocked I tell you.

            “whether under grilling from Congress,”

            If congress grilled a tuna fish sandwich, it would swim again.

            “or in any public forum or public statement, of which there have been dozens,”

            DOZENS!!!! REALLY??? And in none of them, did they EVER take responsibility? DAYUM, SAYUM. I CAIN’T BEELEEVE MAH EERS.

            “have EVER accused CRA or even the GSEs,”

            have ever admitted the crowbar they used or the thugs who they gave it to to use, you mean.

            “for that matter in forming the housing bubble.”

            Formed it along with the colusion of the banks with their interest rates, and then popped it along with Harry Reid and Chuck Schummer dumping on Indy and WaMu.

            “You steadfastly ignore my points as to how COMMERCIAL real estate followed PRECISELY the same boom and bust track with near PERFECT CORRELATION”

            Not perfectly correlated, and because they follow each other or not means nothing, in an up market people invest in homes AND businesses, in recessions people divest in homes AND businesses. That’s basic economics, but of course, you’re a communist, you wouldn’t understand things like that. The Austrian School, you see, is really more than just some little building in the country of Austria. Go figure you didn’t know that.

            “without a scintilla of public policy inputs, and instead, deflect with this pseudo intellectual horsehockey about Austrian economic theories.”

            Pseudo means false or a sham. Only a fool could call the Austrian School of Economics a sham. You can agree or disagree with it, but to claim it doesn’t exist shows more ignorance than could hardly be possible. If you know it to exist and are claiming it to be pseudo in the sense that it is fake, then you sir, have show yourelf to not only be ignorant, but willfully so. Even Keynes himself admitted to the theory of the Austrian school being valid.

            “You may as well bring in the infield fly rule. It has no relevance here whatsoever.”

            You would be an expert on being irrelevant. I’ll take your word for it.

            “Not only that, did you know that CRA underwritten loans have the LOWEST foreclosure rates of almost any mortgage class?”

            I call you a liar to your face. You called me one since I offered no proof. You show proof of what you speak. Not only that, but show me where non-CRA loans got the refinace help that CRA loans did. Can’t, can you? Exactly. Once again, you lie, you compare apples to oranges. Not only that, but most of these CRA loans are still set to fail, they’re like a feather that keeps being blown up into the air.

            “If the underwriting was so reckless, why other mortgage classes have far higher delinquency rates?”

            Because they aren’t being bailed out by taxpayers.

            “You’re swatting at air here, friend. I was a mortgage broker for 8 years, and I have invested in tradin and investing in collateralized mortgage paper for the better part of a decade. I’m telling you straight up: you don’t have a clue as to how things played out on the ground, you bring no evidence besides accusations not based on any facts, and you’re ideological bent has blinded you from evem CONSIDERING your narrative might be wrong.”

            I offer the same exact reasoning to you. You were told a ration of horse hockey in order to do your job. We have gone back and looked at emails, insider meetings, contacts between agencies, and for thatmatter, just looked at the overall logic of things. You are here to make excuses because you feel guilty, and now we see why. It wasn’t you personally, it was the way the system was set up.

            “Answer the points I made. Don’t tell me “someone told me” as a response.”

            I did. Now someone told you. Learn. Or STFU with your ignorance.

            “Instead of flying into a rant, why don’t you try addressing specific questions I have brought up, and try to answer them?”

            Help stamp out and abolish redundancy.

  5. There is a lot of blame to go around here and while I believe it was triggered by fed actions (but not specifically the ones suggested here), there were other factors that amplified the damage. The fundamental problem of why this recession is so deep is the same reason that the Great Depression was so deep: destruction of capital.

    In 1929 it was a stock market crash that caused people’s entire life’s savings and the collateral on which many loans were backed to evaporate. In this one it was the housing value collapse that did the same thing. But in this case I believe we see a “perfect storm” of a cascade of different failures that all went in the same direction. Some of it was lack of communication, some was overreaction.

    In response to the combined impact of the dot-com meltdown and 9/11, the federal reserve had greatly lowered interest rates. Subsequent to this, the regulatory environment was set in such a way as to encourage banks to make absolutely ridiculous loans to “non-traditional” borrowers who could afford them only with such creative things as reverse amortization or very low rate short term adjustable mortgages. The rational being that housing prices in these markets were rising fast enough to provide the equity to refinance them when the ARM reset. As the economy started to recover in the mid 2000′s, the federal reserve began increasing interest rates in order to prevent the economy from overheating and to protect the dollar. What they apparently weren’t aware of was the volume of short term mortgages taken out by marginal borrowers and what impact those rising interest rates would have when those mortgages expired. Additionally, Sarbanes-Oxley requirements amplified the problem initially when foreclosures began to hit the market at fire sale prices and the “mark to market” requirement was waived only after the damage was done.

    So “Joe Sixpack” had an ARM and the Federal Reserve started raising interest rates. Suddenly Joe’s payment went up because it was an adjustable rate loan. He can no longer make the new payment and he defaults. Thousands of other Joe and Jane Sixpack families are experiencing the same thing. Foreclosures begin to rise and suddenly the median home prices in the market begin to fall. Mark to market requires the lenders to mark down the values of all the homes they have in that market. Suddenly a lot of loans go “toxic” where the mortgage is no longer covered by the value of the underlying property.

    Had the Federal Reserve been aware of the absolutely ludicrous lending that was going on in the housing market and how many adjustable rate loans has been let to people who could barely make the payments as it was, maybe they would have acted differently.

    While the REACTIONs to the mess also made the problems worse, this was the first domino, in my opinion. The defaults of the marginal adjustable rate mortgages depressed home values. This then spread to people who were refinancing at the end of their ARM who were making payments. Now their property was “under water” and they couldn’t find refinancing. That caused even more defaults and depressed home prices even more. Now we had huge regional markets under water with hundreds of billions in equity evaporating. The home equity loans that had been financing college educations, renovations, second home purchases, automobile purchases, etc. suddenly evaporated and the result was a systemic slowdown of the economy.

    Congress was warned of this very scenario in 2001, 2003, and 2005 and did nothing to stop the flood of “irrationally exuberant” lending with short term adjustable rate loans. Had these loans been fixed rate long term mortgages, we would not have had this problem to begin with.

    • You forget that the federal GOVT didn’t only encourage LMI (risky) lending, they demanded it. Janet Reno, Attorney General, hauled banks in before Congress, threatening them with prosecution if banks did not rectify statistics that the DOJ claimed as discriminatory practices. When the banks used standard federal regulations as their defense, the federal GOVT removed those barriers. And, Fan/Fred received a mandate from GOVT to impose a quota on LMI (risky) loans. Fan/Fred in turn offered the quick purchase of those type of loans from the industry. . . . . . . All in all, whether the fed Raised or lowered rates, increased money supply, lowered supply, etc.,…. The Housing bubble was doomed to pop as the federal GOVT altered the market severely and recessions always come along, which would have squeezed the high risk loan holders. The GOVT intervention into the market is the cause. Everything else was just actions in trying to prevent the inevitable.

      • Again, this narrative is the stuff of fantasy. I’ve read about 10 books on the financial crisis, plus what must be thousands of pages of articles. No one has put what you wrote down as a cause. This is an attempt- and a pretty sad one- to blame the government for problems caused with the connivance of the private sector. And no amount of these falsehoods will change that.

        • I will start with one…and, then we can go from there… How many books, articles, economists do you need to counter your ‘thousands’ of articles? Thomas Sowell….. There is one….. And he has a book and several articles…. I can fill up this blog with names and articles. I guess you won’t remember ACORN picketing BofA? There is YouTube footage. There is YouTube footage of Janet Reno scolding the banks. WAKE UP!!!!

          • What did Thomas Sowell ever write about the housing crisis and does he know underwriting from underwear? And of course, throw out a mention of ACORN, as if they had any effect. Again: this was a CREDIT bubble, caused by RECKLESS LENDING by non-agency banks and mortgage lenders that were not controlled by any Federal oversight. And you STILL have to answer as to how COMMERCIAL real estate followed the same glide path as residential with NO PUBLIC POLICY inputs whatsoever.

            The following chart is the Moody’s Commercial Property Price Index:

            http://web.mit.edu/cre/research/credl/rca.html

            There is only one other chart that correlates with that one: the Case Schiller index. Now then: you explain to me what caused the rise in the prices of office complexes, shopping centers, strip malls and hotels in perfect tandem with the empty condos that line the Florida coast, and the abandoned mini mansions in Henderson, Nevada.

            Was it ACORN that pointed a gun to Harry Macklowe’s head and forced him to buy the General Motors building in Manhattan at 99% LTV?

            You people have had this narrative so deeply ingrained in you, despite the obvious data, there will be no way to dissuade you from your opinions on this matter. But I am telling you BASED ON THE DATA, you’re dead wrong.

    • Sounds great to attempt to pin point the errors made along the way on market failures. But, the only error made was GOVT interjecting itself into market, in the first place. Everything else is like trying to season spoiled beef. The question is whether the door remains open for GOVT intervention in the future. By eluding who was really to blame, GOVT, I say ‘yes’, the door is still propped open.

    • Your comment is better than the article… but you left out the gov’s role in setting up the crises and the bankers role in aggravating it.

      A perfect storm indeed… too perfect…

      • If there was any “government role” to blame for this crisis, it was that they played NO ROLE in preventing the reckless acts committed by the banks in fomenting it.

        • No matter how many times it’s explained to you, you will simply plug your ears and cry lalalalalalalala. You are a child, an ignorant man, or a willful idiot, take your pick. Remain ignorant for all I care, but please stop voting. Personally, I think you’re smart enough to realize what you’re saying is wrong and you’re just baiting people, but that’s because I believe you to be a vile, scum-sucking liberal, and that you are merely acting like all vile, scum-sucking liberals and can’t help yourself.

          From now on, all the answers to your posts will be summed up succinctly as follows:

          You are a liar.

          • Sir, you are not “explaining” anything except to make an assertion not based on any evidence or facts. Apparently to you, just insisting constitutes “evidence.”

            Again:

            1) If CRA or any public housing policy initiatives caused the housing bubble, how did commercial real estate’s price correlation match almost perfectly? That is a legitimate economic question

            2) If the government “pushed” lenders into making mortgages with shoddy underwriting, why is it that those mortgage lenders who were not GSE affilliated, or not under the control of the Office of Thrift Supervision, experience delinquency and foreclosure rates that are nearly five times as high as those that WERE regulated?

            3)Why are CRA foreclosure rates so low, and why are the greatest amounts of foreclosures in areas like Nevada, Arizona, Florida and California that were nowhere NEAR communities that fell under CRA aegis? Henderson Nevada is not what anyone would describe as a “redlined” neighborhood.

            And for all of these questions, what answer do I get?

            “but that’s because I believe you to be a vile, scum-sucking liberal, and that you are merely acting like all vile, scum-sucking liberals and can’t help yourself.”

            If you can’t debate me on the issues, and all you have is personal insult, you have lost this debate. Period.

          • No, Max, I and others have answered you, you refused to accept our answers. When we say it, it’s an assertion, but when you say it, it’s a fact.

            You are a liar, a strawman builder, and a deflector of the truth. You argue like a liberal, because you can’t face facts. You do real good, though, at digging up reasons and excuses why the CRA wasn’t responsible for this that or the other thing, while completely ignoring the synergy between things.

            Sorry, for all your falsehoods, I’ll just leave it at this. You are a liar. You know better, and you claim it anyway, so that makes you a liar.

        • To quote Reagan, “there you go again.”

          “Now, here is where you start lying. First, you open your mouth. Next, you completely avoid my statement by claiming that I said it was a Sub Prime Program. Straw Man Argument number one. I didn’t. You claimed I did. I said the effect was X, you said I claimed the program was designed to do X. Two different things, and you’ve repeated this when it was pointed out to you, so you are a liar, plain and simple.”

          If CRA wasn’t a SubPrime program, and didn’t loosen underwriting standards, then you have no basis to fault it. Right?

          Next:
          “it did NOT affect Fannie or Freddie underwriting standards”
          I never claimed that it did. Strawman argument number two. Fannie and Freddie set their own standards, which were the same, and done for the same reasons, but you’re are technically right, the CRA didn’t change those standards, Franklin Raines et al changed those standards to be the same as the banks.”

          This is another falsehood. Franklin Raines did NOTHING of the kind regarding underwriting standards, and while there is no evidence that underwriting risk metrics were changed, this meme gets repeated over and over again until it becomes an article of faith. If you have any proof that Fannie and Freddie “went rogue” on their underwriting, please present it.

          Next:
          “if every single CRA loan went into foreclosure, it would not have amounted to a footnote in housing history”

          “It wouldn’t need to. Only a large enough percentage of them. When the law requires that fifty six percent of your loans are CRA-quality loans, then only ten percent of them, or five to eight percent of your total, need to go bad in order to effect your bank. The numbers were much higher than that in some places. Strawman argument number three, is it? Lie number three, I’ll call it.”

          This argument is so pathetic, demonstrates an utter lack of knowledge of the mortgage industry, and it shows how you simply dive into a Pavlovian mind loop when your ingrained prejudices are challenged. First, you agree with me that CRA was never a SubPrime program to begin with. Then you claim it had a tangential effect. Next you claim it had a high percentage of foreclosures. So if CRA wasn’t SubPrime, how did these things occur? Secondly, CRA never mandated “fifty six percent” of ANYTHING. So first you call me a liar by telling me you never said CRA was a SubPrime program. Then you tell me it must have been.

          As per the Ritholtz piece:

          “And of course, vast numbers of sub-prime mortgages were written by non-CRA banks. Indeed, NONE OF THE 300+ mortgage originators that imploded were depository banks covered by the CRA.”

          How about that, Yankee fans?

          “Take any conservative pundit, talk show host, or commentator, and I’ll bet you can find a story or piece that they did on the CRA and the housing crisis.”

          Now THERE’S a reliable source of impartial data. The Fox News echo chamber. What a cornucopia of empirical evidence. Glenn Beck: a man who REALLY knows the mortgage and housing industry.

          “I’ll bet, if you looked, you could even find a few Dems who’ve admitted it, since I’ve seen those quotes in the headlines. But of course, it’s not true because I don’t cite specifics. ”

          That’s damn right! Where are these “quotes” and who are these people? They exist only in your mind.

          “Only in your world can you claim the invalidity of something because your head is buried too far in the sand to see it.”

          No sir, I prefer EVIDENCE over slander.

          “You mean the guys who brought you this disaster won’t take responsibility for it? Shocked, shocked I tell you.”

          Really? Now its the money center banks that caused the crisis, and not government policy? See that folks? THEY CAN BE TAUGHT!


          “Formed it along with the colusion of the banks with their interest rates, and then popped it along with Harry Reid and Chuck Schummer dumping on Indy and WaMu.”

          This narrative is lunacy and had no basis in fact.

          “Not perfectly correlated, and because they follow each other or not means nothing, in an up market people invest in homes AND businesses, in recessions people divest in homes AND businesses. That’s basic economics, but of course, you’re a communist, you wouldn’t understand things like that. The Austrian School, you see, is really more than just some little building in the country of Austria. Go figure you didn’t know that.”

          You just sundered your argument. Now the housing boom and bust was caused by an “up market?” What happened to all of the government programs? No longer the cause?

          Pseudo means false or a sham. Only a fool could call the Austrian School of Economics a sham.

          I’m not calling it a sham. IT HAS NOTHING TO DO WITH THE HOUSING CRISIS, AND YOUR REPEATED MENTION OF IT IS LAUGHABLE.

          “Not only that, did you know that CRA underwritten loans have the LOWEST foreclosure rates of almost any mortgage class?”
          “I call you a liar to your face. You called me one since I offered no proof. You show proof of what you speak.”

          Here’s your proof, RIGHT IN YOUR FACE: http://www.ccc.unc.edu/cra.php

          “Not only that, but show me where non-CRA loans got the refinace help that CRA loans did. Can’t, can you? Exactly. Once again, you lie, you compare apples to oranges.”

          Uhm, sir, there have been over 900,000 loan modificications under the HAMP program alone, none of which would fall under CRA, and hundreds of thousands of conventional loans that have been modified , refinanced or utilized some principal paydown. Your statement is the rant of one angry, frustrated person.

          “Not only that, but most of these CRA loans are still set to fail, they’re like a feather that keeps being blown up into the air.”

          Here we go again: YOU: CRA was not a SubPrime lending facility, but they are riven with foreclosures, despite their being no evidence of that. Great. Keep it up. You’re killing me.

          “If the underwriting was so reckless, why other mortgage classes have far higher delinquency rates?”
          “”Because they aren’t being bailed out by taxpayers.”"

          No one is being bailed out by taxpayers. In fact, the administration takes heat from the Left because they are NOT using taxpayer money to bail out under water homeowners.

          “I offer the same exact reasoning to you. You were told a ration of horse hockey in order to do your job.”

          No sir, I was a mortgage broker with over 30 correspondent lenders, and I’ve traded millions of dollars of mortgage paper of all kinds, and you know NOTHING.

          ” We have gone back and looked at emails, insider meetings, contacts between agencies, and for thatmatter, just looked at the overall logic of things.”

          Who is “we?”

          “I did. Now someone told you. Learn. Or STFU with your ignorance. ”

          You did nothing And you will never learn what I forgot about every angle of mortgage finance from origination, all the way to securitization and default swaps.

  6. Good summary by a participant. Citi should have been forced into receivership and the GSEs privatized by now. We need to celebrate failure for the discipline it brings to those that lack judgment.

    It a hard lesson to learn that government shouldn’t bend the market for its own purposes. Better to just agree to tax us all and directly pay for the desired result. The CRA is just the latest example of the butterfly effect of a (small) market perversion in the service of the well intentioned, but profoundly ignorant and non-numerate government that has long forgotten the Contract they swore to uphold permits none of this (to avoid precisely these results).

    http://www.youtube.com/watch?v=R2MV6CpGCwU

    http://siepr.stanford.edu/

    • “The CRA is just the latest example of the butterfly effect of a (small) market perversion in the service of the well intentioned.”

      Amazing. Like talking to furniture.

  7. The portions of the FCIC report that actually discuss and present facts rather than ideological demagoguery…..not that arguing with that fool Max Plank is anything other than a waste of time….

    http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_wallison_dissent.pdf

    http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_hennessey_holtz-eakin_thomas_dissent.pdf

    Oldie but goody I keep around for educating fools….

    http://reason.com/archives/2009/06/19/the-myth-of-financial-deregula

    • Wallison was the lone dissenter out of the FCIC, and for good reason. Only the indoctrinated believe his rubbish. As a member of AEI, he is paid to push this stuff. Anyone who thinks he’s impartial is kidding himself.

      The Reason editorial doesn’t even address the issue here.

      Just to cherry pick some of Wallison’s “points.”

      “I believe that the sine qua non of the financial crisis was U.S. government housing policy, which led to the creation of 27 million subprime and other risky loans—half of all mortgages in the United States— which were ready to default as soon as the massive 1997-2007 housing bubble began to deflate.”

      First, the real bubble that occured was in the late 2004-2007 bucket, and this is the sales area where most of your underwater homes are, even today. This is easily verifiable for anyone who trades mortgage paper: prior to 2005 origination, defaults are quite rare, and the paper trades firm, usually over Par in this rate environment. Every trader sees this.

      This is real good:

      “Virtually everyone who testified before the Commission agreed that the financial crisis was initiated by the mortgage meltdown that began when the housing
      bubble began to deflate in 2007. None of these witnesses, however, including the academics consulted by the Commission, the representatives of the rating
      agencies, the officers of financial institutions that were ultimately endangered by the mortgage downdraft , regulators and supervisors of financial institutions and even the renowned investor Warren Buffett, seems to have understood the dimensions of the NTM problem or recognized its significance before the bubble deflated.”

      In other words, out of ALL the people who studied the problem, including EVERY OTHER MEMBER OF THE FCIC, plus dozens of others in the field with genuine expertise and long exposure to the housing markets, and those who testified before the Commission and the organizations and interested parties that submitted data, Peter Wallison stands alone, and of course, only HE is right because his prejudices validate yours. Everyone else came to a different conclusion. This can only confirm Mr. Wallison’s “judgment.” (sic)

      This is really great:

      “When Fannie voluntarily began filing reports with the SEC in 2003, it disclosed that 16 percent of its credit obligations on mortgages had FICO scores of less than
      660—the common definition of a subprime loan. There are occasionally questions about whether a FICO score of 660 is the appropriate dividing line between prime
      and subprime loans. The federal bank regulators use 660 as the dividing line, and in the credit supplement it published for the first time with its 2008 10-K, Fannie
      included loans with FICO scores below 660 to disclose its exposure to loans that were other than prime. As of December 31, 2008, borrowers with a FICO of less
      than 660 had a serious delinquency rate about four times that for borrowers with a FICO equal to or greater than 660 (6.74% compared to 1.72%”"

      Translation: although a FICO score is a snapshot of someone’s credit at the moment of loan origination, it by no means stays static. My own personal credit score has bounced over a 60 point range in the past three years alone, for example. But note Wallison’s reasoning: while the credit score of the borrower was less than 660 at the time of origination (itself not a predictor of credit distress because scoring systems LOOK BACKWARDS and cannot predict the future) he then states that by December 2008, with the economy plummeting into a sickening tailspin, there is a higher level of “deliquency” activity: up to 6.74%. And BEFORE the Mankiw/Hubbard engineered meltdown?

      First, as Mr. Wallison well knows, a “delinquency” is not a foreclosure. Anyone who is one month late on their mortgage is “delinquent.” Secondly, even if a deliquency WAS a foreclosure, 6.74% stands up damn well to the 28% PLUS default rate of Non-Agency mortgages.

      Right, Petey?

      Now there’s more here, and I do thank you for the full report, of which I have only seen excerpts. But I’ll be back after I’ve studied this in detail to refute Mr. Wallison’s delusions- which he alone clings to. Wallison’s dissension has been lambasted for the nonsense it is from every corner of the mortgage and housing field.

      Empirical evidence is SUCH a problem….

    • By the way, before I dig into the minutiae of Wallison’s flawed tome, I want to point out what accusers of “government policy” often use as a stick: the very definition of “Sub Prime.”

      As with corporate bonds, or with credit analysis of a corporation’s balance sheet, there is a broad pallette of risk. As an example, anything from AAA to BBB- is considered “investment grade” by Standard & Poor’s, i.e., a very low chance of default. There are no less than eight steps from the top of investment grade to the bottom of investment grade in between.

      And so too, does mortgage paper. Even so, non investment grade corporate paper (up to a point) have very low default metrics. Bonds rated “BB” by Moody’s for example, have a normative default rate of just 1.5%. Hardly a calamitous level of risk.

      Mr. Wallison’s assertion is that ANY mortgage loan taken with a FICO score of less than 660 is deemed to be “Sub Prime.” Actually, as a former mortgage broker, I would say the truth is closer to 620. But aside from that hair splitting, loans underwritten at these levels are hardly condemned to default, and the same is true with “Alt-A” loans. The “A” in “Alt-A” refers to “A” paper, but the reason someone gets placed in a mortgage program like that is because of a reason- not necessarily credit related-that keeps the borrower out of a conventional conforming loan.

      What I am trying to point out here is that mortgage underwriting is a profession, best left up to skilled professionals who can assay credit quality. Credit risk management takes training and it takes experience.

      There is nothing I have seen in Peter Wallison’s CV that gives him a scintilla of professional credentials to hold forth on this subject. He doesn’t know underwriting from underwear.

      More to come.

      If Mr. Wallison wants to chime in, I’ll be waiting. Because I will tear him apart like a boiled chicken.

      • You are a master of the mortgage business it is clear. You certainly have a superior command of the jargon, the minutia, and the world-view of a mortgage-centered professional. What you do not have is an understanding of economics. This does not differentiate you from the rest of your industry or the largest proportion of so-called economists in employment in academia, banking, or govenment. Pleae pay attention to what will happen in the next few months or so. An opportunity for your education approaches. Don’t miss it.

        • What self serving rubbish. Leaving your infantile, personal insult aside, I am a credit professional as well, and frankly, unless you know the mortgage business on the ground, and know what goes into the underwriting process, you will never understand this issue. My last two posts should have proven that to you, but instead of answering my points, or even considering them, you remain in your sandbox, sucking your thumb, clutching a stuffed animal.

          Again: you don’t know Sub Prime from a Submarine, and neither do those two shills Pinto (who was fired from Fannie Mae) and Wallison.

          Your witless adoration of Freiderich Hayek will not help you here.

          And based on your response, you don’t have much in the way of credentials either, and I don’t think you know 1/10th what I do.

          I’ll be back with some substance as the insults roll in from the peanut gallery……

  8. By the way, for all of those closed minded people here still blaming the Community Reinvestment Act or the GSEs for the financial crisis- which I assure you will become more and more laughable to you as you begin to actually parse the DATA- Here is a foreclosure map of the USA.

    Perhaps some of you housing policy experts can explain the geography here for a program that was implemented to prevent redlining in minority neighborhoods.

    http://www.ritholtz.com/blog/wp-content/uploads/2012/08/dserwer.png

    • Quit playing class warfare. People were still put into houses they could not afford, and then things hit the fan. If they were using old policies these people would have either been in rentals or forced to be in stable fixed rate loans. Peddle your social justice somewhere else.

      • I swear to God, this is like talking to a park bench.

        AGAIN:

        -CRA WAS NOT A SUBPRIME LENDING PROGRAM.
        -UNDERWRITING METRICS WERE SIMILAR TO CONFORMING LOANS.
        -THE DEFAULT RATE OF CRA LOANS ARE AMONG THE LOWEST OF ANY MORTGAGE CLASS. EVEN TODAY.
        -REDLINING WAS A COMMON FACTOR IN MORTGAGE LENDING AND CRA WAS DESIGNED TO CURE THAT.
        -FOR MOST BANKS, CRA WAS AS PROFITABLE OR EVEN MORE PROFITABLE, THAN THEIR CONFORMING LOAN BUSINESS.

        • Everything you said is a lie. Show me, send me the stats where you get them. Show me how CRA loans have a better performance than any other. Tell me how underwriting metrics were the same, when some of these loans were no down, no job. Are you trying to say the banks were doing these on their own? You DO REALIZE, don’t you, that we aren’t considering the CRA as a loan program, rather as a club with which they beat banks up unless they had certain percentages. The BANKS had to come up with the loans to make the numbers good, or they’d get hell from ACORN AND the government. Are you really that stupid to think the CRA didn’t have anything to do with this? Almost everyone has come around to admit that, and if you haven’t, then it is YOU who live in a dream world, bub.

    • Max, I just finished having a discussion with a man about the FED causing the debacle of the time, “The recession”, by raising interest rates that blew home loans mortgage payments through the roof. This caused homeowners to lose there ability to purchase goods, causing stores to lose sales, causing stores to layoff or close shop, causing those same people to be unable to make there mortgage payment…The gentleman proceeded to make the same arguments you made and said he was a former loan officer and had a real estate license. The gentleman thought it was like a chess game, where he was out to win. Then, I told him the bank I worked for and explained my role in that bank. He then shut up and suddenly wanted to listen. My question to you is simple, do you agree or disagree that when the federal reserve raised interest rates, it caused variable mortgage loan payments to also go up? You seem to have a clear grasp in the loan business, but you don’t seem to understand economics to well if you disagree.

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