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OfflinePhred
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Social Engineering by Democrats Destroys the World's Financial Markets
    #9059012 - 10/10/08 03:45 PM (12 years, 4 months ago)

America has long wrestled with the issue of race, certainly to a greater degree than any other country. Or at least, their wrestling is more visible.

One of the best-known results of this struggle has been the emergence over the last four decades or so of "affirmative-action" programs. "Affirmative action" is of course nothing more than a politically-correct obfuscation of the reality of these programs: they are in fact racist. They favor humans of one race (or several different races, as long as that race is not caucasian) over another. The rationale for this unequal treatment is that for a very long time indeed, black folks were treated worse than white folks, therefore now it is just and right and proper to atone for that past treatment by treating them better than white folks are treated. 

And the champion par excellence of affirmative action programs is - of course - the American Democratic Party. While there have  been some Republicans who have voted in favor of AA measures over the decades, and probably even some here and there who have introduced AA legislation (although I admit I can't think of any offhand), no one even vaguely familiar with the course of American politics over the last four decades or so would think of giving credit for the vast web of AA legislation to anyone other than the Democrats.

Democrats - like all Leftie types - are huge fans of Social Engineering. Social engineering is basically the the attempt to get humans to act in ways you want them to act, and stop acting in ways you don't want them to act, through passing laws which reward certain behaviors and punish (or prohibit entirely) certain other behaviors. Righties of course engage in this kind of legislation as well, it's just that they tend to limit their social engineering to discouraging folks from stealing and assaulting and murdering.

So why am I going through this preamble? I doubt anything I've just written comes as any surprise to the regular readers of this forum. Where am I going with this? I'll tell you - I'm about to provide yet another example (in a seemingly endless stream of them) of The Rule of Unintended Consequences.

Democrats decided affirmative action was good. But it wasn't enough to apply AA to schools and colleges and workplaces and landlords and businesses and private social clubs, no... it also had to be applied to home ownership. If more black folks (and other minorities) than white folks were renters (as opposed to homeowners), it must be due to lingering discrimination by lenders, and affirmative action must be brought to bear on the offenders.

At this point I'm going to link to a couple of people more eloquent than myself. You will note there's a video as well. My recommendation is you take the time to watch it. It is eight and a half minutes long. Right at the beginning there is Andrew Cuomo claiming the reason black folks aren't getting mortgages is because they are black, and that the Clinton administration will not allow this situation to continue - that the Clinton administration will "enforce the laws". Watching Cuomo speak, knowing what we know now - is chilling indeed. Well worth the watch.   

But even if you skip the video, don't skip the following text. It's good.

Quote:

Video: Subprime loans “affirmative action” - Andrew Cuomo

By Ed Morrissey


Another lengthy video attempts to highlight the beginnings of the subprime loan disaster, and it’s well worth watching.  Andrew Cuomo, then Bill Clinton’s HUD Secretary, held a press conference on April 6, 1998, explaining a settlement reached with a major bank on a lending discrimination case based presumably on the CRA.  Cuomo brags about how “this administration will enforce the law”, but he also makes a very telling admission about the $2.1 billion in subprime loans that the bank would offer as a result of the settlement:



Quote:

They would not have qualifed but for the affirmative action on the part of the bank, yes.




He then admits that there would be “higher risk”, and a higher default rate, on the loans the Clinton administration forced this bank to make. He also admits that the action forced this bank to lower its standards on loan qualification as a remedy to supposed discriminatory action in the past by relying on income and equity requirements. Cuomo describes everything wrong with subprime lending and reveals the government’s efforts to distort private lending markets to force “fairness” in outcomes.

The financial world did not collapse because of 15,000 loans from this one settlement, but this case did not exist in isolation.  Cuomo held this press conference as a warning to all lenders that the Clinton administration intended to enforce the CRA broadly with all lenders, and in fact he explicitly stated this.  When that didn’t free up credit as quickly as Clinton desired, he and Congress mandated Fannie Mae and Freddie Mac to purchase more subprime paper — which Cuomo baldly admitted was riskier and would have a higher rate of failures — and to turn them into mortgage-backed securities, which they marketed as low-risk investments based on implicit government backing.

This did what the heavy-handed enforcement of the CRA could not: it made lenders enthusiastic about subprime lending.  Why?  They could make short-term profit on every mortgage regardless of the borrower’s ability to repay, because Fannie and Freddie would buy them anyway.  With the risk removed from lending, subprime loans became quick-buck rackets for all lenders, predatory or not.

The second half of the video relates what we already know about Barack Obama.  He sued Citibank to force more subprime lending, and his ACORN partners did the same elsewhere, initiating actions like the one Cuomo heralds here as a great breakthrough in affirmative-action lending.  Obama bears responsibility at the edges for the beginning of this disaster, and more for his inaction while in the Senate as Alan Greenspan warned them of the coming collapse.  Most of this falls on the Clinton administration and Congress in 1998-2000, who set this brush fire alight and then kept the firefighters at OFHEO at bay by calling them racists.




Exactly. I know some people in America are incensed that the Obama campaign (and even Obama himself) call anyone criticizing - or even just publicizing - Obama's actions "racist". But Obama can't help himself any more than Barney Franks or Harry Reid can. They are indoctrinated to blurt "racism!" whenever they are criticized for their idiotic policies. It's a Pavlovian reflex by now. Criticism of Franklin Raines? Racism! Criticism of Fannie Mae and Freedie Mac? Racism! Criticism of the CRA itself? Racism!

At the root of this giant financial meltdown is social engineering by the American Democratic Party. They decided that the next target against which the howitzer of Affirmative Action should be aimed was minority home ownership. And nothing was going to stop them from ramrodding their vision of racial justice down everyone's throats, lenders especially. Because to do anything else was racism.

Selah.




Phred


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Offlinelonestar2004
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Phred]
    #9059114 - 10/10/08 04:12 PM (12 years, 4 months ago)

:yesnod:

My biggest fear Phred is that Obama has a five-point lead on election day and he loses this election. The federal government will punish all Americas for not voting for the messiah and require us all to take a mandatory diversity training class....


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America's debt problem is a "sign of leadership failure"

We have "reckless fiscal policies"

America has a debt problem and a failure of leadership.

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OfflineSeussA
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: lonestar2004]
    #9059129 - 10/10/08 04:16 PM (12 years, 4 months ago)

> The federal government will punish all Americas

I don't care what they do, as long as they don't try to take away my guns... the minute they do that, I'm hunkering down with Pris and going postal on anybody that gets close enough for me to see.  (disclaimer: cynical fiction, not to be confused with an actual threat)


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InvisibleArp
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Seuss]
    #9059174 - 10/10/08 04:24 PM (12 years, 4 months ago)

I thought you were in the Carribea? :tongue:

Interesting viddy Phred :thumbup:


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OfflinePhred
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Phred]
    #9059175 - 10/10/08 04:24 PM (12 years, 4 months ago)

Heh. One of my favorite commentators, the inimitable Ace, checks in on this discussion. I wish I had his way with words, I really do.

Quote:

Andrew Cuomo in 1998: Subprime Lending "Affirmative Action;" Proudly Hails Mau-Mauing Banks Into Reducing Loan Requirements as Great Advance for Nation

On the one hand you don't want to demagogue the issue.

On the other hand, the issue inherently underscores a major tension between the parties, and the races, since 1998: The Democrats' overarching drive to do certifiably insane things, like letting murderers out on weekend furloughs from prison, in response to constant agitation from minority pressure groups. And all the quite predictable consequences that flow from such policies. No one would ever suggest letting murderers out of jail for weekend rape-fests if almost all prisoners were white. There would be no reason to suggest such a lunacy. It is only when race is a factor do we begin seeing such insane policies not only proposed seriously, but enacted.

And no one would have thought it was a good idea to eviscerate all prudence from the mortgage process had we only been talking about poor whites. The answer would have been, "Um, duh, they can't afford these loans, that's why they're not getting them; what are you, insane?"

And again, once race is injected as a factor insanity becomes government policy.

Yes, the Democratic initiative did help minority homebuyers (and lots of white credit-poor homebuyers too, who wound up being the main beneficiaries of the push, simply because there are more poor whites than poor blacks in the country).

But at what cost? (Incidentally, Ed's post is Must Read All the Way Through.)

Our politics is constantly being distorted by this issue. And note that, as usual, many politicians were willing to go along quietly with a risky scheme with perfectly foreseeable consequences for fear of being called "racist" if they objected.

Well, here we are now.

We really did lots of good putting credit-poor homebuyers into homes they couldn't afford, didn't we?

And the kicker: Because this issue necessarily raises racial issues, McCain and the Republicans have been afraid to call the Democrats out on it, permitting Barack Obama -- who actually sued CitiGroup to ease its lending requirements in order to get credit-poor minorities mortgages -- to actually profit from the disaster he himself made....




More at the link.



Phred


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OfflineSeussA
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Arp]
    #9059227 - 10/10/08 04:36 PM (12 years, 4 months ago)

> I thought you were in the Carribea? :tongue:

I am... a bit south and east of Phred; watching Invest 97 to see where it is going next week.  However, I still have guns in storage in the US and realize that the the only thing that stands between freedom and socialist oppression is an armed population.  Just as Obama did in Chicago with guns, he will do with the entire country if he has his way.  Much easier to take over an unarmed population.  Should Obama win, watch for him trying to take away people's guns... it will be the first sign of his true purpose.  :tinfoil:


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Offlinezappaisgod
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Seuss]
    #9059247 - 10/10/08 04:38 PM (12 years, 4 months ago)

First sign?  Not for those with eyes to see.


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OfflineSeussA
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: zappaisgod]
    #9059462 - 10/10/08 05:17 PM (12 years, 4 months ago)

>  Not for those with eyes to see.

Do tell, as I would like to watch the apocalypse unfold.  (again, assuming he wins... big if)


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OfflineMrBump
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Phred]
    #9060171 - 10/10/08 07:56 PM (12 years, 4 months ago)

I will not deny that Dems have litigated and legislated to give minorities and low-income Americans easier access to home purchasing loans. but you seem to forget that the current administration continued the cause.

Dont you remember, back in Bush's first term, the American Homeownership Challenge?

The goal of the challenge was to increase minority homeownership by 5.5 million by the end of this decade. in a speech, Bush laid out his plan (bold emphasis by me):

" To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can't make a down payment. They may be qualified. They may desire to buy a home, but they don't have the money to make a down payment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can't cross. And one way to address that is to have the federal government participate.

And so we've called upon Congress to set up what's called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers."

" And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that's what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it's important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they're into their new home. It is a -- it is a way to help us meet this dream of 5.5 million additional families owning their home.

I'm also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own."

So, Bush is telling the American public in this October 2002 speech LINK TO THE SPEECH that if low-income minorities cannot come up w/ the downpayment, or cant afford to make the monthly mortgage payment, no worries, the fed will just give some money to help.

and watch this clip of a Bush speech in May of 2002. he essentially directs Freddie and Fannie to increase its commitment to minority markets by $440 billion, in part by offering loans to poor people w/ shit credit. (he starts talking about Fred and Fannie at 4:20)

"

I do this not to blame this entirely on one administration or one party. there is enough blame to go around for the creation of this crisis: Dems, Repubs, private/corporate greed, citizens who took out loans they couldn't pay back... they all had their hand in the cookie jar at one time or another.


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If it weren't for the bloody corpses, I wouldn't have any corpses at all.

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Invisiblezorbman
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Phred]
    #9060207 - 10/10/08 08:04 PM (12 years, 4 months ago)

I blame the current market turmoil on the Greys.


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“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch


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OfflineSeussA
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: zorbman]
    #9060217 - 10/10/08 08:05 PM (12 years, 4 months ago)

> I blame the current market turmoil on the Greys.

Racist?  :grin:


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Offlinepiracetam
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: MrBump]
    #9060218 - 10/10/08 08:06 PM (12 years, 4 months ago)

spot on. :thumbup:


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"Experiments are the only means of attaining knowledge at our disposal. The rest is just poetry, imagination." ~Max Planck


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OfflinePhred
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: MrBump]
    #9060264 - 10/10/08 08:21 PM (12 years, 4 months ago)

A speech is one thing. Writing the legislation is another.

Did any of this proposed program make it through Congress? Because I sure as shit don't remember hearing about any bills like this one actually being signed into law. You got any links to the current status of the "American Dream Down Payment Fund," for example? Any numbers on how much money has passed through it?

Same with Section 8 housing programs. Bush says it would be a good idea to switch some of those funds over from rent payments to mortgage payments. Can you provide a link to any credible source showing that this was ever actually done? Because I sure as hell missed that development, and believe me it would have been BIG news if it ever actually happened.



Phred


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OfflineDeepDish
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Phred]
    #9062620 - 10/11/08 12:57 PM (12 years, 4 months ago)

From HUD's website

The American Dream Downpayment Initiative (ADDI) was signed into law on December 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 - 2007. ADDI will provide funds to all fifty states and to local participating jurisdictions that have a population of at least 150,000 or will receive an allocation of at least $50,000 under the ADDI formula. ADDI will be administered as a part of the HOME Investment Partnerships Program, a formula grant program.




Bush had plenty of opportunity to control or at least slow the inflation of the housing bubble.  From what I can tell he didn't really pass any legislation during his eight years would stop it.  If fact during his campaign in 2004 he used increased home ownership during his years as a president as one of his talking points.  Don't you think it is a little disingenuous to try and blame this one all on the democrats?


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Offlinewildchild68
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: MrBump]
    #9062803 - 10/11/08 01:55 PM (12 years, 4 months ago)

No man, you don't understand. Every single problem ever can be traced back to the democrats, and only the democrats.

Phred's taught me a lot.


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OfflinePhred
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: DeepDish]
    #9062964 - 10/11/08 02:38 PM (12 years, 4 months ago)

Quote:

From HUD's website

The American Dream Downpayment Initiative (ADDI) was signed into law on December 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 - 2007. ADDI will provide funds to all fifty states and to local participating jurisdictions that have a population of at least 150,000 or will receive an allocation of at least $50,000 under the ADDI formula. ADDI will be administered as a part of the HOME Investment Partnerships Program, a formula grant program.




Thank you. Got a link for that?

This program is not part of the eventual problem, but instead a partial amelioration of the eventual problem. The biggest problem was with mortgages handed out with no down payments at all. Clearly a lender who got a downpayment in addition to the collateral of the property itself is in better shape (not perfect shape, but better shape) than a lender who got no down payment at all. To the lender, it doesn't matter whether the borrower's grandmother coughed up the nut for the down payment or Uncle Sam.

We can of course argue whether or not taxpayer dollars should be used for this purpose, but that is a different argument. Those down payments did nothing to either create the crisis or to exacerbate it. On the contrary, they eased it, albeit to a slight extent indeed.

Quote:

From what I can tell he didn't really pass any legislation during his eight years would stop it.




The president cannot write legislation, or even introduce it. All he can do is urge Congress to do so. Bush did this at least twice that I know of - April 2001 and sometime in 2003. I can't be bothered looking up the links again - I know they've been posted here several times.

Quote:

Don't you think it is a little disingenuous to try and blame this one all on the democrats?




Not in the slightest. The impetus for subprime mortgages was all driven by the Democrats. Calls for the reigning in of Fannie Mae and Freddie Mac were decried by Democrats as "racist" and resisted strongly. Several threads here have the same YouTube video posted with excerpts from these hearings, showing Maxine Waters and Barney Frank and Chris (?) Meeks and other black Democrats defending FM and FM to the hilt and playing the race card on Repubs calling for stricter oversight of FM and FM.

It was an idea born of the Dems, nurtured by the Dems, and defended by the Dems. The only thing Repubs can be blamed for is knuckling under for fear of being called racist.





Phred


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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Phred]
    #9062998 - 10/11/08 02:47 PM (12 years, 4 months ago)

Do you know why John McCain is going to lose? It's because people like you & Sean Hannity will do nothing but blame "liberals" for all of America's problems. It may fly with the base, but not with independents & moderates; they believe that there is enough blame to go around; Democrats, Republicans, Congress, the Executive branch, &, of course, Wall Street.

You know, John McCain himself has condemned Wall Street greed in a debate, which appeals to moderates & independents. If you really want McCain to win, people like you & Sean Hannity would do best by keeping your mouths shut.


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OfflineYossarian22
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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: EntheogenicPeace]
    #9063180 - 10/11/08 03:38 PM (12 years, 4 months ago)

Jesus Christ. This shit has been debunked so many fucking times. Leave it to you guys to jump on every racist lie that makes its rounds around the Internet. The CRA had nothing to do with the crisis. The most that could be said is that it may have slightly contributed to the housing bubble, but only in an incidental way. The CRA didn't apply to the financial institutions which made the riskiest loans nor did it force banks to lend to people they shouldn't have(it only required that banks not redline- ie, they offer credit to people based on their credit score, income, etc. and not whether or not they live in a black or white neighborhood).  The CRA didn't allow unregulated financial institutions to package up shit debt and sell it as secure investments, it didn't  allow banks to get so deep in debt that they all had to either be nationalized or go bankrupt, and it didn't allow the kind of rampant and irresponsible lending that took place mainly outside of the purview of the CRA. But of course it's all those black people which got us in this mess, what with being so irresponsible with having babies all over town and buying an Escalade before paying their mortgage, am I rite? It certainly couldn't be the result of the idiotic belief that the free, unregulated and opaque market solves all problems and that investors and companies would never take advantage of an almost total lack of oversight and transparency. If you're looking to scapegoat someone instead of admitting that right-wing fiscal policy especially that of Phil Gramm, McCain's "financial guru", is to blame, I think you'd have a better chance blaming the Jewish bankers.

Here's an article that pretty much sums up why this scapegoating is total bullshit:

Quote:

We've now entered a new stage of the financial crisis: the ritual assigning of blame. It began in earnest with Monday's congressional roasting of Lehman Bros. CEO Richard Fuld and continued on Tuesday with Capitol Hill solons delving into the failure of AIG. On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.

The thesis is laid out almost daily on the Wall Street Journal editorial page, in the National Review, and on the campaign trail. John McCain said yesterday, "Bad mortgages were being backed by Fannie Mae and Freddie Mac, and it was only a matter of time before a contagion of unsustainable debt began to spread." Washington Post columnist Charles Krauthammer provides an excellent example, writing that "much of this crisis was brought upon us by the good intentions of good people." He continues: "For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity." The subtext: If only Congress didn't force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel's Neil Cavuto put it, "I don't remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."

Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?

These arguments are generally made by people who read the editorial page of the Wall Street Journal and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice. Let's be honest. Fannie and Freddie, which didn't make subprime loans but did buy subprime loans made by others, were part of the problem. Poor Congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem. But none of these issues is the cause of the problem. Not by a long shot. From the beginning, subprime has been a symptom, not a cause. And the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd.

Here's why.

The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn't apply. There's much more. As Barry Ritholtz notes in this fine rant, the CRA didn't force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.

Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), filed for bankruptcy in August. Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities. The multiyear plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least-subprime housing markets in the nation.

Third, lending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all. That's what we've learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent.

On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity. And here, again, it's difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33 to 1, which instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients' money, and that required its septuagenarian CEO to play bridge while his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Bros. to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can't find it. Did AIG plunge into the credit-default-swaps business with abandon because Association of Community Organizations for Reform Now members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private-equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton's fault?

Look: There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb-lending virus originated in Greenwich, Conn., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington, D.C. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.

At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "De minimis."

Lending money to poor people doesn't make you poor. Lending money poorly to rich people does.




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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Yossarian22]
    #9063238 - 10/11/08 03:55 PM (12 years, 4 months ago)

Daniel Gross is an ignorant buffoon, as the article of his you so helpfully provided proves. I urge the entire audience to read this nonsense so they can see a textbook example of a Libbie living a completely fact-free existence trying to spin a separate reality out of thin air.

Once again, you are late to the party. There are several threads here offering irrefutable proof that banks were bullied into giving out risky loans in order to satisfy CRA requirements, by both government bureaucrats and law firms representing "disenfranchised" borrowers. More articles still showing how Fanny May and Freddie Mac were directed to buy up these crap loans so banks wouldn't be so balky at issuing them.

Did there come a time when some lenders finally abandoned all caution and stopped resisting? Of course. That's not the point. The point is that the banks should never have been maneuvered into that position in the first place. And the only reason they were is because of Affirmative Action.

You can stick your fingers in your ears and squinch your eyes shut all you want, but the fact of the matter is that lenders didn't just all decide one day that all the ironclad rules of sane mortgage lending that had worked well for centuries should be disregarded. The government stepped in and changed the rules of the game. Deny it till you're blue in the face, it makes no nevermind.





Phred


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Re: Social Engineering by Democrats Destroys the World's Financial Markets [Re: Phred]
    #9063362 - 10/11/08 04:32 PM (12 years, 4 months ago)

The CRA is discussed in this article.


How Government Stoked the Mania
Housing prices would never have risen so high without multiple Washington mistakes.
By RUSSELL ROBERTS

Many believe that wild greed and market failure led us into this sorry mess. According to that narrative, investors in search of higher yields bought novel securities that bundled loans made to high-risk borrowers. Banks issued these loans because they could sell them to hungry investors. It was a giant Ponzi scheme that only worked as long as housing prices were on the rise. But housing prices were the result of a speculative mania. Once the bubble burst, too many borrowers had negative equity, and the system collapsed.

Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What's missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.

Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.

Congress designed Fannie and Freddie to serve both their investors and the political class. Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside of the budget, at least in the short run. It was a political free lunch.

The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good. First passed in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.

Fannie and Freddie were part of the CRA story, too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear Stearns issued $1.9 billion of CRA mortgages backed by Fannie or Freddie. Between 2000 and 2002 Fannie Mae securitized $394 billion in CRA loans with $20 billion going to securitized mortgages.

By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.

Fannie and Freddie and the banks opposed these policy changes at first through both lobbying and intransigence. But when they found out that following these policies could be profitable -- which they were as long as rising housing prices kept default rates unusually low -- their complaints disappeared. Maybe they could serve two masters. They turned out to be wrong. And when Fannie and Freddie went into conservatorship, politicians found out that budgetary dollars were on the line after all.

While Fannie and Freddie and the CRA were pushing up the demand for relatively low-priced property, the Taxpayer Relief Act of 1997 increased the demand for higher valued property by expanding the availability and size of the capital-gains exclusion to $500,000 from $125,000. It also made it easier to exclude capital gains from rental property, further pushing up the demand for housing.

The Fed did its part, too. In 2003, the federal-funds rate hit 40-year lows of 1.25%. That pushed the rates on adjustable loans to historic lows as well, helping to fuel the housing boom.

The Taxpayer Relief Act of 1997 and low interest rates -- along with the regulatory push for more low-income homeowners -- dramatically increased the demand for housing. Between 1997 and 2005, the average price of a house in the U.S. more than doubled. It wasn't simply a speculative bubble. Much of the rise in housing prices was the result of public policies that increased the demand for housing. Without the surge in housing prices, the subprime market would have never taken off.

Fannie and Freddie played a significant role in the explosion of subprime mortgages and subprime mortgage-backed securities. Without Fannie and Freddie's implicit guarantee of government support (which turned out to be all too real), would the mortgage-backed securities market and the subprime part of it have expanded the way they did?

Perhaps. But before we conclude that markets failed, we need a careful analysis of public policy's role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and some inevitably overreach and destroy themselves. Why did they take so many down with them this time?

Part of the answer is a political class greedy to push home-ownership rates to historic highs -- from 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets.

Beware of trying to do good with other people's money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.

Mr. Roberts is a professor of economics at George Mason University and a scholar at the Mercatus Center. His latest book is a novel on how markets work, "The Price of Everything: A Parable of Possibility and Prosperity" (Princeton University Press, 2008).

Please add your comments to the Opinion Journal forum.

http://wsj.com/article/SB122298982558700341.html


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