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The Subprime Meltdown

Fannie and Freddie had little to do with it. The CRA, even less.

[I originally had the full post mirrored to this site, but rather than monopolize Uncle’s front page, I figured I’d just redirect you to Lean Left.]

Posted in uncategorized on February 13th, 2009 by tgirsch | RSS 2.0 |

55 Responses to “The Subprime Meltdown”

  1. tgirsch Says:
    February 16th, 2009 at 4:08 pm

    Jesus Christ, 9, do you even read what you link? From your Wiki link:

    However, others dispute the involvement of the CRA in the crisis. San Francisco Federal Reserve Bank Governor Randall Kroszner has stated that no empirical evidence had been presented to support the claim that “the law pushed banking institutions to undertake high-risk mortgage lending”.[56] In a Bank for International Settlements (“BIS”) working paper, economist Luci Ellis concluded that “there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust,” relying partly on evidence that the housing bust has been a largely exurban event.[61] Others have also concluded that the CRA did not contribute to the current financial crisis, for example, FDIC Chairman Sheila Bair,[62] Comptroller of the Currency John C. Dugan,[63] Tim Westrich of the Center for American Progress,[64] Robert Gordon of the American Prospect,[65] Daniel Gross of Slate, and Aaron Pressman from BusinessWeek.[66]

    Some legal and financial experts note that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[67][34] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made “perhaps one in four” sub-prime loans, and that “the worst and most widespread abuses occurred in the institutions with the least federal oversight”.[68] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky “high-priced loans” at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[69] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[70] Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.[71]

    [Emphasis mine.]

    I suppose I’m just “rationalizing” when I say that those experts back up what I’ve been arguing about CRA.

  2. pdb Says:
    February 16th, 2009 at 4:35 pm

    Riiiiiiight.

    The CRA had no effect whatsoever.

  3. Number9 Says:
    February 16th, 2009 at 4:51 pm

    Riiiiiiight.

    The CRA had no effect whatsoever.

    Couldn’t help but notice how that looked like a hockey stick.

    There is nothing more religious than a secular progressive.

  4. Manish Says:
    February 17th, 2009 at 12:26 am

    They’re saying that the CRA created CIRCUMSTANCES CONDUCIVE TO THE UNREASONABLE LENDING PRACTICES WE’VE SEEN. At least SOME banks had to make the bad loans – the rest were either scared of being forced into compliance, or had to make bad loans to compete.

    So let me see if I follow and please let me know if I’m not following your logic..CRA regulated-banks made loans that they knew were bad to low income borrowers because they had to. Other banks were scared that they would be forced to make bad loans even though CRA didn’t apply to them. CRA could have been changed, in theory, so that it would apply to them. Under what political dynamic was CRA going to be changed? Was George Bush really going to sign an extension of CRA into law?

    Then there is the non-CRA lenders had to make bad loans to compete. Huh? Why would any business enter into a transaction that they knew they would lose money on? They would simply leave that market segment.

    Furthermore, none of your analysis jumps a basic hurdle of fact..the CRA lenders made loans that are performing better than the non-CRA lenders. If CRA made lenders make loans that they knew would go bad, why would non-CRA lenders make even worse loans?

  5. tgirsch Says:
    February 17th, 2009 at 12:30 am

    Manish:

    Shut up with your stupid facts and logic and reason! They have no place in Right Blogistan…

Remember, I do this to entertain me, not you.

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