I LOVE LOVE LOVE Rachel Lucas....This is the best primer of the financial crisis I could find....enjoy. A short post by Mark Krikorian at The Corner said:
I have no way of judging whether the Wall Street bailout is a necessary evil or an impending disaster. But we’re in this mess, ultimately, because our political elites thought it was good social policy to encourage banks to give mortgages to uncreditworthy people, resulting in what Sailer months ago called the “Diversity Recession” (if this doesn’t work, make that the Diversity Depression). In other words, if poor people in general, or blacks or Hispanics in particular, were less likely to be approved for a mortgage, the only possible reason was racism or classism or whatever. Thus “creditworthiness” was an illegitimate, dead-white-male concept, like middleclassness. Because, after all, isn’t everyone entitled to credit? Therefore, I propose any bailout bill start with these words: “It is the sense of Congress that credit is not a civil right.”
I don’t know why it surprises me, but in his followup post today, he says he got a lot of “shame on you” emails about that.
Huh??? What exactly is he supposed to be ashamed about?
What he said is true. It is what happened; it’s factual. Is there a serious, informed person out there who thinks that anything he said was not the truth? Or are we still “shaming” people for saying anything remotely critical of anyone except white men? God, people. Grow up.
Economics professor Stan Liebowitz explains, and this is only a small part of what he writes:
How did America wind up in its worst financial crisis in decades? Sen. Barack Obama explained it this way last week: “When sub-prime-mortgage lending took a reckless and unsustainable turn, a patchwork of regulators systematically and deliberately eliminated the regulations protecting the American people.”
That’s exactly backward. Mortgage lending took that “reckless and unsustainable turn” because of regulation - regulation driven by liberals and progressives, not free-market “deregulators.”
…The mortgage market was humming along just fine when, in the late 1980s, progressives decided that it needed to be “fixed.” Their complaint: Some ethnic groups got approved for mortgages at lower rates than others.
In reality, mortgage lenders were simply being prudent - taking care to provide mortgages to those who could best afford to make the payments.
The shift began in 1989, when Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates. Banks were “Shamed By Publicity,” as one 1993 New York Times headline put it.
…[In 1993] the Boston Fed announced new requirements for banks - rules that have now turned out to be monumentally catastrophic: Adopt “relaxed lending standards” or risk being labeled as racists, and face serious penalties under the federal Community Reinvestment Act.
Gone (as “arbitrary” and “outdated”) were traditional lending requirements such as requiring a down payment or limiting mortgage payments to 28 percent of income. (Of course, the loosened lending standards weren’t limited to poor and minority applicants - that would be discriminatory.)
…Time after time, Fannie and Freddie trumped criticism by pointing to how they were helping broaden homeownership. Because of the subject’s racial overtones, they beat back calls for reform even after financial irregularities were found.
None of this means it’s all minorities’ fault. As Liebowitz points out, the loosened standards weren’t limited to just poor and minority borrowers; in fact, all uncreditworthy people were now able to buy houses they couldn’t afford. Thus taking a gargantuan smelly dump over all the rest of us.
So are either of these guys wrong? I would very much like to know. I keep seeing articles blaming the mess on “poor regulation” - are they talking about something else? Do I miscomprehend the meaning of “regulation”?
Edited later to add this link to another piece by Liebowitz along the same lines. Commenter Mont posted it on the last thread.
Ed Morrissey has more:
The heart of this failure came from a mandate by members of Congress from both parties that demanded easier loan terms for marginally-qualified buyers. At first, this meant working-class families, but it also resulted in easier terms all the way through to the highest income levels. Lower qualifiers meant more buyers, and buyers buying bigger houses. The net effect of this was to create a much higher demand for housing and for mortgages.
This produced two other effects. First, the government had Fannie Mae and Freddie Mac sponsor many of these questionable loans and convert them into investment products, which essentially infected the entire investment community with massive, poorly-secured loans. Second, the demand touched off a residential building boom as people attempted to provide inventory for the massive amount of buyers coming into the market.
Unfortunately, this created a big Ponzi scheme, one dictated by Congress and two administrations. It only worked as long as housing prices continued to increase. When the bubble finally popped late last year, it was analogous to the margin calls of 1929, only in slow motion. Once homeowners realized that their houses would not increase in value, they knew that they were stuck in ARMs that they wouldn’t be able to afford. The defaults would not just sink the banks but also the investors who bought the securities.
Who created this Ponzi scheme? Congress did. Who demanded lower qualifiers for home mortgages and then insisted on having Fannie/Freddie turn them into investments to support the lenders? Congress did.
We are so screwed. Screwbiddy screw-screw-screwed.
I thought I was done but here’s some more. Mont’s comment on the last thread got me Googling, and I found this:
The most egregious part is the appointment by the Clinton administration of individuals with zero experience in the mortgage business to head Fannie Mae, who proceeded to cook the books in order to make sure they received their full bonuses for hitting Earnings Per Share targets — and whose actions were shielded by Rep Barney Frank (D, MA), Sen. Charles Schumer (D, NY), Sen. Christopher Dodd (D, CT), and others. These folks — including Frank Raines, James Johnson, Jamie Gorelick (she of the infamous Wall from the 9/11 Commission), and Deval Patrick — made off with millions. There’s no defensible difference between what happened at Fannie Mae and what happened at Enron. Where are the investigations?
And this, which explains that though the Democrats want to blame it all on Bush McHitler Chimpy, he’s actually been trying for years to fix things but was thwarted by…Congressional Democrats. Including this from the New York Times in 2003:
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
…Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
What a douche. What was Mr. Frank doing/saying last week?
House Speaker Nancy Pelosi announced a set of congressional hearings on the recent federal government intervention on Wall Street Wednesday night, while delivering a blistering indictment of President Bush’s ability to manage the economy.
Appearing at a press conference alongside Pelosi, House Financial Services Committee Chairman Barney Frank said his committee would begin hearings next week on the matter.
Frank said the latest bailout was “confirmation of the irresponsible failure to regulate” on the part of the Bush administration.
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