In today’s Wall Street Journal:
Asked who was to blame for the 2008 financial crisis and whether any bankers should have been prosecuted, Mrs. Bachmann and former House Speaker Newt Gingrich put the onus on the federal government, with Mr. Gingrich suggesting that former Senate Banking Chairman Chris Dodd and Rep. Barney Frank, former chairman of the House Financial Services Committee, should both be jailed.
“It was the federal government that pushed the subprime loans . . . that pushed the community reinvestment act,” said Mrs. Bachmann, citing what she considered the causes of the housing meltdown.
Mr. Frank released an emailed statement in response: “In fact, Chris Dodd and I were in the minority from 1995 until 2006, so Gingrich is blaming us for Republican failures.”
So panicked is the response from Congressman “I want to roll the dice a little bit more in this situation towards subsidized housing” Frank that he forgets that from May 2001 to the end of 2002, Democrats controlled the Senate and Dodd was the second-ranking Democrat on the committee after chairman Paul Sarbanes.
It is also revealing that Frank believes that Bush-administration assent to policies he supported means that the consequences of those policies are, ipso facto, “Republican failures.” As Peter Wallison lays out on the Journal’s op-ed page, you can blame Wall Street for reckless gambling on mortgage-backed securities all you want, but the risk of the mortgage-backed securities never takes off unless the federal government starts pushing lenders to lower their standards for worthy borrowers. Sure, the big-bank investors never should have gone dancing in the minefield, but the minefield was set up by federal policies that encouraged massive loans to “borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.”
It is rather amazing that with laughably inaccurate defenses like this, Frank is still considered a significant voice in the Democratic party today.
Frank's history is as bad as the rest of him. The CRA was signed in OCTOBER of 1977, when Carter was president, the Senate was held by Dems 61/39, and the House was Dem by 292 to 143. How in the world could it possibly be anyone's fault but the Democrats?
Reply to this commentLinkReport AbuseThe CRA really began doing serious damage under Clinton. GWB did expand the racial provisions favoring Hispanics.
I'm always amazed how many discussions of the financial crisis that led to the recession that fail to note the central role played by the CRA and Fannie and Freddie.
The CRA REQUIRES (still does) banks to lower their standards when lending to blacks and hispanics (other minorities don't count). The banks unload these subprime (subprime being a euphemism for bad) mortgages to Fannie and Freddie. Fannie and Freddie then bundle the bad mortgages with good mortgages and sell these bundles as AAA paper. When it was discovered that this paper was, in fact, nowhere near AAA quality investors worldwide greatly reduced their appetite for it. This was the catalyst for the bursting of the housing bubble.
Notice that the supposed 'greed' of bankers nowhere factors in. If they failed to give mortgage to unqualified minorities as required by the CRA not only would the feds refuse to authorize any of their pending expansions or purchases (ie. regulatory punishment) but lawyers would sue them for racial discrimination. One such lawyer that sued Citicorp for not flushing enough money into this sewer was Barack Obama.
Reply to this commentLinkReport AbuseThe idea that the CRA caused the financial crisis is a preposterous bit of Republican mythology that has been debunked over and over again.
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Reply to this commentLinkReport AbuseDebunked? Right. Heck,Bush II even got religion belatedly and sent someone to tell the congress what was going to happen and suggest some action - but who stopped that in its tracks? Right, some of our caring, crooked democrat officials.
No, this housing fiasco was the govt doing stupid stuff and being surprised that bad stuff then happened - we are watching it again right before our eyes as free debit cards dry up in response to "consumer protection" legislation with another democratic name on it. At least with Durbin, his insertion only chokes economic transactions - it doesn't force people to take bad paper. Now we may want to see how much money Durbin got from the big box stores before we let him completely off the hook.
By the way, has Best Buy rolled back their prices in response to the new rules? Here is another one, why do the richest people and largest corporations all love democrats? Because they look out for the little guy? Even you aren't that stupid.
Reply to this commentLinkReport Abuse. . . . because they grow up with some measure of compassion and, when they succeed beyond their wildest dreams, feel a tug now and then to "give back" by supporting the party they perceive, rightly or wrongly, as most likely to do just that.
Even you, JEM, aren't so heartless as to find that rather straightforward explanation impenetrable. Actually . . . .
Reply to this commentLinkReport AbuseThe CRA may have been small, but the ideas in the CRA became widespread federal policy under the Clinton administration. They explicitly instructed Fannie Mae to loosen loan criteria, and they put $1 trillion in federal funds behind her to create instant liquidity for mortgage lenders who complied.
This was not the sole cause of the housing bubble, but it was certainly the beginning of it.
The bubble accelerated in 2001 when the Fed dropped the discount rate near zero to offset the recession caused by the bursting of the Internet bubble, the auditing scandal (Worldcom/Enron), and 9/11. Loose loan criteria, low mortgage rates, and a ready secondary market created an idyllic situation for land speculators and homeowners alike, so demand soared -- and prices soared with it.
Fed, as in "federal." There's that word again.
In fact, there is no part of the 2008 meltdown story that is not touched by the word "federal." Federal policy boosted the demand for AAA-rated securities (look up "recourse rule.") Federal policy ensured a rush on capital in the wake of the housing bubble bursting (look up "mark to market.") Federal policy even guaranteed that the bond rating agencies were shielded from the consequences of overlooking the weakness in mortgage-backed securities.
Democrat or Republican, the meltdown was constructed by federal policy. Future such events can only be avoided by getting the federal government's hands out of the market in every way possible.
Reply to this commentLinkReport AbuseMike,
Maybe so. But exactly what is stopping them from 'giving back' without government coercion? And that logic runs counter to Democratic calls for the rich to pay their fair share. If they are not paying their fair share are they truly giving back?
If those who are ultra successful wish to give back their is no law limiting how much they wish to give. If those who are richest vote Democrat because they agree with the policies espoused by Democrats then great. I think they are wrong but they probably think I am. But please do not frame it as some sort of altruistic charitable leaning.
Reply to this commentLinkReport Abuse1. They do give. A lot.
2. They're well aware of the real free rider problem -- remember Tom Sawyer and the fence that needed whitewashing? Bill Gates and Warren Buffett aren't THAT stupid.
Reply to this commentLinkReport AbuseConservatives have always, and continue to, give far more to charity than Liberals. There's mountains of evidence backing this up.
Liberals idea of compassion is to force other people to have their wages taken by the government and redistributed to a preferred constituency.
Reply to this commentLinkReport AbuseMike B (wrong again),
Actually the facts belie your number 1. This was the subject of a book by Arthur Brooks, summarized in an article on The Life and Wealth Balance website as follows:
"Brooks himself thought there might be an error in the numbers so he rechecked them. There was no denying the facts. Conservative Republicans, (who some argue would fire their grandmother to improve profitability) are statistically more charitable (more than 30% more charitable) compared to their 'socially concerned' liberal democratic friends." "That’s not the only thing. Brooks points out that among the both the Republican and Democratic parties, people who are religious tend to give much larger amounts to charity, giving significantly larger amounts to both religious and non-religious organizations compared to people who were secular non-religious. Among all religious people, Republican conservatives still give a statistically significant greater proportion than Democratic liberals."
Sorry for the Reality Check- I know how disorienting that can be to a liberal such as yourself.
Reply to this commentLinkReport AbuseEvery time the Brooks book is trotted out I am constrained to debunk it. It's based on tax return data (Who gives more versus who files Schedule A more) and it seriously misaccounts for church giving.
Reply to this commentLinkReport AbusePlease MikeB feel free to debunk it.
Reply to this commentLinkReport AbuseSo your point is that liberals don't know how to fill out tax returns? Or that they voluntarily pay more than required in taxes? (Think about that for a minute and remember the names: Charlie Rangel, Timothy Geithner, etc.) That is how you claim to debunk the data Brooks found, against his own bias? To quote John McEnroe: "You CANNOT be SERIOUS!!"
Reply to this commentLinkReport AbusePlease do not use Buffett, he makes billions in estate planning. He is also the one who said he'd rather give his money to charities because it would be better spent than if government had it.
The free rider problem MIGHT explain why many of the rich want higher taxes and greater government involvement in economic activity. But it does not explain why they are not at this time contributing monies to causes they believe are worthy. I volunteer in an adult literacy program; I do not cease to do so because most people do not. I give to causes that most people do not give to, their lack of participation does not deter me. If Gates, Buffett, or any other ultra-rich person wished the government to have more of his or her money it is pretty easy to write a check.
Total charitable contribtutions as a fraction of income is remarkably consistent throughout all income quintiles although where those contributions go correlate with income. Lower income quintiles give a greater amount, as a percentage of income, to religious organizations and those in the higher quintiles give more to secular organizations.
Reply to this commentLinkReport AbuseYour side never gives back anything. They never give anyone anything. They take, keep a portion of that and then give away the rest to their supporters.
What good has any of your "charity" ever done? Who has been helped? Where is there a shining example of a successful government program? What paragon of bureaucratic efficiency can you cite as justification for the trillions of dollars your side has taken?
Hate to break it to you but you are not a good person because you spend other people's money and then tell everyone how kind you are. It is a little harder than that to be good.
Reply to this commentLinkReport AbuseThe only time MikeB is compassionate, is when he is giving away other people's money.
Reply to this commentLinkReport AbuseI may be stupid, but I'm in good company. From a report prepared by the Federal Reserve Bank of Dallas:
"A recent analysis of 2006 HMDA data from the country’s 15 largest metropolitan areas compared loans originated by banks in their CRA assessment areas with loans made by other lenders in each of these markets.[22]
Among the findings, these banks were significantly less likely to make high-cost loans—and high-cost loans to low- and moderate-income borrowers—than other lenders. Banks lending in their CRA assessment areas were twice as likely as other lenders to keep the loans they originated. And there was a strong negative correlation between a metropolitan area’s concentration of bank branches and its foreclosure rate: the higher the concentration, the lower the rate. Together, these findings suggest that the CRA helped deter irresponsible lending."
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Peter Wallinson is not credible on this subject.
Reply to this commentLinkReport AbuseFrom the linked article:
"A bank can build goodwill with the community through a strong CRA rating. But, fundamentally, a bank has an incentive to earn at least a satisfactory rating because falling below that level may result in the denial or delay of applications to open a new branch, merge with another lending institution or expand in other ways."
so what we have here is naked coercion from the government. Either the bank does what the government wants or the government punishes the bank.
further the bank would be hammered by an unelected, unaccountable bureaucrat. The linked to article uses the term "regulator". I didn't see the term "Judge" or "jury" or even "legislator".
How, matsukov, does that comport with anything like um, you know, freedom?
Reply to this commentLinkReport AbuseSo, what you're saying is that the formula banks use to calculate risk - the infamous redline - is wrong? That, to truly have economic stability, you need to make MORE loans below the red line, not less? Really, is that your final answer? Seems a little, I don't know... stupid?
Your link, while interesting, I think obscures other factors... such as banks reselling these loans back to Fannie. Plus, this is only an analysis of 15 banks out of thousands. Also, the same report says that banks with large CRA portfolios loaned less money overall - so how does that help ultimately?
Reply to this commentLinkReport AbuseInteresting. If the CRA didn't drive the banks to make bad loans, what did? It can't be greed since bad in this context means "unlikely to be repaid".
so if the not the CRA, then what?
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