Jeff Young
GT40s Supporter
Where did I say anything like that? In fact, government was directly responsible by not regulating the derivatives market as the securities they were - a primary failing of both the Clinton and Bush administrations.
Fannie and Freddie had role in the mess but their loans were, on average, far less toxic than private non-guaranteed loans banks made, then sold, that were then packaged into securities and sold as an investment vehicle which were then hedged against using credit default swaps.
This entire thread is based on the idea that the Community Reinvestment Act was essentially liberal legislation forcing banks to lend to poor credit risk minorities. That's simply a right wing fantasy, and false. Studies are linked below on that.
The real cause of the debacle? Greed on Wall STreet and in the banks that led to the creation of an investment vehicle -- mortgage backed securities and credit default swaps -- that the government then failed to regulate appropriately.
On the CRA:
Experts Agree: The CRA Did Not Cause The Financial Crisis
Financial Crisis Inquiry Commission: "The CRA Was Not A Significant Factor In Subprime Lending Or The Crisis." In its final report, submitted in January 2011, the Financial Crisis Inquiry Commission concluded:
The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of the high cost loans - a proxy for subprime loans - had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law. [The Financial Crisis Inquiry Report, January 2011]
Federal Reserve: "We Find Little Evidence That Either the CRA Or The GSE [Government-Sponsored Enterprise] goals played a significant role in the subprime crisis." In an August 3 report, Federal Reserve economists Robert Avery and Kenneth Brevoort concluded:
We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes. [Federal Reserve, 8/3/11]
Krugman: The CRA "Was Irrelevant To The Subprime Boom." In a June 3, 2010, post on his New York Times blog, Nobel Prize-winning economist Paul Krugman pointed out, "The Community Reinvestment Act of 1977 was irrelevant to the subprime boom, which was overwhelmingly driven by loan originators not subject to the Act." [The New York Times, 6/3/10]
Bernanke: The CRA Was Not "At The Root Of, Or Otherwise Contributed In Any Substantive Way To, The Current Mortgage Difficulties." In a November 25, 2008, letter, Federal Reserve chairman Ben Bernanke stated: "Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties." [Federal Reserve, 11/25/08]
Most Subprime Mortgages Not Issued By Institutions Under CRA. In a paper published on the website of the Federal Reserve Bank of San Francisco, Michigan law professor Michael Barr stated that as of 2005, "Only 25 percent of subprime loans were made by banks and thrifts, and the Federal Reserve reports that only six percent of subprime loans were CRA-eligible." ["Community Reinvestment Emerging from the Housing Crisis," Michael S. Barr, accessed 10/11/11]
SF Reserve Bank's Yellen: "tudies Have Shown That The CRA Has Increased The Volume Of Responsible Lending To Low- And Moderate-Income Households." Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, in a March 2008 speech criticized efforts to blame CRA lending for weaknesses in the mortgage market, stating:
There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term. [Federal Reserve Bank of San Francisco, 3/31/08]
Slate's Gross: "The Notion That The Community Reinvestment Act Is Somehow Responsible For Poor Lending Decisions Is Absurd." In an October 7, 2008, Slate article, Daniel Gross, a business columnist for Newsweek and author of Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, wrote that "the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd" and added, "[L]ending 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." Gross further explained, "On the other hand, lending money recklessly to obscenely rich white guys ... can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity." [Slate, 10/7/08]
Fannie and Freddie had role in the mess but their loans were, on average, far less toxic than private non-guaranteed loans banks made, then sold, that were then packaged into securities and sold as an investment vehicle which were then hedged against using credit default swaps.
This entire thread is based on the idea that the Community Reinvestment Act was essentially liberal legislation forcing banks to lend to poor credit risk minorities. That's simply a right wing fantasy, and false. Studies are linked below on that.
The real cause of the debacle? Greed on Wall STreet and in the banks that led to the creation of an investment vehicle -- mortgage backed securities and credit default swaps -- that the government then failed to regulate appropriately.
On the CRA:
Experts Agree: The CRA Did Not Cause The Financial Crisis
Financial Crisis Inquiry Commission: "The CRA Was Not A Significant Factor In Subprime Lending Or The Crisis." In its final report, submitted in January 2011, the Financial Crisis Inquiry Commission concluded:
The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of the high cost loans - a proxy for subprime loans - had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law. [The Financial Crisis Inquiry Report, January 2011]
Federal Reserve: "We Find Little Evidence That Either the CRA Or The GSE [Government-Sponsored Enterprise] goals played a significant role in the subprime crisis." In an August 3 report, Federal Reserve economists Robert Avery and Kenneth Brevoort concluded:
We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes. [Federal Reserve, 8/3/11]
Krugman: The CRA "Was Irrelevant To The Subprime Boom." In a June 3, 2010, post on his New York Times blog, Nobel Prize-winning economist Paul Krugman pointed out, "The Community Reinvestment Act of 1977 was irrelevant to the subprime boom, which was overwhelmingly driven by loan originators not subject to the Act." [The New York Times, 6/3/10]
Bernanke: The CRA Was Not "At The Root Of, Or Otherwise Contributed In Any Substantive Way To, The Current Mortgage Difficulties." In a November 25, 2008, letter, Federal Reserve chairman Ben Bernanke stated: "Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties." [Federal Reserve, 11/25/08]
Most Subprime Mortgages Not Issued By Institutions Under CRA. In a paper published on the website of the Federal Reserve Bank of San Francisco, Michigan law professor Michael Barr stated that as of 2005, "Only 25 percent of subprime loans were made by banks and thrifts, and the Federal Reserve reports that only six percent of subprime loans were CRA-eligible." ["Community Reinvestment Emerging from the Housing Crisis," Michael S. Barr, accessed 10/11/11]
SF Reserve Bank's Yellen: "
There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term. [Federal Reserve Bank of San Francisco, 3/31/08]
Slate's Gross: "The Notion That The Community Reinvestment Act Is Somehow Responsible For Poor Lending Decisions Is Absurd." In an October 7, 2008, Slate article, Daniel Gross, a business columnist for Newsweek and author of Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, wrote that "the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd" and added, "[L]ending 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." Gross further explained, "On the other hand, lending money recklessly to obscenely rich white guys ... can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity." [Slate, 10/7/08]
