Thursday, December 11, 2008

"The right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong."

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? I am not saying that President Carter played no role in this fiasco, he was certainly the worst president until the current one happened; but President Bush ought to have realized at least by 2006 that we had a real estate bubble funded by easy credit and he ought to have done something about the indicators.

I have no idea how long these references will be active, but they intrigue me.

"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." http://www.slate.com/id/2201641/

"But as the Wonk Room’s Pat Garofalo points out, at the beginning of today’s hearing, Chairman Henry Waxman (D-CA) said that 400,000 documents amassed by the committee showed that the right-wing claim is nothing more than a conservative myth. Later in the hearing, Rep. Edolphus Towns (D-NY) asked the four CEOs whether poor people caused the current financial crisis. All said “no. . . .” See also: http://thinkprogress.org/2008/12/09/myth-fannie-freddie/

"Blaming the CRA is one of conservatives’ favorite talking points and has been peddled by Charles Krauthammer, Fox News, FreeRepublic.com, the Wall Street Journal, Washington Times, and the National Review.

"But as the Center for American Progress’s Robert Gordon noted in the American Prospect, lenders did not approve bad loans to comply with CRA; they did so to make money: 1) Subprime loans intensified 'at the very time when activity under CRA had slowed and the law had weakened,' 2) CRA doesn’t even apply to many of the loans behind the mortgage meltdown, and 3) The 'lenders subject to CRA have engaged in less, not more, of the most dangerous lending.'”
http://thinkprogress.org/2008/09/26/bachmann-ellison-economy/

And then:
http://www.salon.com/opinion/greenwald/2008/09/26/national_review/index.html


"But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble."
http://www.nytimes.com/2008/07/14/opinion/14krugman.html#

3 comments:

Ted Michael Morgan said...

There are those who claim that Democrats insisted that lenders grant loans to people base not on what they earned but only on their promise that they could repay loans. I am not certain that they offer evidence for this opinion.

Ted Michael Morgan said...

From Slate Discussion Forum:

Root Cause Myths
by barry payne - economist
10/07/2008, 8:58 PM #
Rate this topic Favorites Reply
the root cause of the financial collapse on the front end was the housing bubble, and on the back end, the root cause was the 40-to-1 leverage ratios hidden away in securitized debt and the shadow financial system which came crashing down when housing prices turned downward to end the bubble

a bubble occurs if everybody expects, and expects future buyers to expect, that future prices will increase above that otherwise determined by the fundamentals of supply and demand

contrary to popular belief, a bubble does not require credit, or even fiat money to exist, and could occur on a gold or barter standard, fueled by income or savings instead of debt, however, "innovative financing" based on 40-to-1 leverage ratios can expand a relatively harmless, correctable bubble into a financial collapse like the current one

every dollar of default at the homeowner level is multipled by 40 throughout the system wherever the toxic debt exists, which caused panic and a dramatic contraction of credit as $2-4B of wealth evaporated from homeowners and shook the financial system to its knees

blaming individual home buyers for the crisis is nonsense - expectations of rising house prices were pervasive and decisions to seek the high investment returns were rational and no different than other investments in light of a government policy dictated by the private housing sector through lobbyists, including those with Fannie Mae and Freddie Mac, that specifically denied the bubble, encouraging it instead with low interest rates and expanding it dramatically through deregulation of the financial industry

the lax qualification standards for loans, low teaser rates with exploding resets and reams of outrageous fees and commissions for nothing in return were all supply side phenomena - not demand side - designed to redistribute bubble-driven profits away from homeowners to the financial and real estate sector

blaming the buyers for purchasing homes under these conditions as "too good to be true" is mistaken because it was pervasive as accepted practice and obviously was true, even without the hard sell - that many new homeowners could not be wrong no matter the terms and conditions which despite how egregious, could have been largely offset had housing prices continued to rise

when the bubble burst with declining prices is when the unraveling began, but just because some homeowners were leveraged out on a knife edge of risk when prices turned downwards doesn't mean it was their fault - the people that sold it to them multiplied out that risk by forty-fold and in that context are forty times as guilty, or even more given that near the end, denials of the bubble turned to "who could have known" flat out lies

Report abuseQuick Reply

Ted Michael Morgan said...

From Slate Discussion Forum:

Root Cause Myths
by barry payne - economist
10/07/2008, 8:58 PM #
Rate this topic Favorites Reply
the root cause of the financial collapse on the front end was the housing bubble, and on the back end, the root cause was the 40-to-1 leverage ratios hidden away in securitized debt and the shadow financial system which came crashing down when housing prices turned downward to end the bubble

a bubble occurs if everybody expects, and expects future buyers to expect, that future prices will increase above that otherwise determined by the fundamentals of supply and demand

contrary to popular belief, a bubble does not require credit, or even fiat money to exist, and could occur on a gold or barter standard, fueled by income or savings instead of debt, however, "innovative financing" based on 40-to-1 leverage ratios can expand a relatively harmless, correctable bubble into a financial collapse like the current one

every dollar of default at the homeowner level is multipled by 40 throughout the system wherever the toxic debt exists, which caused panic and a dramatic contraction of credit as $2-4B of wealth evaporated from homeowners and shook the financial system to its knees

blaming individual home buyers for the crisis is nonsense - expectations of rising house prices were pervasive and decisions to seek the high investment returns were rational and no different than other investments in light of a government policy dictated by the private housing sector through lobbyists, including those with Fannie Mae and Freddie Mac, that specifically denied the bubble, encouraging it instead with low interest rates and expanding it dramatically through deregulation of the financial industry

the lax qualification standards for loans, low teaser rates with exploding resets and reams of outrageous fees and commissions for nothing in return were all supply side phenomena - not demand side - designed to redistribute bubble-driven profits away from homeowners to the financial and real estate sector

blaming the buyers for purchasing homes under these conditions as "too good to be true" is mistaken because it was pervasive as accepted practice and obviously was true, even without the hard sell - that many new homeowners could not be wrong no matter the terms and conditions which despite how egregious, could have been largely offset had housing prices continued to rise

when the bubble burst with declining prices is when the unraveling began, but just because some homeowners were leveraged out on a knife edge of risk when prices turned downwards doesn't mean it was their fault - the people that sold it to them multiplied out that risk by forty-fold and in that context are forty times as guilty, or even more given that near the end, denials of the bubble turned to "who could have known" flat out lies

Report abuseQuick Reply

Welcome

In this my personal Christian blog, I hope to be discursive and now and then critical. What I write here is tentative and tensive. I post thoughts, feelings, and observations somewhat randomly and often in immediate response to current events and posts on other blogs.


"Serendipitous Creativity" from Gordon Kaufman

"I suggested that what we today should regard as God is the ongoing creativity in the universe - the bringing (or coming) into being of what is genuinely new, something transformative; …

"In some respects and some degrees this creativity is apparently happening continuously, in and through the processes or activities or events around us and within us(…) is a profound mystery to us humans(…) But on the whole, as we look back on the long and often painful developments that slowly brought human life and our complex human worlds into being, we cannot but regard this creativity as serendipitous …

"I want to stress that this serendipitous creativity - God! - to which we should be responsive is not the private possession of any of the many particular religious faiths or systems …

"This profound mystery of creativity is manifest in and through the overall human bio-historical evolution and development everywhere on the planet; and it continues to show itself throughout the entire human project, no matter what may be the particular religious and or cultural beliefs."

Gordon Kaufman, Mennonite Life, December 2005 vol. 60 no. 4

Melville is a rational man who

"Melville is a rational man who wants God to exist. He wants Him to exist for the same reasons we all do: to be our rescuer and appreciator, to act as a confidant in our moments of crisis and to give us reassurance that, over the horizon of our deaths, we will survive." (John Updike)

And that is a problem for me.

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