The Bailout

[Toad]

Wow. Allan Meltzer for head of Treasury! Get rid of Paulson.

Thanks for the intro Myelo.

ALLAN MELTZER: Yes. I don't want to join a debate about different ways of picking the public's pocket. I think, if they're going to do something -- and I don't think that we really need to do anything. I've heard these stories over and over for 40 years. You know, maybe there will be a crisis.

But despite all the talk, Main Street is not doing so badly. And the fact is that they've been predicting disaster since January. It hasn't happened.

And if they're going to do something, then what they ought to do is make loans, which the financial institutions have to repay with interest. And if you think -- that's an idea which the Chileans have used in a bigger crisis than this for them in 1982, and it worked for them.

People paid back the loans. They weren't allowed to pay dividends until they repaid the loans. They weren't allowed to take bonuses until they repaid the loans. I think that's the way -- if we're going to do this, then that's the way we should do it.

[Dos Equis]

It's biased.

The FACT is that the Community Reinvestment Act led to a huge number of previously impossible subprime loans.

Did the banks make money? Absolutely. Did the CRA create a huge number of now problematic and failing subprime loans? Absolutely.

The point is that a discerning researcher reaches the inescapable conclusion that both the Republicans and Democrats are responsible for this disaster. Yeah, they supported different parts of the disaster but together they have nearly thrown the world into a huge financial crisis and may still pull that off.

You are incorrect. Everything you capitalize and say "FACT" to - is, in fact, not a fact. In short, you are full of it.

I understand this is a coordinated campaign. It started as a paper written by conservative econ pundit Howard Haddock in 2000. Here is the original paper:

http://www.city-journal.org/html/10_1_the_trillion_dollar.html

In the last few weeks, Rove pulled it from his play book and fed it to Limbaugh and Hannity. Now, they have wingnuts here in the OC chirping it loudly, stammering words like FACT - without any understanding of the truth.

I don't even hope in my wildest dreams, to reverse the bias of the morans who are being spoon fed this noise from their radio idols.

I do, however, wish to point out that facts, and some actual academic research for those so interested in knowing that Repubs blaming Clinton on this are, in fact, lying right through their teeth.

To wit, here are the Federal Reserve guidelines on the CRA:

Evaluation of CRA Performance

Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.

The FFIEC also says the same in the guidelines book. Basically, it's up to the banks, and no loan should be undertaken that is risky. There are no quotas, no stipulations, no pre-determined penalties for failure to not lend to, as the O'Club mob of wingnuts like to say "scumbags". What they really mean is: colored people.

Here is a study by two University of Chicago graduate students (the dumber wingnuts in here will cry liberal bias, but everyone knows the U of C business school is home of the 'Chicago School' of economics, and Friedman's cult is alive and well, and has produced many of the most conservative economists around). What the study shows is that legislation had almost NO role in forcing banks to do anything, that banks were driven by profits. They already had actuaries running tables on foreclosure rates. They made the calls.

Again - the FREE MARKET made the call to lend this money. The CRA had NOTHING TO DO WITH IT.

http://www.moodyskmv.com/conf08/papers/cons_morg_cred_exp.pdf

It's sad, and desperate, and ultimately criminal - but expected - that pushed against the wall - the Republicans have to cry and moan and say "but...um... Bill Clinton MADE us do it! Waaahhh!"

It's a lie.

[Yeager]

It's sad, and desperate, and ultimately criminal - but expected - that pushed against the wall - the Republicans have to cry and moan and say "but...um... Bill Clinton MADE us do it! Waaahhh!"

Your post reveals a definite partisan bias.  I am disappointed that you have not attained a higher level of consciousness. 

[Mr No Name]

Ok so your contention is that there was a mass run on loans by minorities that caused this? Ok consider that the sub prime market is only about 3% of total loans made. Now how many of those were made to minorities? All of them? Your contention is more of a knee jerk reaction rather than a thought out analysis.

I say that having as a condition of this bill an encouragement to loan money to people that is based on race, not solely their ability to pay is a very poor business practice.  And no, giving loans out to people that are minorities did not cause this but giving the loans to them because they were minorities and unqualified to but property that was 100% inflated, then to loan them 125% of loan cost was, in the very least FOOLISH.  Loan criteria should not have been decreased for any reason.  The requirements should have been the same for everyone... income, down payment, credit history, everything.

[Dos Equis]

Here is another salient fact, perhaps of interest not to the wingnuts, but to the sane viewer of this thread who wants some supported facts in their evaluation of this crisis.

CRA only covered about 15% of the lenders who made sub-prime loans.

Source: The Comptroller of Currency:
http://www.occ.treas.gov/workingpaper.pdf

Here is the money quote:

There is little data suggesting that banks themselves are engaged in predatory lending to any significant degree. The majority of mortgage loans to LMI (low-to-moderate income) borrowers† and in LMI neighborhoods are originated by lenders covered under CRA. However, CRA-covered institutions are primarily prime lenders. Between 1993 and 1998, CRA-covered institutions accounted for eighty-three percent of the growth in prime loans to LMI borrowers. By contrast, CRA covered institutions were responsible for only fifteen percent of the increase in subprime loans during the same interval.20 ‡

According to HUD, there were 178 lenders that concentrated primarily on subprime mortgage lending in 2001. The majority, or 112 (63%), were independent mortgage companies. Of the remaining lenders, 30(17%) were non-bank affiliates and only 36 (20%) were depository institutions or their direct subsidiaries. These depository institutions represented only 0.6% of the 6,423 depository institutions that filed HMDA reports in 2001.21 Rather, an overwhelming proportion of subprime providers are non-bank mortgage lenders or finance companies.22 Some of those lenders are independent companies others are non-bank affiliates or subsidiaries of insured banks.23

So, what you had were a bunch of cheeseball mortgage brokers. Selling crap paper to poor people. No Democratic legislation MADE them do it - they all did it for a quick buck. It's a nice try to blame the CRA - but it's a smokescreen.

Then, they sold that paper into the system. Credit swaps churned it around.

Now, who got conned?

If you let Bernake and Paulson have their $700B, then you did.

It's Obama's poison pill, fed to him by BushCo. And we all know it. He'll be saddled with a Carter like economy. With no liquidity in the money market, no short term lending is going on. The economy is grinding to a halt.

During his administration, you'll see Carter like double digit inflation, because the dollar will go to hell. Especially when UBS and other foreign banks DON'T get a bailout.

Interest rates are about to skyrocket. If you are considering a home now, know this: the value of homes probably has another 15% to drop. But that will be offset, because rates are about as low as they are gonna get for awhile.

Please don't let the wingnuts confuse you with the CRA smokescreen. It's bull, and a short amount of time on Google will tell you so.

[Dos Equis]

Your post reveals a definite partisan bias.  I am disappointed that you have not attained a higher level of consciousness. 

Really, that's all you got? I expected more. Not much more, but a little more.

[lazs2]

we are still not saying anything different here...

In the end.. this whole mess just proves that government screws up everything it touches.

"your government" is no better than the other guys in this instance so don't squeeeel that if your guys had been in power or control it would have never happened...

This has happened over both parties watches... it is the government meddling and the greed that took advantage.. 

How do you think the government.. our government.. could run a health care program for instance?

They screw up everything..  why do we want them to do even more?

lazs

[Dos Equis]

They screw up everything..  why do we want them to do even more?
lazs

Did Eisenhower screw up the interstate highway system?

Did NASA screw up the trip to the moon?

[alskahawk]

I say that having as a condition of this bill an encouragement to loan money to people that is based on race, not solely their ability to pay is a very poor business practice.  And no, giving loans out to people that are minorities did not cause this but giving the loans to them because they were minorities and unqualified to but property that was 100% inflated, then to loan them 125% of loan cost was, in the very least FOOLISH.  Loan criteria should not have been decreased for any reason.  The requirements should have been the same for everyone... income, down payment, credit history, everything.

 I agree on the principle that any business dealing simply race is foolish. Since that bill passed there were many other things that happened. Speculators, house flippers(with no experiance), loans to persons (all races) with marginal or bad credit, no money down(80/20 loans)
 Some where along the line some politicians decided to trump up the idea that its every Americans right to own a home. It is the American dream but with out a sound financial foundation the dream quickly became a nightmare. There is also the problem of "bundling of loans". Very few local banks hold the mortgage note anymore. Instead they bundle them all up and sell them. Doing this reduced the initial bank/mortgage companies risk. It also removed a lot of scrutiny at the initial loan application.

[alskahawk]

Here is another salient fact, perhaps of interest not to the wingnuts, but to the sane viewer of this thread who wants some supported facts in their evaluation of this crisis.

CRA only covered about 15% of the lenders who made sub-prime loans.

Source: The Comptroller of Currency:
http://www.occ.treas.gov/workingpaper.pdf

Here is the money quote:

There is little data suggesting that banks themselves are engaged in predatory lending to any significant degree. The majority of mortgage loans to LMI (low-to-moderate income) borrowers† and in LMI neighborhoods are originated by lenders covered under CRA. However, CRA-covered institutions are primarily prime lenders. Between 1993 and 1998, CRA-covered institutions accounted for eighty-three percent of the growth in prime loans to LMI borrowers. By contrast, CRA covered institutions were responsible for only fifteen percent of the increase in subprime loans during the same interval.20 ‡

According to HUD, there were 178 lenders that concentrated primarily on subprime mortgage lending in 2001. The majority, or 112 (63%), were independent mortgage companies. Of the remaining lenders, 30(17%) were non-bank affiliates and only 36 (20%) were depository institutions or their direct subsidiaries. These depository institutions represented only 0.6% of the 6,423 depository institutions that filed HMDA reports in 2001.21 Rather, an overwhelming proportion of subprime providers are non-bank mortgage lenders or finance companies.22 Some of those lenders are independent companies others are non-bank affiliates or subsidiaries of insured banks.23

So, what you had were a bunch of cheeseball mortgage brokers. Selling crap paper to poor people. No Democratic legislation MADE them do it - they all did it for a quick buck. It's a nice try to blame the CRA - but it's a smokescreen.

Then, they sold that paper into the system. Credit swaps churned it around.

Now, who got conned?

If you let Bernake and Paulson have their $700B, then you did.

It's Obama's poison pill, fed to him by BushCo. And we all know it. He'll be saddled with a Carter like economy. With no liquidity in the money market, no short term lending is going on. The economy is grinding to a halt.

During his administration, you'll see Carter like double digit inflation, because the dollar will go to hell. Especially when UBS and other foreign banks DON'T get a bailout.

Interest rates are about to skyrocket. If you are considering a home now, know this: the value of homes probably has another 15% to drop. But that will be offset, because rates are about as low as they are gonna get for awhile.

Please don't let the wingnuts confuse you with the CRA smokescreen. It's bull, and a short amount of time on Google will tell you so.

 Had to read that quickly. Just a comment on what a lot of banks were doing. Lot of people would be surprised who actually owns a lot of payday lenders. Lot of big banks (citibank?) got into the high interest rate loan business. 

[bj229r]

Weak!

 Gram-Leach-Bliley act; Banking deregulation; Named for Phil Gram(graham?) (R-Tx) James Leach(R-Ia). Deregulated banking industry. Much of the problems today stem from this act. Look it up. McCain voted for it, Biden voted against it.
 This isn't a partisan issue. It's a failure of government. Both parties. Tar and Feather them all!

I DID look it up...you're wrong! http://www.govtrack.us/congress/vote.xpd?vote=s1999-354

[Toad]

You are incorrect. Everything you capitalize and say "FACT" to - is, in fact, not a fact. In short, you are full of it.

LOL!

OK, to recap, here's what I capitalized:

The FACT is that Gramm-Leach-Bliley would not have passed without Democrats supporting it.

The FACT is that the Democrats required big changes to the Community Reinvestment Act in return for their support.

The FACT is that the Community Reinvestment Act led to a huge number of previously impossible subprime loans.

Item 1: From http://banking.senate.gov/prel99/1105tme.htm  (The Senate's own site)

"November 4, 1999 -- Gramm-Leach-Bliley Act passes the Senate 90-8 and the House 362-57."

Breakdown of votes from:  http://www.govtrack.us/congress/vote.xpd?vote=s1999-354

This bill required a simple majority of 98 votes (50) to pass. It received 46 votes from Senate Republicans and Indpendents. FACT: It would not have passed without at least 4 Democrats voting for it. As it was, 34 Democrats voted for it and only 6 Democrats voted against it.

So on this, YOU are obviously "full of it".

 I will address the other two but it's late for me and my computer is running so slow I expect I need to scan it. I'll do that overnight and try again tomorrow.

[Toad]

For those interested in the other two Facts just google up

"Gramm-Leach-Bliley Community Reinvestment Act Amendment"

and

"Community Reinvestment Act subprime loans"

You'll be started on your way.

[Hangtime]

I DID look it up...you're wrong! http://www.govtrack.us/congress/vote.xpd?vote=s1999-354

There's two votes.. the original.. without the CRA changes (see Toads notes above) which passed narrowly, but the administration indicated that clinton would veto it without CRA empowered. Then the 'amended' version 3 months later with the CRA additions and enforcement was presented and voted on, and that the president signed into law.

[Anaxogoras]

Rather, an overwhelming proportion of subprime providers are non-bank mortgage lenders or finance companies.22 Some of those lenders are independent companies others are non-bank affiliates or subsidiaries of insured banks.23[/i]

Absolutely true.  Guys who had been nothing a couple years before were selling mortgages to banks left and right.  Applicants only had to state their income, no verification required.  The banks were duped, and then the international investment firms were duped.  Now, we're the ones who are supposed to be duped in full knowledge that it's happening.