Posted on 09/30/2008 12:40:10 PM PDT by agooga
Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.
The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”
Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).
(Excerpt) Read more at businessweek.com ...
google the author and date.
No, it’s not just you. I don’t know rather to laugh/cry or throw a brick at the TV when I hear him talk about “the Wepublicans causing the mortgage mess because of dewegulation”.
The main culprits are poor risk management and corporate governance at the large financial firms. That's the obvious conclusion no matter how you spin it.
Which is why I don't think it's correct to pin this on the GSE's and the CRA. What were the risk managers at these other lenders thinking? Or were they asleep?
What were the boards doing? How come not a single director at Lehman, WaMu, Wachovia, or Bear raised any questions about their subprime exposure?
No one held a gun to their head and forced them to copy what the GSE's were diong. If they hadn't copied them, there would be no crisis.
If they had decent corporate governance systems in place, they wouldn't have.
Which is why I maintain that it is bad corporate governance, NOT the GSE's or the CRA, that caused the mess.
Businessweek is Newsweek in financial drag.
The Congress has the responsibility to put appropriate regulations on the corporations so they would have corporate governance systems in place. The Black Caucus along with Barney Frank blocked the request for regulations starting as early as 2003 for Freddie and Fanny. That is on the record and irrefutable.
IMHO, that's the prime culprit in this mess.
The financial markets are gagging on something (or so they tell us). The more time we have to observe and analyze, the better our prospects for understanding and communicating the real cause of the mess and formulating a solution.
Miron says there is no need for a bailout, that Wall Street's current 'credit freeze' is based upon the HOPE of a bailout, and Miron says: GET RID OF FANNIE/FREDDIE and the CRA.
Link to what a real economist thinks here:
http://schulzkelaw.com/jeffrey-miron-no-bailout-abolish-fannie-mae-cra/
He previously spent 12 years covering finance and technology for a variety of publications in Washington, D.C., and New York. He created an Internet and politics beat at Reuters in 1997 and was a freelance contributor to Wired. Pressman graduated in 1988 from Columbia University, where he was news director of the radio station, with a bachelor's degree in history.
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Without it, one could say that the loosening would not have happened. The CRA did have broad support for it's intentions which were good, but like any government program, it can work both ways, and it did.
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