Your talking about Michelle Bachmann. Yeah. I heard her going on about this on CNN or MSNBC yesterday. I forget her exact language, but definitely blaming the CRA, and possibly even fair housing laws. At any rate, Rick Perlstein over at CAF has the lowdown

http://ourfuture.org/blog-entry/2008093923/masters-universe-fight-back-race-angle

Its really unbelievable that this still goes on. I'm quite curious how public this perspective will become--whether it will just be relegated to a few wingnuts legislators and talk show hosts, or will it become the default GOP explanation for the housing crisis.

That pretty well sums it up.

Michelle Bachmann is a quack, right wing nutjob. That she is from Minnesota pains me - she is a source of constant embarrassment for our state. I happen to live in Ellison's district and although I have my disagreements with him, the man is a far more capable representative. When you think of Bachmann "smarts", think Sarah Palin. The only difference between the two is that Bachmann can see Green Bay, not Russia from her district.....

But that isn't what the CRA says. It says you should make loans in the neighborhoods where you do business--but it doesn't even cover all lenders, and there is no "legal" penalty for ignoring the CRA. Moreover dig this:

"...it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households." "

http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

http://thinkprogress.org/2008/09/26/bachmann-ellison-economy/

It isn't right to blame the financial crisis on minorities, but it is true that government policies designed to increase lending to minorities led to a lowering of credit standards across the board. A lot of marginal white borrowers took advantage of the lowered standards as well. Since most black and Latino borrowers were marginal borrowers, black and Latino default rates are a rough proxy for those of all marginal borrowers (most of whom, of course, were whites, since this is still a majority white country). Do a little research on the default rates among black and Latino mortgage borrowers and you'll be shocked by how high they are.

This doesn't strike me as uncontrovertibly true as a matter of logic or otherwise. It depends entirely upon how the "other basis" is weighed with respect to credit rating and many other factors including things like interest rates and credit terms.

But in any case, that is really beside the point. Whatever increase in the default rate that might have been caused by the CRA, there is exactly zero evidence of causation of the current crisis. To go there is a pretty questionable leap to begin with. To go there as Bachmann and Cavuto do with absolutely no logical or factual underpinning is about as clear an example of racism as we are likely to see on network television.

Understand. I never use the word racist. I thinks it is rarely a useful term. It is a term that, more often than not, derails useful discussion rather than fostering it. But there is no other way to describe this particular bit of discourse.

It's obvious, inflammatory racist rhetoric that rallies younger generations and independent thinkers, and renders people like Bachmann and Cavuto irrelevant.

It's the subtle, seed-planting racism of Clinton that's more dangerous.

Also, I think you're being generous calling them ugly and disgusting human beings.

Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities.

More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness.

The chickens have finally come home to roost.

About half of all mortgages for blacks and Hispanics are subprime, versus roughly one-sixth for whites. Not surprisingly, the biggest home price collapses have occurred in heavily Hispanic cities such as Las Vegas, Miami, Phoenix, and Los Angeles.

The mortgage bubble was essentially a bet on the purportedly increased creditworthiness of the bottom half of the American population. After three decades of the home ownership rate stalling at around 64 percent, a series of federal initiatives to increase minority and low-income ownership helped push the rate up to just below 70 percent.

The rest of the piece contains copious documentation and links to economists and other writers. Disagree with it, if you like (and I don't entirely agree with it), but it's worth educating yourself about this point of view.

But whether this is true or not, it's no excuse for what these Republicans said. Pure racism. Amazing how they can always turn around and blame the people who were not in charge, didn't make the rules, and had no say in the matter. The people that actually had leadership roles...completely blameless as usual. How the hell do the Republicans always convince people that up is down and down is up? I'm fascinated by their ability to do that so well.

http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

An excerpt: "CRA Banks were significantly less likely than other lenders to make a high cost loan"

"High cost loans are a primary driver of the foreclosure crisis, as borrowers who are
unable to afford their mortgage payments default on their loans. There is a very high statistical
correlation (0.816) between the proportion of lending that is high cost and the foreclosure rate in the MSAs analyzed. Default rates are expected to rise in 2008, as monthly payments increase on mortgage products that permitted borrowers to pay lower “teaser” rates for the first few years of a loan.

Steve D, I'm not sure I get what you're saying (which might be because I don't really know how the CRA works). But are you arguing that only irresponsible lenders went into a lot of poor neighborhoods because complying with CRA would have forced banks in those neighborhoods to make bad loans? Why would that be? And even if so, to put this as a root cause - vs the many layers of the market who bought what could then be even more readily identified as bad loans from irresponsible, irreputable lenders - seems to hold no water.

This is the Way of the Ofay: the democrats pushed for loosening credit for the poor, so the american dream of home ownership could be reached. most of the poor just happened to be black and they, of course, couldn't make their payments and slowly the foreclosures grew from a trickle to a flood. that flood set the mortgage crises in motion, and that's how things fell apart. the liberal democrats and the blacks created this mess.

now, when you hear it, you'll know it for what it is.

It isn't right to blame the financial crisis on minorities, but it is true that government policies designed to increase lending to minorities led to a lowering of credit standards across the board.

No, it isn't. The lowering of credit standards is a direct result of the securitization of mortgage lending, which allowed lenders to make loans without worrying about how risky they were because the risk would be passed along; the proliferation of independent lenders (who aren't subject to CRA requirements) having a field day selling mortgage-backed products had to do with another set of government policies altogether: deregulation.

The CRA never mandated quotas or any adjustment of standards. It was designed to rate banks based on how well they served the communities they operated in, and it does so based on whether they make the comparable credit and services available to poor and minority communities. Historically, the rate of foreclosures on CRA mortgages has been lower then average, presumably because banks cautious about opening to markets they'd previously discriminated against were especially careful about holding the new customers to responsible standards.

Steve, I think you're stretching the definition of "causality," at least so far as it implies responsibility. If I'm a really strict parent who will take a switch to your butt if you bring home any grade lower than a B, and you decide to farm your homework out to the class geek in order to avoid punishment, have I "caused" you to cheat? In the sense that my action has led to your action in a traceable way, sure. But most people who believe in free will would say that the "cause" of your cheating is your own bad decision, not the pressure I put on you that created the context for it.

No. First, it's incorrect to characterize them as designed for minorities when they were designed for people with lower incomes.

Second, it's a lot more complicated than "minorities". Credit standards were lowered so far because the geniuses in the GOP gutted the government's regulation of the banking industry and both parties encouraged making home loans more widely available. Then the geniuses in the mortgage sector lowered standards a little, saw all the money their banks were making on new loans, decided it was proof of how damn smart they were, and started cutting risk out of their actuarial models because they were so smart they didn't need to worry about customers defaulting anymore. Then the geniuses at places like Fannie Mae and Freddie Mac who purchase mortgages decided they needed to get in on all the action the geniuses originating these loans had stirred up and changed their standards so they could invest in all these wonderful new loans. Then lots of people started defaulting and the crap rolled downhill all the way to the geniuses at places like AIG that decided they'd insure any old investments the geniuses in the banking industry decided to make.

So who's to blame for the mess we're in? Lower income folks who tried to reach for a little better life for themselves or Republicans in congress like Bachmann who took away the government's ability to put the brakes on runaway foolishness in the market?

Sorry if this is a bit of a rant, but while Bachmann's the first I've seen taking the minorities angle, she's far from the only Republican in congress making the blame-low-income-borrowers argument. It really pisses me off to hear the very people who made this mess possible trying to shift the blame to borrowers who were just trying to grab their piece of the American Dream.

Granted I think part of the problem may have been loans to people who couldn't manage it, but there's plenty of white people who'd fit that description. There's plenty of white Republicans who'd fit that as well. There's plenty of white Republicans I'm related to, etc.

At one time I would've had good hope McCain would denounce that kind of crud, but he seems to want to do anything to win so probably won't say anything even if it becomes more common.

Traiger Law conducted a comprehensive study and found that the lenders who securitized their loans had weaker incentives to maintain strong underwriting standards because they were passing on the risk to other investors. They inadequately screened potential borrowers.

CRA lenders, on the other hand, who retained most of thier loans, had stronger underwriting practices. They reduced their risk by keeping loans relatively simple...instead of selling complicated loans with "teaser" rates.

The rabid bigots that hang on Sailer's every Klansian word are cordially invited to swallow their own tongues as they watch President Obama's inauguration in January.

I'll bet far more fraudulent loans have come from independent brokers than from banks, in part because bank regulation is so much stronger.

Sorry, securitization has been going strong since the 1970s. What was different this time was the quality of the loans securitized. The fact is that there was a bipartisan urge to increase the percentage of Americans who were homeowners, and a willingness to lower standards in order to do so -- this started in earnest with President Clinton and continued with President Bush. It wasn't just Clinton's more aggressive use of the CRA; it was also allowing Fannie and Freddie to buy up subprime mortgages, thus creating a market demand for them. It was letting Fannie and Freddie operate with levels of leverage double that of even Bear Stearns, because Franklin Raines said that mortgages were basically risk-free.

Without securitization, one of two things would have happened. Either banks would have stuck to realistic underwriting standards and stymied the government's goal of expanding home ownership, or they would have been pressured to lower their standards and instead of seeing Wall Street firms fail we'd be seeing hundreds of local banks fail.

This isn't about race though, it's about trying to use home ownership to magical instill middle class values into poor people and putting aside economic reality in order to do it. Economic reality says that if you don't have any skin in the game (i.e., a significant down payment), you're going to walk when the mortgage resets.

Technically,that's "Never Again", but you're 100% correct on the main point: that's why.

Here's the money quote from former Fed Governor and respected economist Ned Gramlich, not too long before dying of leukemia in 2007, saying "banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business."

Whose fault is it?

Last week, the mainstream conservative punditry finally picked up an idea I had first put forward in August 2007 (and developed with more detail last June): that an underestimated factor the financial crisis set off by the mortgage meltdown is our reigning ideology of multiculturalism and diversity.

In other words, this is a minority mortgage meltdown—and it may trigger a Diversity Recession.

Unfortunately, not having studied the question as long as I had, some of the conservative talking heads tended to put forward naïve, self-serving, or unpersuasive versions of this theory,—such as that the banking crash wasn't the fault of greed in the financial industry, it was the result of the Democrats in Congress passing the anti-redlining Community Reinvestment Act in 1977.

The reality is that blame is very widely shared: among Democrats and Republicans, businesspeople and politicians, Congress and the Executive Branch, borrowers and lenders, and whites, blacks and Hispanics.

There's one man, however, who has so far escaped any blame. Few have realized something that turns out to have been staring us in the face all along: that the mortgage mess was, in sizable measure, an outgrowth of the primary political goal of the Bush Administration.

That man's name is Karl Rove.

And the primary political goal of President George W. Bush's political strategist: to bring Hispanics into the Republican Party.

Right. The government forced companies responsible for judging the quality of the securitized loans to hire poor blacks and Hispanics to do the analysis. Because these people aren't naturally inclined to be good at this, they did a bad job and rated these loans too highly. Then other affirmative action hires responsible for asset management invested too heavily in these bad securities, leading to a financial crisis affecting all Americans, including decent hard-working well-meaning white people.

I don't blame poor blacks and Hispanics (what, do I sound like some sort of racist, that's very politically incorrect of you to say), I blame government affirmative-action policies that forced major financial institutions like AIG and Lehman Brothers to give poor blacks and Hispanics important positions managing trillions of dollars of investments. And look what happened. Good intentions aren't everything.

That's your straw man, so I'll let you play with it. If you decide to engage with something I actually wrote, instead of something you wish I wrote, I'll be happy to debate it with you.

http://www.startribune.com/opinion/commentary/29771494.html?elr=KArksc8P:Pc:U0ckkD:aEyKUiD3aPc:_Yyc:aUU

[Note: I believe Star-Trib articles are only viewable for two weeks from posting, so till Oct 8th.]

Beyond that, isn't the basic issue here that the foreclosures themselves are not the big cause of the current crisis (although they of course play a significant role)? The main issue is all these mortgage-backed securities that are mostly worthless and have totally gummed up the financial system. Am I wrong?

As for everyone else: God, I wish that Ross still had comments, and you could just drop your loads over there. I can't believe people are defending this racist dreck.

1) The mortgage-backed securities aren't "worthless".

2) They are worth less than they sold for, almost certainly.

3) The reason they are worth less than that is because default rates have been much higher than the packagers of the mortgage-backed securities anticipated.

4) This has led to uncertainty and a crisis in confidence where the market for these securities has dried up.

5) That doesn't mean they won't be worth something if held to maturity.

6) How much they end up being worth will depend on the final default rate. A mortgage backed security where 20% of the underlying mortgages default may end up only being worth 80 cents on the dollar.

7) But the government may end up buying these for, say, 50 cents on the dollar and make a profit on them in a few years, after the drama is over.

WTF!?!?!

Cite ONE example -- ONE name of a highranking person at one of the firms that royally screwed themselves with CDO's and other semi-worthless derivatives who fits your reprehensibly described "demographic".

You won't be able to 'cause its total bullshit, man.

A big bunch of well educated (mostly white and male) east-coasters from the Ivy League went to Wall Street and ginned up a 'black box' just slightly less phony than Enron's accounting, and then sold them to each other in a scheme that made the Tulip craze of 1637 seem like it had a solid foundation.

Blaming affirmative action hires is so Friggin crass and untrue.

I'm beyond disgusted.

This is hard, Fred.

It's hard to engage with what you wrote because you're not writing about how some bad loans turned into a global financial crisis.

Instead, you're writing about how some bad loans were made to minorities, and you're talking about a "diversity recession" and a "minority mortgage meltdown."

What about the bad loans made to white people? What about the bad loans made to middle-class and upper-middle-class people? What about the people who made money making bad loans? What about the people who made money betting on bad loans? How did some bad loans turn into a trillion-dollar global disaster?

Oh you're not talking about that. You're talking about the Diversity Recession and the Minority Mortgage Crisis. Because you have your eye on the ball. Because you're a race realist.

But I agree it's hard to tell sometimes with "race realists" like Steve Sailer and Fred around.

There's no real point in engaging with white supremacist fanatics like Sailer and Fred "on the issues," since their issues are false, their "facts" are fabricated, and their agendas really have nothing to do with rational discourse. Other people can beat their heads against the wall Sailerites have built. I don't see the point. Just walk around the wall.

That's who's to blame for this godawful mess.

People thinking they could make a killing on the real estate market buying and flipping houses, believing that the value of the houses would ALWAYS rise.

And when the bottom falls out? And that fixer upper you bought and then sunk tens of thousands into for your flip is now worth less than you paid for the original dilapidated hulk?

Right.

The people who bought a house and are living in it are struggling to pay their mortgages; but the ones who used the low-teaser-rate mortgages to buy properties to flip and resell at enormous profits (yeah, they intended to sell long before the balloon went up) are walking away.

Pfeh.

CRA is not a retail lending mandate, so there are many ways to comply. So the typical "CRA loan" was not considered a home loan in a minority area; it was a relationship with a community development corporation, for example, which is rehabbing storefronts or developing land in the inner city. It is providing SBA loans in a urban development zone, or underwriting a bond deal to build a charter school. Or you give money to an established inner city business who would have gotten the money from a competitor bank. It is NOT about retail lending, especially on subprime mortgages.

Most of the banks that are covered by the CRA did not do subprime lending through their deposit operations. So even if the CRA extended to retail lending, it might not have counted anyway. No, they set up subsidiaries to do subprime lending or, like my old bank, lent money to subprime lenders. And here is where the melt down began, though:

1) loan broker gets a marginal candidate approved, the loan is booked and the broker gets paid. The loan is bundled with others and sold at a discount and the package is eventually purchased by someone else. Why? Because the return is higher than average. You can borrow to buy the package and make money on the spread. If the borrower can make it fly, great. But if they can't, neither the broker nor the original lender is on the hook. The one left holding the bag is the last person who bought the package -- like Citicorp.

But

2) a dirty loan broker bribes an appraiser to up the value of a property, thereby booking a higher fee since he is paid on the gross loan amount. That loan will go under. Rinse and repeat, now you know why we have a meltdown.

If "colored people" were the reason for this meltdown as conservatives seem to be implying in this election year, then the meltdown would be restricted to inner cities and in states with high minority populations. But it is not. It is George Clooney not being able to build his casino and condo project in Vegas and $900,000 condos in Miami sitting empty. It is as much a suburban problem as anything else.

Blaming the darkies is nothing more that an effort to divide us by race in a year when a biracial candidate is trying to point out commonalities across race -- as in "I have never seen a Hispanic foreclosure or a White foreclosure". And every time you see a McCain commercial with Franklin Raines in it (Raines who was out of office two or three years when Fannie melted down), remember that they chose to run his picture -- instead of the White male who presided over Fannie's demise -- for a reason.

So essentially, the CRA is about seven steps removed from being tangentially responsible for the SPM bubble. If that's the new standard of evidence, then the idea of causation has basically lost all meaning.

Find your own.

"What about the bad loans made to white people?"

I explicitly wrote in my first post on this thread that marginal white borrowers took advantage of the same lowered standards. Again, read what I wrote and engage with it if you want; don't make shit up and pretend I said it.

B-Rob,

"Fred -- You don't know what you are talking about linking "affirmative action" to the bailout."

I didn't. That was Steve Sailer. I explicitly said I don't agree entirely with his position, but it's a well-thought out one and worth reading for another viewpoint. Read what he wrote and post your responses.

Dude,

Barney Frank is in that video because he used his position on the banking committee to block tighter regulation of Fannie Mae and Freddie Mac, not because he's gay. If they wanted to go after the gay angle they would have pointed out that his ex-boyfriend was a Fannie Mae exec.

Democrats favored less regulation because higher standards kept lower income borrows from qualifying for the best loans or any loan at all. More regulation would mean higher costs and fewer loans. Many Republicans were willing to look the other way because it set off a building boom and boom in the financial markets. So no one gave a damn about what was going on because for a while, everyone was winning, so shit got overlooked.

Some of them are worthless. Banks would take toxic loan portfolio's, slice them up and combine them with other toxic loans and then do a magic credit rating dance (bribes) and all of the sudden the paper is rated AAA. Many of the securities are worthless, because the default rate is going to be near 100%. If you think banks aren't going to be unloading the worthless crap first, you're very mistaken.

Freddie,

Try to keep your eye on the bouncing ball. Blacks and "Latinos" are way over-represented among those who default on their mortgages. It's the defaults that have wobbled the whole house of cards.

Not that I've read it all yet, but The American Prospect has devoted an entire issue to "The Color of Opportunity: Narrowing Racial Divides and Expanding Prosperity for All." It goes far beyond the "Did Liberals Cause the Sub-prime Crisis?" article that you referred to earlier.

Oh, and Michelle Bachman is a troglodytette. C.f. Wonkette.com.

In other words, the 'study' demonstrates exactly nothing in terms of whether or not minorities got more sub prime loans because their credit wasn't good or because they were preyed upon.

Black man tries to check out a house and he's told, "Sorry. It just sold." A month goes by and the house is still for sale. These are the people burying their nose in their forearm and slamming the door in Giraldo's face.

I've only become aware of this woman in the last month or so, and she has already shot to the top of the list as one of the most sociopathic, mendacious, partisan hacks I've ever seen. She truly is loathsome.

The Fed later did an study that showed the disparities existed even when credit scores were controlled. You know how it happens? Like what I saw when I was dong commercial lending through a branch. A sixty year old Black small business man comes in with a piece of property in an inner city area. The White female rookie lending officer looks at the address and says "that land could not be worth very much." The branch manager rolled his eyes and ignored her because he KNEW THE GUY, who happened to be a good, longtime customer. The small businessman got his loan because the young lender was not permitted to screen him out based on the location of his property.

But how many other credit worthy people ARE screened out? Or are nudged toward the subprime lending arm, even thouugh they have good enough credit to get a lower rate loan with lower fees? And how many of them, because the higher fees push them just beyond the margin of making it, end up in a default that would not have occurred but for that dismissive nudge?

Racism as the "thumb on the scale" is the problem. But you know what's funny about that? How many of those "nudge" loans tinged in racism are now causing the downfall of the whole friggin system? It is the chickens of racism coming home to roost!

Sorry, securitization has been going strong since the 1970s. What was different this time was the quality of the loans securitized.

Sorry, the CRA has been going strong since the 70s, too. What's different is that the subprime mortgage market took off in the 80s and then the securitization of subprime debt increased dramatically in the 90s. So while you're right about the quality of the loans, you're wrong about who made them: non-CRA lenders made twice as many subprime loans than CRA lenders and securitized them at a much higher rate. Responsible lenders didn't get into any trouble making CRA loans, while independent non-CRA lenders who didn't care too much about assessing the risk they were going to pass along anyway made bad loans to buyers of every race and income level.

Juan writes:

Blacks and "Latinos" are way over-represented among those who default on their mortgages. It's the defaults that have wobbled the whole house of cards.

Blacks and Latinos are disproportionately poor compared to whites as a group. Poor people are certainly over-represented among defaulters, but black and Latino mortgage holders do not default at rates any higher than whites of comparable income levels do (and there are a lot fewer of them).

The really ironic thing is that, back in the 90s when evidence of pervasive discrimination against minorities in lending was coming to light, people who denied that discrimination used the fact that default rates were the same to argue that lenders couldn't have been discriminating, claiming that the matching default rates were proof that lenders were finding borrowers of the same quality across racial groups. The idea was that if minorities were excessively scrutinized, they should have lower default rates than whites. It was a bogus argument, because it didn't account for the documented fact that minority borrowers were likely to get worse loan terms, and so their risk of default was artificially inflated. But the fact remains that when conservatives want to blame minorities for their own inability to get credit, the default rates are the same, and when they want to blame them for an economic meltdown, they're suddenly irresponsible borrowers who take out mortgages they can't afford on a mere whim.

This is nonsense. Do you really think almost 100% of mortgages will fail? I think it would take nuclear war to achieve a default rate that high.

Washington DC Phone: (202) 225-2331
Woodbury MN Phone: 651-731-5400
Waite Park, MN Phone: 320-253-5931