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Matt Taibbi
Taibblog


I’m always amazed at these people who think the Community Reinvestment Act of 1977 caused the Housing and Credit Crisis of… 2007. You’d have to be as dumb as a bag of hammers to think that a law gets passed in 1977, magically does not affect the housing market adversely for 30 years, and then suddenly explodes in toxic leverage and brings down the entire international financial system a generation later.

For the last time: the Community Reinvestment Act DID NOT FORCE BANKS TO LEND TO UNWORTHY BORROWERS. It did not force banks to open branches in bad neighborhoods or rescue “burned out” communities. It did not actually force banks to do anything at all, as a matter of fact. All the act did was specify that if you wanted to get FDIC insurance, you had to actually lend to the people whose deposits you held. And this was not mandated by quotas or numerical targets. There was no specific mechanism for this at all. The act just forced banks to be subject to periodic reviews by the banks’ primary regulator, whoever that happened to be — the Fed, the OCC, the FDIC, and the state banking institutions. These regulators were supposed to look at the banks’ lending history and make sure that they weren’t refusing to lend to their own depositors, a practice that was common in ghetto bank branches through the seventies.

Since we have all seen how completely and totally ineffectual the banking regulators have been in the last fifteen years in enforcing even the most basic criminal statutes, it again strains the imagination to conceive of the mind that would believe that somehow all these different ineffectual regulators ignored all other laws for decades but chose to hammer the banks with the CRA, forcing them all to give out loans to poor black people.

It’s not true and it’s absurd. The CRA, again, did not force anyone to make any kind of loan. I’m going to quote from the Federal Reserve’s own description of the law:

“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.”

This crisis had nothing to do with the CRA and everything to do with the collapse of mortgage underwriting standards, coupled with advances in the technology of securitization, which allowed banks to lend to unworthy borrowers and then sell off these dicey mortgages to secondary buyers. The driving forces in this crisis were bonuses for mortgage brokers and appraisers, underwriting fees for the securitizing firms, and commissions for the institutional fixed-income fund managers who bought this stuff from the investment banks. It was a purely market-driven process and had absolutely nothing to do with government-mandated social engineering.

It blows my mind, the lengths people will go to to blame disasters on liberals and minorities. The really ironic thing is that if you want to blame the Democrats for this stuff, there are plenty of real misdeeds to bash them for. The fact that the Limbaugh/Hannity crowd decided to focus on a basically irrelevant law like the CRA shows that they know their audiences will buy pretty much anything, so long as the punchline is black slobs on welfare breaking the back of hardworking America.

blueballs wrote:He's right and wrong at the same time.

Many banks paid premiums to mortgage brokers to originate loans in "targeted areas" for years. Lenders were forced into offering programs like Bank of America's "Community Commitment" program that bled profusely but they couldn't pull the plug because of the blow back from the feds.

What REALLY caused the problem is twofold though. Mortgage backed securities had general concensus as the second safest investment worldwide after US treasury bonds. When you combine the appetite for MBS on a worldwide level with Wall Street greed you get exotic loan products that can be packaged, dishonestly rated, and sold throughout the world as safe investments when they were anything but.

The more bonuses these pools and their sales paid to the wall Street brokerage houses, the more exotic products they developed. As the flow of "easy money" became more prevalent, supply and demand took over in the housing sector. Anybody could buy a house or multiple houses. Many people used the easy money to build portfolios they were ill equiped, ill capitalized, and basically unfit to own. This caused prices to skyrocket and builders to build in excess of what the market could truthfully absorb.

In spring 2007 a saturation point was reached and Wall Street was unable to sell the more exotic pools anymore and the house of cards fell. First Nomura, then Bear Stearns, and Merrill Lynch all exited the MBS trade and the portfolios took it on the chin.

The feds addressed the collapse by bailing out the big banks (who took the TARP money, bought US bonds and shored their balance sheets) and AIG, changing RESPA, establishing national licensing for originators, and passing HVCC. What has never been addressed though is the fraud perpetrated on the investors of the world by Wall Street and its rating agencies in which subprime loans that in many cases were outright fraud were packaged and sold as up to AAA rated paper. The amount of money Wall Street made during the boom is just staggering.

As in most things the small businessman who is a mortgage originator or appraiser bore the brunt of the public outrage (perpetrated by politicians like Dodd and Frank) when in reality the big banks and Wall Street were the REAL criminals, made the REALLY big money, and walked away scot free.

blueballs wrote:He's right and wrong at the same time.

Many banks paid premiums to mortgage brokers to originate loans in "targeted areas" for years. Lenders were forced into offering programs like Bank of America's "Community Commitment" program that bled profusely but they couldn't pull the plug because of the blow back from the feds.

What REALLY caused the problem is twofold though. Mortgage backed securities had general concensus as the second safest investment worldwide after US treasury bonds. When you combine the appetite for MBS on a worldwide level with Wall Street greed you get exotic loan products that can be packaged, dishonestly rated, and sold throughout the world as safe investments when they were anything but.

The more bonuses these pools and their sales paid to the wall Street brokerage houses, the more exotic products they developed. As the flow of "easy money" became more prevalent, supply and demand took over in the housing sector. Anybody could buy a house or multiple houses. Many people used the easy money to build portfolios they were ill equiped, ill capitalized, and basically unfit to own. This caused prices to skyrocket and builders to build in excess of what the market could truthfully absorb.

In spring 2007 a saturation point was reached and Wall Street was unable to sell the more exotic pools anymore and the house of cards fell. First Nomura, then Bear Stearns, and Merrill Lynch all exited the MBS trade and the portfolios took it on the chin.

The feds addressed the collapse by bailing out the big banks (who took the TARP money, bought US bonds and shored their balance sheets) and AIG, changing RESPA, establishing national licensing for originators, and passing HVCC. What has never been addressed though is the fraud perpetrated on the investors of the world by Wall Street and its rating agencies in which subprime loans that in many cases were outright fraud were packaged and sold as up to AAA rated paper. The amount of money Wall Street made during the boom is just staggering.

As in most things the small businessman who is a mortgage originator or appraiser bore the brunt of the public outrage (perpetrated by politicians like Dodd and Frank) when in reality the big banks and Wall Street were the REAL criminals, made the REALLY big money, and walked away scot free.

oldsloguy wrote: You didn’t mention Fannie, Freddy, Raines ($90 million), Jamie Gorelick ($26 million), Sam Johnson ($21 million, his last year), Rahm Emanuel (??). Were they not involved or are you lumping them in with Wall Street. Am I not understanding something here?

blueballs wrote:He's right and wrong at the same time.

Many banks paid premiums to mortgage brokers to originate loans in "targeted areas" for years. Lenders were forced into offering programs like Bank of America's "Community Commitment" program that bled profusely but they couldn't pull the plug because of the blow back from the feds.

What REALLY caused the problem is twofold though. Mortgage backed securities had general concensus as the second safest investment worldwide after US treasury bonds. When you combine the appetite for MBS on a worldwide level with Wall Street greed you get exotic loan products that can be packaged, dishonestly rated, and sold throughout the world as safe investments when they were anything but.

The more bonuses these pools and their sales paid to the wall Street brokerage houses, the more exotic products they developed. As the flow of "easy money" became more prevalent, supply and demand took over in the housing sector. Anybody could buy a house or multiple houses. Many people used the easy money to build portfolios they were ill equiped, ill capitalized, and basically unfit to own. This caused prices to skyrocket and builders to build in excess of what the market could truthfully absorb.

In spring 2007 a saturation point was reached and Wall Street was unable to sell the more exotic pools anymore and the house of cards fell. First Nomura, then Bear Stearns, and Merrill Lynch all exited the MBS trade and the portfolios took it on the chin.

The feds addressed the collapse by bailing out the big banks (who took the TARP money, bought US bonds and shored their balance sheets) and AIG, changing RESPA, establishing national licensing for originators, and passing HVCC. What has never been addressed though is the fraud perpetrated on the investors of the world by Wall Street and its rating agencies in which subprime loans that in many cases were outright fraud were packaged and sold as up to AAA rated paper. The amount of money Wall Street made during the boom is just staggering.

As in most things the small businessman who is a mortgage originator or appraiser bore the brunt of the public outrage (perpetrated by politicians like Dodd and Frank) when in reality the big banks and Wall Street were the REAL criminals, made the REALLY big money, and walked away scot free.