Obama to execs who take TARP money: Learn how to survive on $500K a year

The CEO’s will just become private contractors.

So a bailed out CEO who’s making 500,000 is going to hire a private contractor for ten million a year? Yeah…sorry.

DeathToMediaHacks on February 4, 2009 at 2:11 PM

If you’re a true free market conservative and not a corporatist then you HAVE to agree that Federal government funds = an increase in Federal control. It’s the argument our sides been using against fossil fuel companies who get federal subsidies and then use them to pay lobbysts to fight environmental regulation (why not just use the money and comply, but that’s another matter).

Thats the problem with your side. You claim to be “free market conservatives” but you’re actually corporatist for the most part and the two are not the same.

DeathToMediaHacks on February 4, 2009 at 2:23 PM

MobileVideoEngineer on February 4, 2009 at 2:24 PM

Just to bring the discussion over from headlines. I knew someone would try and blame the CRA eventually. Its really not poor peoples fault. No really…it’s not.

First, we can agree that the current CRA looks very different from the one signed into law by Jimmy Carter in 1977. Most of my info on the CRA comes from Ben Bernanke’s 2007 paper on the history.
http://www.federalreserve.gov/newsevents/speech/Bernanke20070330a.htm

We can also agree that the loosening of credit standards got us to where we are today. However, is it possible to entirely blame the Community Reinvestment Act? Of course not. Indeed, the changes that activists sought to the CRA would have been impossible had deregulation in the 80s and 90s not given folks a foil to point to and say “wait a minute…those credit standards should apply across the board.” Here’s what Bernanke says

Further attention to CRA was generated by the surge in bank merger and acquisition activities that followed the enactment of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. As public scrutiny of bank merger and acquisition activity escalated, advocacy groups increasingly used the public comment process to protest bank applications on CRA grounds. In instances of highly contested applications, the Federal Reserve Board and other agencies held public meetings to allow the public and the applicants to comment on the lending records of the banks in question. In response to these new pressures, banks began to devote more resources to their CRA programs. Many institutions established separate business units and subsidiary community development corporations to facilitate lending that would be given favorable consideration in CRA examinations. Local and regional public-private partnerships and multibank loan consortia also gained more prominence as banks developed strategies for expanding and managing CRA-related activities.

Even as these developments were occurring, extensive change was taking place in the financial services sector. During the 1980s and 1990s, technological progress significantly improved data collection and information processing, which led to the development and widespread use of credit-scoring models and the availability of generic credit history scores. Deregulation also contributed to the changes in the marketplace. Notably, the lifting of prohibitions against interstate banking was followed by an increased pace of industry consolidation. Also, the preemption of usury laws on home loans created more scope for risk-based pricing of mortgages. Securitization of affordable housing loans expanded, as did the secondary market for those loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a percentage of their activities to meeting affordable housing goals (HUD, 2006). A generally strong economy and lower interest rates also helped improved access to credit by lower-income households.

Bernanke then proceeds to explode the lie that unreliable poor people are at fault for the global economic crisis by pointing out that for years the new regulations worked fine, working class communities of color were making a profit, albeit a smaller one, for those banks that had extended credit.

Bankers were also gaining experience in underwriting and managing the risk of lending in lower-income communities. After years of experimentation, the managers of financial institutions found that these loan portfolios, if properly underwritten and managed, could be profitable. In fact, a Federal Reserve study found that, generally, CRA-related lending activity was at least somewhat profitable and usually did not involve disproportionately higher levels of default (Avery, Bostic, and Canner, 2000; see also Board of Governors, 1993). Moreover, community groups and nonprofit organizations began to take a more businesslike, market-oriented approach to local economic development, leading them to establish more-formalized and more-productive partnerships with banks. Community groups provided information to financial institutions on the needs of lower-income communities for credit and services, offered financial education and counseling services to community members, and referred “bankable” customers to partner banks. Specialized community development banks and financial institutions with the mission of providing financial services and credit to lower-income communities and families emerged and grew.

In short, communities were holding up their end of the bargain pretty much through the 90s and I’ll add BEFORE the boom in housing prices that swept the entire market. And here is where it all went bad. The extension of credit to poor communities of color was combined with really hard work on the part of those communities to make themselves credit worthy, at least according to Bernanke in 2007. But the same was NOT the case for the “flipped” house market, for the new home equity market and for the new developments market/gentrification market. No one was “overvaluing” the houses in the communities that the CRA was meant to benefit from because other factors kept property values relatively in line. The overvaluation happened in the suburbs when people thought they could make a quick buck off new credit standards and in the cities where the desire to create new “hot” neighborhoods led to way way way too much development. That’s why in neighborhoods, like where me and my partner live, the value of our home has pretty much stayed steady, there was no boom here and thus there was no bust.

The people who are “to blame” are the people who contributed to and profited from the overvaluation of real estate and who were unwilling to apply the same stringent standards banks had applied to communities of color during the expansions in the CRA act. Please read Bernanke’s piece, it’s illuminating.

DeathToMediaHacks on February 4, 2009 at 2:28 PM