Bloomberg to OWS: Congress caused the mortgage crisis, not the banks

posted at 2:05 pm on November 1, 2011 by Ed Morrissey

By this time, everyone should be aware of the federal policies that precipitated the housing bubble and its collapse — the push by Congress and two administrations to push higher-risk lending in order to expand home ownership, as well as the effort by Congress to get Fannie Mae and Freddie Mac to spread that risk through mortgage-backed securities.  While Wall Street made the situation worse by developing risky derivatives on those securities and failed to recognize the risk inherent in the securities themselves, the collapse wouldn’t have occurred at all had the federal government not intervened to distort lending for their own social-engineering goals.

Michael Bloomberg tried to explain that to Occupy Wall Street protesters this morning, and pointed out the contradiction between their protests and their demands:

“I hear your complaints,” Bloomberg said. “Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t gave gotten them without that.

“But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it’s one target, it’s easy to blame them and congress certainly isn’t going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for.”

Bloomberg went on to say it’s “cathartic” and “entertaining” to blame people, but the important thing now is to fix the problem.

It’s even more important to not make the same mistake again, which is exactly what the OWS crowd wants.  They want Congress to intervene even more heavily to lower lending standards as a policy of “fairness,” which is exactly what Congress did in the late 1990s, and which started the housing bubble that nearly destroyed the financial sector in 2008.  And Investors Business Daily claims that they have the “smoking gun” that shows exactly how the government created the bubble in the first place by intimidating banks into distorted lending practices — based on a flawed study:

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies. …

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants’ net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Lenders faced a nightmare regulatory threat and so began to “bend” their lending standards to demonstrate compliance.  Congress helped by authorizing Fannie and Freddie to buy up subprime mortgages at a higher rate in order to incentivize compliance.  That opened the floodgates, as Fannie and Freddie essentially ended any risk for lenders in the subprime market, and it also opened up a significant incentive for so-called “predatory lending.”  After all, why not give consumers more credit than they could handle if the original lender didn’t have to bear the cost of failure?

As a result, demand accelerated, and so did prices.  They got disconnected from their usual tie to the rate of inflation, soaring far above normal valuation.  People believed they had acquired a windfall of real equity and began either trading up or opening up home-equity lines of credit to fuel consumer spending.  In 2008 the bubble popped, and a lot of homeowners found themselves unable to make their payments as jobs disappeared and property values rapidly descended.

And that may not be over, either:

The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv (FISV - News), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv’s chief economist.

Should home values meet Fiserv’s expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst.

In June I also made the same observation, based on projecting normal inflation without the bubble from 1998 onward.  Rapid job growth could change that, but since we don’t see any indication of that on the horizon, CNN Money’s prediction is likely to come true.

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Comment pages: 1 2

One key part is in the answer to Q11 on pages 14 & 15 of the “Policy Statement on Discrimination in Lending”. It points the finger at Fannie and Freddie.

Pythagoras on November 1, 2011 at 4:54 PM

Yes it was the low life, irresponsible, despicable congress that started this catastrophe that cost so many people their jobs and a very large part of their savings. They deserve our condemnation and I wish there were a way to really punish them. But the Bankers were ever worse with their derivatives and bonuses for corruption and especially irresponsible and I think most likely crooked were the rating agencies who kept giving AAA ratings to junk bundles that thereby got AIG insurance, allowing this dirty bubble to grow and burst.

IMO a MUST see http://tinyurl.com/42sodj5

Chessplayer on November 1, 2011 at 5:06 PM

Like I said, CRA started the ball rolling on the madness. But then the banks took it and ran with it. Yes, without CRA none of this would have happened. But to say all of it is CRA’s doing is just not true.

angryed on November 1, 2011 at 3:46 PM

I’m not saying that the banks were not at fault too. Certainly they were. They were greedy, and many were flat-out dishonest (as were many appraisers and ratings agencies). There is plenty of blame to go around, but the housing mess was started by, and kept going by, stupid federal government “social justice” policies that never should have existed in the first place. And it wasn’t just the CRA or the 1994 Clinton directive examined in the Investor’s Business Daily article. It was also things like the 2000 law that allowed banks and other lenders to make loans to borrowers using TIN’s instead of SS numbers. Every bank in town around here was advertising “no money down, no proof of income required, no SS# needed” mortgages — and guess who those were aimed at? Here’s a hint: it wasn’t white guys, and it was one of the Democrats’ “protected classes.”

AZCoyote on November 1, 2011 at 5:23 PM

When I read a story like this, it makes me realize that the big corporations are at fault.

bloggless on November 1, 2011 at 5:33 PM

IMO a MUST see http://tinyurl.com/42sodj5

Chessplayer on November 1, 2011 at 5:06 PM

You had me interested so i clicked on over to check it out.

This uninterested me:

“Matt Damon’s narration”

So can I trust something that is narrated by this flaming lefty?

No. I can’t.

Thune on November 1, 2011 at 5:35 PM

Hey Chessplayer, go peddle your crappy movie elsewhere. Any movie that has Matt Damon narrating and depicts George Soros and Barney Frank as beacons of wisdom is a piece crap.

Definitely only watch if you like your truth sprinkled with MSNBC-logic.

jaimo on November 1, 2011 at 5:38 PM

When I read a story like this, it makes me realize that the big corporations are at fault.

bloggless on November 1, 2011 at 5:33 PM

?

Del Dolemonte on November 1, 2011 at 5:38 PM

But the Bankers were ever worse with their derivatives and bonuses for corruption and especially irresponsible and I think most likely crooked were the rating agencies who kept giving AAA ratings to junk bundles that thereby got AIG insurance, allowing this dirty bubble to grow and burst.

Chessplayer on November 1, 2011 at 5:06 PM

No lending institution would have ever approved such weak loans in the first place if they hadn’t been forced by the government. In addition, the GSE’s of Fannie Mae and Freddie Mac were their to buy all their loans.

Banks were simply playing the hand the government dealt them.

darwin on November 1, 2011 at 5:38 PM

the 2000 law that allowed banks and other lenders to make loans to borrowers using TIN’s instead of SS numbers. Every bank in town around here was advertising “no money down, no proof of income required, no SS# needed” mortgages — and guess who those were aimed at? Here’s a hint: it wasn’t white guys, and it was one of the Democrats’ “protected classes.”

AZCoyote on November 1, 2011 at 5:23 PM

Key word: allowed. Not forced.

angryed on November 1, 2011 at 5:46 PM

No lending institution would have ever approved such weak loans in the first place if they hadn’t been forced by the government.

Not true. The government didn’t force banks to loan out 500k loans to buy McMansions in Las Vegas, or to the multitudes of condo flippers in Miami.

The lenders didn’t care because the investment banks were packaging them into their AAA rated “toxic waste” CDO’s and selling them to suckers.

Pablo Honey on November 1, 2011 at 5:48 PM

Oh how wonderful it must be to live in the simplified fantasy world of Mr. Bloomberg. It was the banks and brokers who chose to make NINA (no income, no asset) loans because they could make fat commissions and pass the risk on to the market. They were now free to hold mortgages for a month or so, bundle them as investments and pass them on. Nobody was forced to do this. They knowingly made bad loans in order to cash in.

Constantine on November 1, 2011 at 5:49 PM

WTH? When did Bloomberg suddenly begin to make sense? Next thing you know, he’ll be telling people the whole salt consumption thing was just a joke.

Ward Cleaver on November 1, 2011 at 2:16 PM

This is an illustration of the good side of Murphy’s Law:

Everything which can go wrong, will go wrong.

In other words, even when you’re trying real hard, you can’t be a perfect idiot!!!

landlines on November 1, 2011 at 5:52 PM

So can I trust something that is narrated by this flaming lefty?
- Thune

My initial reaction too but believe me it shows too many facts and too many telling interviews with some really rotten actors, and it dumps on both Clinton and Obama!

Just rent it or library check out if nothing else – you be shocked and won’t be sorry.

See this film http://tinyurl.com/42sodj5 .

Chessplayer on November 1, 2011 at 5:55 PM

I think the whole episode proves that horrible things will happen when big government and big government “work together.”

Government provided the pressure and the backstop and the big banks were all too willing to cash in on the process, and when the stuff hits the fan the government comes in and protects the big banks.

Its a corrupt bargain, and the big banks and the government are both to blame.

joey24007 on November 1, 2011 at 5:55 PM

And don’t forget: ACORN. Holding ‘sit-ins’ at bank. Organized by? Most likely, Obama.

starboardhelm on November 1, 2011 at 6:00 PM

OcCowPie!

starboardhelm on November 1, 2011 at 6:01 PM

Banks were simply playing the hand the government dealt them.

– darwin

Not that simple. Yes they had to make bad loans becasue of political pressure from our incompetent Presidents & Congress that wanted to look good for the minority vote, but they went way beyond this with their derivatives, betting against securities while selling them, etc.,
see http://tinyurl.com/42sodj5 which even bashes Clinton & Obama.

We were robbed! And a lot of the mechanisms for future robbery are still in place, especially since we still have too big to fail monster banks, which should be broken up.

Chessplayer on November 1, 2011 at 6:04 PM

Any movie that has Matt Damon narrating and depicts George Soros and Barney Frank as beacons of wisdom is a piece crap.

Not really done. I’m no fan of these guys but if one blocks out the very small & unimportant part they have in the film among the many facts & telling interviews this is clearly a shockingly revealing film.

Chessplayer on November 1, 2011 at 6:17 PM

We were robbed! And a lot of the mechanisms for future robbery are still in place, especially since we still have too big to fail monster banks, which should be broken up.

Chessplayer on November 1, 2011 at 6:04 PM

They didn’t rob anyone, the government did. If the government had never gotten involved none of this would have happened. No bubble, no “toxic” loans, no bailouts.

Damon is a lunatic anti-American and will sign onto asnything that furthers the Marxist cause.

darwin on November 1, 2011 at 6:27 PM

you don’t negotiate with turrrorists

tomas on November 1, 2011 at 6:50 PM

WTH? When did Bloomberg suddenly begin to make sense? Next thing you know, he’ll be telling people the whole salt consumption thing was just a joke.

Ward Cleaver on November 1, 2011 at 2:16 PM

Yeah, I was impressed that Bloomberg is actually able and willing to cite the whole CRA/Fannie/Freddie thing. That must mean that that interpretation has entered the mainstream, which is great!

YehuditTX on November 1, 2011 at 6:52 PM

Bloomberg’s statement is 3 years too late and incomplete. It wasn’t Congress that created the mortgage crisis. It was Jimmy Carter’s CRA, which was essentially dormant through Reagan and Bush1 but then rekindled with ferocity by Clinton and then Franks and Dodd with not enough resistance from Bush11 who was preoccupied with Iraq.

Basilsbest on November 1, 2011 at 7:03 PM

Ed’s post needs to be shared far and wide…

Seven Percent Solution on November 1, 2011 at 7:07 PM

Bloomberg’s statement is 3 years too late and incomplete. It wasn’t Congress that created the mortgage crisis. It was Jimmy Carter’s CRA, which was essentially dormant through Reagan and Bush1 but then rekindled with ferocity by Clinton and then Franks and Dodd with not enough resistance from Bush11 who was preoccupied with Iraq.

Basilsbest on November 1, 2011 at 7:03 PM

Congress poured gasoline on the fire. The end of your second sentence confirms it.

As for “Bush being preoccupied with Iraq”, remember that he did, on several occasions, try to reign in Fannie/Freddie (as did McCain and other Republicans). They were laughed at by Frank and Dodd and the Democrats who controlled the Banking Committee.

Here’s a repost of the damning video I talked about last week from 2004:

http://www.youtube.com/watch?v=_MGT_cSi7Rs

Del Dolemonte on November 1, 2011 at 7:28 PM

Not that simple. Yes they had to make bad loans becasue of political pressure from our incompetent Presidents & Congress that wanted to look good for the minority vote, but they went way beyond this with their derivatives, betting against securities while selling them, etc.,
see http://tinyurl.com/42sodj5 which even bashes Clinton & Obama.

We were robbed! And a lot of the mechanisms for future robbery are still in place, especially since we still have too big to fail monster banks, which should be broken up.

Chessplayer on November 1, 2011 at 6:04 PM

Not quite. The govt forces you to make risky loans, so the smart bankers find ways to minimize risks by offloading it. Fine in of itself, but then starts the vicious spiral perpetuated by mortgage brokers. They live on commissions and that’s fine as long as loans are reasonable. Builders see profits in building mcmamsions and proceed to build them like crazy. Brokers gravitate to selling them and bankers have no choice but to loosen up, lest acorn and others hound them for discrimination. As prices escalates, house flippers jump into the hot market. Bankers see trouble ahead and lobby Congress, so they oblige by raising Fanny and Freddy’s limits and another round picks up again. The fault lies with Congress alone, because they enabled and facilitated the irrational speculation. Note that Canada – fancy that, a liberal nation at that – experienced no such bubble because they prudently never legislated such folly.

AH_C on November 1, 2011 at 7:30 PM

If Congress “had” to meddle, we wouldn’t have 1/10 the problem if they only told banks to waive the downpayment but keep other evaluation criteria, ie debt to income ratio.

AH_C on November 1, 2011 at 7:34 PM

Lots of villains in this story.

Problem today is 100% the government.

Banks have learned their lesson. It’s harder to get a mortgage today than a date with a Playboy centerfold. If anything banks are too cautious in lending. But I can’t fault them.

Govt on the other hand has learned nothing. It’s still pushing the same kind of crap loans as it did 5 years ago.

Fannie/Freddie….nothing’s changed there either. Still 0% down loans available to anyone with a pulse in some areas.

angryed on November 1, 2011 at 7:45 PM

Is this Bizarro Jerry, I mean Bloomy?

roy_batty on November 1, 2011 at 8:10 PM

The feds never stopped enforcing the CRA. The FDIC was hiring auditors as long as a year ago to check up on “discrimination” vis a vis the CRA.

Is there any other free country in the world where the government dictates housing lending? It’s the road to serfdom, and much worse.

PattyJ on November 1, 2011 at 8:14 PM

Oh how wonderful it must be to live in the simplified fantasy world of Mr. Bloomberg. It was the banks and brokers who chose to make NINA (no income, no asset) loans because they could make fat commissions and pass the risk on to the market. They were now free to hold mortgages for a month or so, bundle them as investments and pass them on. Nobody was forced to do this. They knowingly made bad loans in order to cash in.
Constantine on November 1, 2011 at 5:49 PM

Bloomberg is telling the truth though he and others sure didn’t when obongo was running for office

factions of the government delliberately mined the mortgage bussiness and bogus ratings agencies exascerbated it with derivitives which would not have been a problem if the loans were actuallly worth something with something as simple as a downpayment

the Marxist scum took away the remedy and backed the loans

if the money loaned was purely private sector the problem would have righted itself but no private sector capitalist would have thrown their money away like that

the blame is attempted to be shed on the industries that made money from fees on the transactions but it never could have occurred and grown so big without Marxist ideals

We were the soviets only the soviets wanted to succeed where as our marxists wanted to fail and use the crime as a means to gain more control of our destinies

the architects of this are treasonous scum that truly deserve the gallows for the harm done

as for George not trying to reign in the madness, he did and the following hearings (circus) with all the requisite race baiting is there for anyone to see

politicians love to cry about insider trading but I’d sur love to know how many real estate deals they all made during the fever

some knew the system was set to be taken advantage of for a brief time until it collapsed or they pulled the plug which I clearly remember it was a week or two after the repug convention and Sarah set the right on tire only to be doused when shumer said, ” we have a problem with FM and FM!”

then mcfeeble said we should stop the campaign to deal with it

OMFG, I knew it was over

Sonosam on November 1, 2011 at 8:58 PM

I’m not saying that the banks were not at fault too. Certainly they were. They were greedy, and many were flat-out dishonest (as were many appraisers and ratings agencies). There is plenty of blame to go around

What total nonsense. Bloomberg is standing up for his campaign contributors on Wall Street. What’s telling is that virtually no one from the mortgage industry or fixed income trading teams on Wall Street will tell you that Congress was to blame for the near collapse of the financial system. Ed is simply repeating right wing talking points with little basis in reality, points that continually bounce through the echo chamber.

It’s amazing that today- after years of extensive reporting and a number of outstanding books on the history of the housing bubble and the near collapse of our financial system- so many people remain in the dark.

but the housing mess was started by, and kept going by, stupid federal government “social justice” policies that never should have existed in the first place

Actually the housing asset bubble occurred in most of the Western world, including countries without ‘social justice’ policies, as you call it. The one government policy that extended the bubble, found in most countries, was low interest rates.

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity

Ed, please enlighten us with an explanation as to why Chase and Wells Fargo didn’t face the massive losses that lead to the insolvency of so many banks, such as WaMu.

Anyone familiar with the risk management policies of banks such as Washington Mutual knows that ‘government rules’ had nothing to do with lending policies that were designed to maximize deal flow, period. To these banks, it didn’t matter that loan applications were obviously fraudulent or mortgage holders might have difficulty making loan payments. The goal was to amass as many housing ‘assets’ as possible. After all, the conventional wisdom firmly professed that home prices would continue appreciating over the long-term. This is typical ‘bubble’ behavior, exhibited by both households and institutions. No government regulation forced banks to bypass income verification or dismantle the risk management regime that had been established at banks over the last two decades.

In fact many low income groups complained to Greenspan and other regulators that minority consumers were presented with loan offers (such as Jumbo ARMS) that were nearly incomprehensible on paper, forcing those buyers to rely on the spoken word of the lender as to the loan’s terms. Regulators did nothing in response to the obvious lender greed or fraud, leaving intact a system that was often more rigged against low income borrowers than in their favor.

bayam on November 1, 2011 at 9:45 PM

if the money loaned was purely private sector the problem would have righted itself but no private sector capitalist would have thrown their money away like that

In fact there were any number of private lenders ready to step in and fill the role of lending wholesaler until the market slowed in 2007. As long as subprime loans could be packaged into complex derivatives and sold to investors around the world (weapons of financial destruction, as described by Buffet in his famous bet with Greenspan), the market would provide a mechanism to source those loans. Don’t underestimate the efficiency of the market.

bayam on November 1, 2011 at 9:54 PM

bayam

Knew you’d show up to launch some BS, roflmao.

Midas on November 1, 2011 at 10:04 PM

Ignore the crap about minorities hardest hit angle of the story. The point is a bank lent $720K to someone making $14K a year. The govt did not force the bank to do this.

angryed on November 1, 2011 at 2:42 PM

Clinton and Janet Reno and Barney all threatened the banks if they didn’t go along with CRA.

And a side note-as Rush Limbaugh pointed out on today’s show, O’bama as a “lawyer” in Chicago (a position where he averaged 18 hours a week for something like 8 years?) in all that time only filed 2 lawsuits.

One was against CitiBank for redlining.

Del Dolemonte on November 1, 2011 at 2:57 PM

Del – Absolutely freaking right.

I quite vividly remember Janet Reno threatening banks and S&L’s in the mid ’90′s. She said ‘Either aggressively support CRA or we’ll put you out of business.’ I worked for an S&L at the time and I remember it clearly. The federal government was threatening my job by decree. I remember being struck by the tyrannical, meddling, destructive quality of our federal government.

And me and plenty of other people knew it was going to blow up in our faces! It’s not as if the consequences were a total surprise. It didn’t come out of nowhere, although I don’t think anybody knew it would end as badly as it did.

I’m no fan of the investment banks but they didn’t create CDO’s and other crap securities on their own initiative. They were obligated to diffuse risk and they did so with the bad loans they were forced to eat by the federal government.

Now, the media lie like crazy about how it all played out (when they discuss it at all) and it’s nearly impossible to find people outside of newsjunkie forums like this who know how it all really went down. The general public has no clue.

Django on November 1, 2011 at 10:06 PM

Midas on November 1, 2011 at 10:04 PM

One of these days you can try reading a book a get yourself an edjimication.

bayam on November 2, 2011 at 12:56 AM

Bloomberg to OWS: Congress caused the mortgage crisis, not the banks

I think the reason this isn’t more widely grasped is that it requires actually understanding how the loan business works. Banks don’t just give out money. They loan it based on the expectation that it will be paid back. So they have no incentive to make a loan that the borrower will be unable to pay back.

Banks also buy and sell loans all the time. The bank that sells a loan is no longer going to collect the money from the borrower, but they’ll get an upfront payment for the loan from the bank that buys it, in exchange for the buyer collecting the payments.

The government told banks they didn’t have to worry about getting paid back for the loan, because FNMA/FRMC would buy the loans from them. Immediately, the banks originating the loan lost all incentive to make good loans or worry about getting paid back. All they had to do was make the loan, then sell it to FNMA or FRMC. And as soon as they sold the loan, they had the money back that they had lent in the first place, and could make another loan and sell that loan.

It was just too tempting for banks to resist. It was the very epitome of making money with other people’s money. Naturally, banks made as many loans as they could at virtually no risk, with the government — or, in this case, those buying FNMA/FMC securities — assuming all the risks of non-payment.

These rules distorted the mortgage market into a Ponzi scheme. Credit to Bloomberg, who is certainly not one of my favorite people, for at least trying to make this clear to OWS.

Of course, liberals can’t understand this. Once you bring up the word “consequences,” their entire brain breaks down

There Goes The Neighborhood on November 2, 2011 at 1:57 AM

Ignore the crap about minorities hardest hit angle of the story. The point is a bank lent $720K to someone making $14K a year. The govt did not force the bank to do this.

angryed on November 1, 2011 at 2:42 PM

There has to be more to this story than what you’ve posted. The banks were forced to make horrible loans but this is beyond horrible.

Vince on November 1, 2011 at 2:50 PM

Why would the government have to force them to make a loan? The government basically said, “You can make this loan to someone who obviously can’t pay you back, then sell the loan to us. Then you’ll get your pay from us, and you don’t have to worry about getting paid back from the borrower at all!”

The government was in effect offering banks good money for making bad loans. Is it any surprise that banks took them up on the offer?

There Goes The Neighborhood on November 2, 2011 at 2:09 AM

This government sponsored scheme was directed and supported by activists such as Obama and his democratic allies that yelled “racism” every time Republicans called for Fannie/Freddie to be reined in.

Baxter Greene on November 1, 2011 at 3:27 PM

It’s interesting to see the ties between the mortgage crisis and the race card. The whole thing started with the government pressuring banks to make more loans, even if they were bad loans, to minorities. But as long as banks had to assume the risk of the bad loans themselves, they were cautious enough to make just enough bad loans as needed to protect their core business.

When the government used FNMA/FRMC to buy the bad loans and remove the risk from the banks entirely, the buying spree started.

And when Republicans saw the disaster getting very close — and it’s not to their credit that it took so long for them to see the looming threat — and tried to reform the mess before it was too late, the Democrats blocked it by trotting out the Congressional Black Caucus to claim that the reform was motivated by racism. Naturally, the profiles in courage that is Congress immediately retreated and let the economy go belly up.

Literally, false accusations of racism started the mortgage crisis and protected it from reform until it exploded. And then, well, they shifted to class warfare and blamed the banks and Wall Street and everyone else except Congress.

So the start was a corrupt Democratic president named Clinton, and the efforts at reform were blocked by the Congressional Black Caucus specifically.

To my knowledge, this is the single worst thing that the Congressional Black Caucus ever did. Normally, they’re no more corrupt than the rest of Congress. But by closing ranks around FNMA/FRMC, they tanked the U.S. economy.

There Goes The Neighborhood on November 2, 2011 at 2:34 AM

The banks were not making risky loans at all. At least, not risky to them. All they had to do was to sell the loan to a willing buyer, and their risk was gone.

I would maintain those were immoral loans, but we all know that businesses don’t typically concern themselves with questions of morality as long as what they’re doing is completely legal. In fact, I’d say businesses are a lot more concerned with being ethical than they are with being moral.

If there’s any doubt where the fault really lay, just ask yourself a simple question: could this have happened without government intervention?

Could it?

Let’s say a bank, interested in nothing more than making money, decides to make a loan. Do you believe they would make loans to anyone who was unable to pay them back? How would they make money if they never got paid back?

Let’s say the same bank considering the same loan decides they could try to avoid the risk of non-payment by selling the loan to someone else. Would any other bank, interested in nothing more than making money, be willing to buy the loan? How would the bank buying the loan make any money from a borrower that couldn’t pay them back?

The ONLY WAY banks start making bad loans is for someone to get involved who is not trying to make money. That is, only someone without a profit motive would be interested in buying bad loans.

You can try to blame bankers, borrowers, derivatives, and speculators, but the one essential ingredient to the mortgage crisis was the only institution that was not looking for a profit — the government. Without government action, it would never have happened.

I have no use for anyone trying to cover up the government role in this.

There Goes The Neighborhood on November 2, 2011 at 2:56 AM

Well, Bloomberg, your pukey little leftist “OWS” buddies are not paying off so now you’re going to tell the truth. Go down and tell it to the merchants that have been damaged by these scum . . . if you have the guts.

rplat on November 2, 2011 at 8:47 AM

The ONLY WAY banks start making bad loans is for someone to get involved who is not trying to make money. That is, only someone without a profit motive would be interested in buying bad loans.

I realize that what you’re saying sounds like common sense, but you’re fundamentally wrong on a few major points. First, there’s always been a wholesale market for residential loans. Freddie and Fannie were the biggest but not the only players in the market.

Second, the ‘bad loans’ were packaged into derivative instruments (CDOs) and then re-sold for a substantial profit to private equity and institutional investors. The packaging and resale of low quality loans into derivative instruments was done entirely by the private sector.

There are numerous books on this subject including Too Big To Fail.

bayam on November 2, 2011 at 9:32 AM

Without government action, it would never have happened.

What wouldn’t have happened, the housing bubble? Wall Street inventing a way to turn subprime loans into risk-free financial instruments for resale around the globe?

If you actually believe that banks were ‘forced’ to approve a home loan to virtually everyone who walked into a bank, then I’d recommend you start by researching this basic question: why did some banks, like Chase, exit the crisis with only modest losses, while other banks go bankrupt? How many billions of dollars in subprime loans were mandated by ‘fair lending’ regulations?

It’s easy to blame the government, harder to understand what actually happened.

bayam on November 2, 2011 at 9:40 AM

It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.

That’s bullshit.

The agency doing that forcing was HUD, a tool of Clinton’s Executive branch. The threats against ‘racist’ banks for failing to lend to bad-risk customers were codified in the Policy Statement in Discrimination in Lending, entered into the Federal Register on April 15, 1994 by the “Interagency Task Force on Fair Lending”, and signed by Henry Cisneros, Janet Reno, Eugene Ludwig and Alan Greenspan, along with the heads of six other financial regulatory agencies. Said Task Force was set up by President Clinton.

Reference: http://news.investors.com/Article.aspx?id=589858&p=1

Insufficiently Sensitive on November 2, 2011 at 9:46 AM

Second, the ‘bad loans’ were packaged into derivative instruments (CDOs) and then re-sold for a substantial profit to private equity and institutional investors.
There are numerous books on this subject including Too Big To Fail.

The point ( as made clear in the documentary “Inside Job”) is that reselling these crap derivative instruments was made possible by AIG insurance made possible by the bogus high ratings from the rating agencies like Moody, etc. see Reuters http://tinyurl.com/3k66n5w . Thus it no longer mattered, like it use to, if the original home loans were likely to default.

Something really rotten was going on with these rating agencies but how to prove illegality or conspiracy? The rating agencies amazingly got off the hook by claiming that their ratings were only “opinions” (see them say this in “Inside Job”).

BTW beside the Too Big To Fail book see Joseph Stiglitz, “Freefall” interviewed on BookTV. He gives good recommendations like breaking up the banks into not to big to fail units, and others recommendations the the congress has not done. But then I don’t believe the congress really works for us – it’s Goldman Sacs that rules and don’t you forget it! ( about that see the comments on the MF Global rip off at http://www.barnhardt.biz/ ).

Chessplayer on November 2, 2011 at 11:17 AM

Well, the Government forced the lenders to lend to unqualified minorities (under threat of being put out of business). They had to lower their standards to make the minorities qualify – and had to apply ot weakened standards to non-minorities too (thus the McMansion problem and 2nd home boom for the better off people).
The lenders certainly weren’t going to just sit and hold the growing pile of soon-to-be-bad paper, so they packaged them and sold them. Only to be expected.
Along with the government, the rating agencies giving the derivatives good ratings was a part of the ultimate problem (duping some less sophisticated and/or greedy investors into buying the deriviatives), but the main fault lies squarely on bad government policy rammed down on business

krome on November 2, 2011 at 11:27 AM

Well, the Government forced the lenders to lend to unqualified minorities (under threat of being put out of business).

This is absolutely untrue- it’s a political accusation that has no basis in reality. Not even failed bankers try to blame the government in this way. After the crisis, the Dallas Fed (a friend of the banks) did a study that you’d find enlightening.

http://dallasfed.org/ca/bcp/2009/bcp0901.cfm

good recommendations like breaking up the banks into not to big to fail units

I agree with you completely on this point but unfortunately the too big to fail banks have incredible power in DC. And there’s enough misinformation about the causes of the financial crisis that voters don’t understand what’s at stake.

reselling these crap derivative instruments was made possible by AIG insurance

And guess why the world can’t predict the real consequence of Greece failing- more complex derivatives traded on secret exchanges that create completely unknown inter-party risk. Instead of betting on the future of housing prices, this time traders are betting on the future value of bonds sold to Greece. The fun just doesn’t stop.

bayam on November 2, 2011 at 2:11 PM

This is absolutely untrue- it’s a political accusation that has no basis in reality. Not even failed bankers try to blame the government in this way. After the crisis, the Dallas Fed (a friend of the banks) did a study that you’d find enlightening.

http://dallasfed.org/ca/bcp/2009/bcp0901.cfm

bayam on November 2, 2011 at 2:11 PM

LOL, you’re cherry-picking a single “study” to prove your point? The fun just doesn’t stop. Next you’ll be telling us that Paul Krugman is a qualified economist.

From your link:

In the interest of separating fact from fiction, the Federal Reserve did its own research and found that the CRA is unequivocally not to blame for the housing market’s fall. The numbers just don’t add up.

To advance the conversation on how to build a stronger, more stable and inclusive financial system, we present “The CRA and Subprime Lending: Discerning the Difference,” an overview based on recent data.

Alfreda B. Norman
Assistant Vice President and Community Development Officer

I can find absolutely nothing about Ms. Norman’s “background” or “qualifications” in a quick Google search. My guess is that she was appointed to her post by Bill Clinton or some other Democrat.

Can you enlighten us on why you consider her to be the sole authority on this subject? Especially since you and I both know that as a government hack she would never-ever bad-mouth a program that her political Party created?

F-

Del Dolemonte on November 2, 2011 at 3:01 PM

This is absolutely untrue- it’s a political accusation that has no basis in reality. Not even failed bankers try to blame the government in this way. After the crisis, the Dallas Fed (a friend of the banks) did a study that you’d find enlightening.

http://dallasfed.org/ca/bcp/2009/bcp0901.cfm

bayam on November 2, 2011 at 2:11 PM

LOL, you’re cherry-picking a single “study” to prove your point?

If you describe the US Federal Reserve amounts to a cherry-picked source, why don’t you provide an alternative source outside of righ wing radio.

I don’t know who would consider the Fed a random or untrusted source for economic data, whether or not you agree with their policies. You might want to listen to Herman Cain on this topic as he’d very strongly disagree with you here.

bayam on November 2, 2011 at 4:02 PM

LOL, you’re cherry-picking a single “study” to prove your point?

If you describe the US Federal Reserve amounts to a cherry-picked source, why don’t you provide an alternative source outside of righ wing radio.

I don’t know who would consider the Fed a random or untrusted source for economic data, whether or not you agree with their policies. You might want to listen to Herman Cain on this topic as he’d very strongly disagree with you here.

bayam on November 2, 2011 at 4:02 PM

Translated: “I can’t answer Del’s question”.

I highlighted your hilarious quote above because your side of the aisle has hated The Fed for decades. I seem to recall Dennis the Menace (Kook-OH) describing the Fed as a Ponzi Scheme. In addition, Guilty Party Barney Frank and his fellow Democrat Nutbar Brad Sherman blasted the Fed just 5 weeks ago.

Your citing them now shows that you only hate them when it’s politically convenient for you do do so. Just like how you Leftists hated the CIA for decades and outed hundreds of their agents, only to suddenly fall in Love with them after a Bush-Hating CIA Desk Jockey claimed she had been outed. The fun just doesn’t stop.

Let me re-ask the question you’re afraid to answer.

Alfreda B. Norman
Assistant Vice President and Community Development Officer

I can find absolutely nothing about Ms. Norman’s “background” or “qualifications” in a quick Google search. My guess is that she was appointed to her post by Bill Clinton or some other Democrat.

Can you enlighten us on why you consider her to be the sole authority on this subject? Especially since you and I both know that as a government hack she would never-ever bad-mouth a program that her political Party created?

Once again: would this Fed Democrat Hack bad-mouth a program her political Party created?

I know the answer, you’re just afraid to admit that I’m right.

Del Dolemonte on November 2, 2011 at 6:11 PM

bayam on November 2, 2011 at 4:02 PM

PS, your cherry-picked “study” comes from exactly one Fed location, namely the one in Texas. Are there comparable “studies” from the Fed from other parts of the country? As I recall, Texas did not have anywhere near the number of problems as other places.

Del Dolemonte on November 2, 2011 at 6:31 PM

Your citing them now shows that you only hate them when it’s politically convenient for you do

Of my many past posts on Hotair, show me one where I expressed hatred for the Fed.
You need to find another outlet for your rants.

your cherry-picked “study” comes from exactly one Fed location, namely the one in Texas

This study applied to national lending practices, not just to one region of the country. You also need to get up to speed on how the Fed works.

bayam on November 2, 2011 at 7:57 PM

If someone is too dumb to understand the term Adjustable Rate Mortgage, and the term resetting, they are probably too dumb to afford a house…

hillbillyjim on November 1, 2011 at 4:12 PM

Actually, probably too dumb to live in a house, no insult intended to actual troglodytes.

Siddhartha Vicious on November 2, 2011 at 8:40 PM

Of my many past posts on Hotair, show me one where I expressed hatred for the Fed.

You need to find another outlet for your rants.

You also need to get up to speed on how the Fed works.

bayam on November 2, 2011 at 7:57 PM

1. Cite us some of your posts here where you defend the Fed. And answer my question-why are you only relying on a single study done by a Democrat Appointee?

2. I’ve been in the real estate mortgage sector for almost 30 years. I know perfectly well how the Fed works.

In fact, I remember how the Fed reported in March of 1991 that the Pappy Bush Recession had ended, and how the Democrat Media covered up that story so they could get one of their Democrats elected President 18 months later. That eventual Democrat winner won the Presidency based on the false premise that the recovery hadn’t started yet. The NY Times finally got around to admitting that the Pappy Bush recession had in fact ended in March of 1991, but they didn’t do so until 1999.

G+ for effort.

And once again, proof that your Party crashed the system. In their own words.

http://www.youtube.com/watch?v=_MGT_cSi7Rs

Del Dolemonte on November 3, 2011 at 9:46 AM

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