It's BAD, it's STILL very bad REPRISE thread (13 months on)
Discussion
RichardD said:
Digga said:
... I'm quite enjoying all this austerity - it feels 'right' to me. I was very uneasy in the boom years...
Do you have German ancestory by any chance 
?(FWIW my wife reckons I look like a Mongol.)
coyft said:
Basically don't trust bankers, financial institutions of politicians. I don't think anything has changed, it's always been that way. As an individual there is little we can do, my stratergy is to have a bit of land, enough for self sufficiency and physical gold in the form of sovereigns. I look upon them as an ultimate insurance policy and get on with my life in the knowledge that everything else I own can be taken away from me. My house backs onto National Trust parkland as I wonder around the park walking the dog I'm stuck by how little the landscape has changed in the last 500 years. The whole house of cards could come crashing down but I'll still be walking my dog enjoying the beautiful landscaped park. All we can do is learn to enjoy the "real" things that life has to offer.
I like that idea, but I guess it helps that you're in a comfortable situation to begin with.
Durruti said:
Apologies for moving the thread away from the important subject of fast food provision. And apologies for the length of the post. I know by writing this I'm limiting my audience to around 2% of the people that will view this and so, for the few of you that will actually read and comprehend what's below, a brief note of thanks is due.
If you are the type that wants a two line executive summary - forget it. The subject is too large and complex for any Daily Mail headline to convey the concept. However, if you are interested in how the financial crisis continues to unfold and approach its finale, I would suggest it will be of interest to persevere.
I did wonder if this post would be better placed in one of the many threads running that are currently celebrating Daves new found set of brass spheriods - after all there is much rejoicing being done about his veto of the proposed treaty changes.
Our line in the sand was effectively no changes to regulation of the City of London - ostensibly to protect the 10% of GDP that the financial services market represents and also (as many have repeatedly pointed out) the tax take we enjoy from that sector - which is why we should be encouraging the banks to ignore that old party pooper Bob Diamond and spread the christmas joy amongst the banking troops with a healthy bonus season.
But wait.
What are we actually facilitating with our evidently more banking friendly environment?. After all, we are a key financial centre - many foreign financial institutions have presences here. Is it the weather that brings them to London?. Are they all secret lovers of cockney culture? Probably not.
Much more likely then that it is the regulatory environment - just a little red tape less to deal with, a slightly less severe environment to operate in - I think that's a fair summation of the way it's sold to us as the British public - we are just that little bit nicer to do business with than our European or American counterparts.
In reality, maybe it's because our complete regulatory failure allowed the London office of AIG to effectively create the poisons that hatched out to trigger the first round of the crisis in 2008. Of course, we'll have learnt our lesson since then and we'll be doing a much better job now of reigning in the wilder excesses of the banking system (and we shouldn't be critical of a shark for being a shark - it's just what it does).
Perhaps not.
Below are three links - the first two will need to be read in order to understand the potential issues - and in turn they are long and complex so here's another chance to bail out if attention span is proving to be a problem. The third is optional, being Corzines testimony to congress early this week in regard to the failure of MF Global and what happened to the money. This is able to be summarised - and so I shall, as follows.
"What went wrong?" - "Don't know"
"Where's the money?" - "It's gone, I don't know where"
"Was it your fault?" - "No"
"How do you feel about the $1.2billion of client money that is missing and the impact that this is having on them?" - "Gee, I'm regretful and it must be tough for them. Can I go now?"
So, on with the merry dance. Welcome to the system we are defending so hard with our veto.
http://www.zerohedge.com/news/why-uk-trail-mf-glob...
So todays new word is Rehypothecation. So what actually happens when someone asks "who owns the gold?". We are about to find out.
http://www.zerohedge.com/news/gold-rehypotecation-...
Of course, if the answer is more than one person/entity then things really start to get interesting. And the house of cards will collapse.
We may get to see a lot more performances of this type of executive, with similar outcomes.
http://www.zerohedge.com/news/watch-corzines-mf-gl...
If, as is the vogue, you are invested in gold, now would be a very good time to take physical delivery if you already don't actually have "your" gold in "your" possession.
Because if it ain't physical, it ain't worth s
t. And if it's stored in a bank, then they may well have rehypothecated your gold multiple times. Ask them to deliver it, see what they say.
Given the above, does anyone else (and bless you for making it this far) believe that Camerons performance was something to celebrate?.
Banks are the bio-chemists, but we, the country, control the laboratories and equipment that allow them to brew the poisons. Should we really be stood outside the doors of the lab with our backs turned while the chemists experiment?. And when the bang comes, as eventually it must, can we really turn around and look suprised at the smoking crater that was once a nice shiny lab and pretend to be horrified?
It's an interesting problem. So Hurrah for Dave. Because of his big swinging sack, the experiment can continue........for now, at least.
Seasons greetings to you all.
well written and interesting, thank you for posting.If you are the type that wants a two line executive summary - forget it. The subject is too large and complex for any Daily Mail headline to convey the concept. However, if you are interested in how the financial crisis continues to unfold and approach its finale, I would suggest it will be of interest to persevere.
I did wonder if this post would be better placed in one of the many threads running that are currently celebrating Daves new found set of brass spheriods - after all there is much rejoicing being done about his veto of the proposed treaty changes.
Our line in the sand was effectively no changes to regulation of the City of London - ostensibly to protect the 10% of GDP that the financial services market represents and also (as many have repeatedly pointed out) the tax take we enjoy from that sector - which is why we should be encouraging the banks to ignore that old party pooper Bob Diamond and spread the christmas joy amongst the banking troops with a healthy bonus season.
But wait.
What are we actually facilitating with our evidently more banking friendly environment?. After all, we are a key financial centre - many foreign financial institutions have presences here. Is it the weather that brings them to London?. Are they all secret lovers of cockney culture? Probably not.
Much more likely then that it is the regulatory environment - just a little red tape less to deal with, a slightly less severe environment to operate in - I think that's a fair summation of the way it's sold to us as the British public - we are just that little bit nicer to do business with than our European or American counterparts.
In reality, maybe it's because our complete regulatory failure allowed the London office of AIG to effectively create the poisons that hatched out to trigger the first round of the crisis in 2008. Of course, we'll have learnt our lesson since then and we'll be doing a much better job now of reigning in the wilder excesses of the banking system (and we shouldn't be critical of a shark for being a shark - it's just what it does).
Perhaps not.
Below are three links - the first two will need to be read in order to understand the potential issues - and in turn they are long and complex so here's another chance to bail out if attention span is proving to be a problem. The third is optional, being Corzines testimony to congress early this week in regard to the failure of MF Global and what happened to the money. This is able to be summarised - and so I shall, as follows.
"What went wrong?" - "Don't know"
"Where's the money?" - "It's gone, I don't know where"
"Was it your fault?" - "No"
"How do you feel about the $1.2billion of client money that is missing and the impact that this is having on them?" - "Gee, I'm regretful and it must be tough for them. Can I go now?"
So, on with the merry dance. Welcome to the system we are defending so hard with our veto.
http://www.zerohedge.com/news/why-uk-trail-mf-glob...
So todays new word is Rehypothecation. So what actually happens when someone asks "who owns the gold?". We are about to find out.
http://www.zerohedge.com/news/gold-rehypotecation-...
Of course, if the answer is more than one person/entity then things really start to get interesting. And the house of cards will collapse.
We may get to see a lot more performances of this type of executive, with similar outcomes.
http://www.zerohedge.com/news/watch-corzines-mf-gl...
If, as is the vogue, you are invested in gold, now would be a very good time to take physical delivery if you already don't actually have "your" gold in "your" possession.
Because if it ain't physical, it ain't worth s
t. And if it's stored in a bank, then they may well have rehypothecated your gold multiple times. Ask them to deliver it, see what they say.Given the above, does anyone else (and bless you for making it this far) believe that Camerons performance was something to celebrate?.
Banks are the bio-chemists, but we, the country, control the laboratories and equipment that allow them to brew the poisons. Should we really be stood outside the doors of the lab with our backs turned while the chemists experiment?. And when the bang comes, as eventually it must, can we really turn around and look suprised at the smoking crater that was once a nice shiny lab and pretend to be horrified?
It's an interesting problem. So Hurrah for Dave. Because of his big swinging sack, the experiment can continue........for now, at least.
Seasons greetings to you all.
Except for one error of omission, in that while there is a red card for AIG at the kick off in 2008, Clinton and his enforcer Roberta Achtenberg escape without a mention yet they had already handled the ball in the penalty area years ago. Clinton and Achtenberg are at the root of the credit crunch but there are many more branches involved with blame atached.
turbobloke said:
Digga has not said:
Vip me harder, Brunhilde
The reason to your observation there TB is that Digga used to be involved in the TVRCC, rather than the (insert bigger International motorsport organisation here)
RichardD said:
turbobloke said:
Digga has not said:
Vip me harder, Brunhilde
The reason to your observation there TB is that Digga used to be involved in the TVRCC, rather than the (insert bigger International motorsport organisation here)
Digga said:
RichardD said:
turbobloke said:
Digga has not said:
Vip me harder, Brunhilde
The reason to your observation there TB is that Digga used to be involved in the TVRCC, rather than the (insert bigger International motorsport organisation here)
Been enjoying this blog this afternoon http://nihoncassandra.blogspot.com/
rates may not go up for ten years because if they did people would be in financial difficulties. inflation is clearly no longer the main aim of the bofe.
la senza struggling, hmv struggling, clintons cards struggling - did these have good business models in the boom times? perhaps not.
I think early next year things will get bad - i'm seeing more people being made redundant - i'm seeing people on good money not going out, not spending and inflation is really affecting people now and it is still very high.
I think unemployment next year could get worse and inflation will keep eroding the buying power of money.
not sure what the ecb are doing but there is surely going to be a limit to what they can do early next year - one of the countries may get fed up with austerity measures and leave the euro.
other than that nothing else is really happening - house prices are staying up due to low rates and people not being able to afford to sell - if rates increase many people have had it.
anyone seeing anything else more tangible?
la senza struggling, hmv struggling, clintons cards struggling - did these have good business models in the boom times? perhaps not.
I think early next year things will get bad - i'm seeing more people being made redundant - i'm seeing people on good money not going out, not spending and inflation is really affecting people now and it is still very high.
I think unemployment next year could get worse and inflation will keep eroding the buying power of money.
not sure what the ecb are doing but there is surely going to be a limit to what they can do early next year - one of the countries may get fed up with austerity measures and leave the euro.
other than that nothing else is really happening - house prices are staying up due to low rates and people not being able to afford to sell - if rates increase many people have had it.
anyone seeing anything else more tangible?
turbobloke said:
Except for one error of omission, in that while there is a red card for AIG at the kick off in 2008, Clinton and his enforcer Roberta Achtenberg escape without a mention yet they had already handled the ball in the penalty area years ago. Clinton and Achtenberg are at the root of the credit crunch but there are many more branches involved with blame atached.
TB, I'm no fan of Bill Clinton by any stretch of the imagination, but I can't help but feel that his Community Re-investment Act has become an easy scapegoat for the right leaning.Why?.
Well consider the fact that, despite having looked, I can't find any mandated level of lending that the banks had to agree to under the Act. I certainly cannot find the instruction to those institutions to lend themselves into oblivion. The reality is that the banks chose to ramp up this type of activity after they had come up with the wheeze of bundling up the crap and selling it to pension funds for huge profits and trebles all round. Essentially the CRA was a Clinton vanity project that the banking industry happily lived with - no doubt for consideration elsewhere.
The greatest amount loaned and the acceleration of this lending occurred under the watch of "Dubya" - whom I'm sure, had he been lobbied to do so by the banking industry, because it was such a bad and dangerous piece of legislation, would've been delighted to reverse the policy (first introduced by the way by Jimmy Carter all the way back in the '70's - you didn't really expect "slick willy" to have an original idea, did you?). But of course, by the time "Dubya" came to power, the smart boys had figured there was good money to be made selling loans to minority crack heads in ghettos so were happy to continue doing as much of it as they physically could.
So the blame Bill Clinton approach really doesn't stand up to closer inspection. Much like the lefts lazy trotting out of Thatchers "There is no such thing as society" and then stopping there without looking at the wider text of the speech, it has become a widely accepted truth that is frankly unhelpful in understanding the crisis.
If you want me to name names and point fingers then there are two people I consider key in the creation of the financial mess we have to deal with now.
1 - 1971 - Richard Milhous Nixon took the USA off the Gold Standard to enable him to continue expanding financing for adventures overseas. Go have a look at US debt expansion since then. Co-incidence?
2 - Alan Greenspan. If Greenspan had reacted by tightening following the dotcom bubble bursting rather than slashing rates and re-igniting the rocket, we may never have seen the great American property bubble, let alone be living with its consequences for decades to come.
I can't, and won't deny that I hope hell holds a special place for the likes of Angelo Mozillo, Hank Paulson, that little s
t Geithner et al because I'm damned sure that they either knew what they were busy doing would have to unravel or they became so blinded to the risks by the piles of dollars accumulating on their desks that they lost any critical faculties they ever had.In the end, it all becomes academic, because we are where we are regardless. There is enough crap to be hurled around before we sort this one out for everybody, some deserving, some not. But this Pavlov like reaction to everything - "Blue tie good, Red tie bad" or its opposite depending on your view, is actually becoming one of the biggest obstacles in finding any meaningful resolutions.
Durruti said:
turbobloke said:
Except for one error of omission, in that while there is a red card for AIG at the kick off in 2008, Clinton and his enforcer Roberta Achtenberg escape without a mention yet they had already handled the ball in the penalty area years ago. Clinton and Achtenberg are at the root of the credit crunch but there are many more branches involved with blame atached.
TB, I'm no fan of Bill Clinton by any stretch of the imagination, but I can't help but feel that his Community Re-investment Act has become an easy scapegoat for the right leaning.Why?.
Well consider the fact that, despite having looked, I can't find any mandated level of lending that the banks had to agree to under the Act. I certainly cannot find the instruction to those institutions to lend themselves into oblivion. The reality is that the banks chose to ramp up this type of activity after they had come up with the wheeze of bundling up the crap and selling it to pension funds for huge profits and trebles all round.
Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target - 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.
For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.
Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.
Congress designed Fannie and Freddie to serve both their investors and the political class. Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside of the budget, at least in the short run. It was a political free lunch.
From this article, published in the Wall Street Journal, October 2008.
http://online.wsj.com/article/SB122298982558700341...
Financial Crisis Inquiry Commission: "The CRA Was Not A Significant Factor In Subprime Lending Or The Crisis." In its final report, submitted in January 2011, the Financial Crisis Inquiry Commission concluded:
The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of the high cost loans - a proxy for subprime loans - had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law. [The Financial Crisis Inquiry Report, January 2011]
Federal Reserve: "We Find Little Evidence That Either the CRA Or The GSE [Government-Sponsored Enterprise] goals played a significant role in the subprime crisis." In an August 3 report, Federal Reserve economists Robert Avery and Kenneth Brevoort concluded:
We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes. [Federal Reserve, 8/3/11]
Bernanke: The CRA Was Not "At The Root Of, Or Otherwise Contributed In Any Substantive Way To, The Current Mortgage Difficulties." In a November 25, 2008, letter, Federal Reserve chairman Ben Bernanke stated: "Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties." [Federal Reserve, 11/25/08]
You have no idea how much it pains me to quote that bearded weasel in my defense -
Most Subprime Mortgages Not Issued By Institutions Under CRA. In a paper published on the website of the Federal Reserve Bank of San Francisco, Michigan law professor Michael Barr stated that as of 2005, "Only 25 percent of subprime loans were made by banks and thrifts, and the Federal Reserve reports that only six percent of subprime loans were CRA-eligible." ["Community Reinvestment Emerging from the Housing Crisis," Michael S. Barr, accessed 10/11/11]
SF Reserve Bank's Yellen: "[S]tudies Have Shown That The CRA Has Increased The Volume Of Responsible Lending To Low- And Moderate-Income Households." Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, in a March 2008 speech criticized efforts to blame CRA lending for weaknesses in the mortgage market, stating:
There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term. [Federal Reserve Bank of San Francisco, 3/31/08]
The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of the high cost loans - a proxy for subprime loans - had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law. [The Financial Crisis Inquiry Report, January 2011]
Federal Reserve: "We Find Little Evidence That Either the CRA Or The GSE [Government-Sponsored Enterprise] goals played a significant role in the subprime crisis." In an August 3 report, Federal Reserve economists Robert Avery and Kenneth Brevoort concluded:
We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes. [Federal Reserve, 8/3/11]
Bernanke: The CRA Was Not "At The Root Of, Or Otherwise Contributed In Any Substantive Way To, The Current Mortgage Difficulties." In a November 25, 2008, letter, Federal Reserve chairman Ben Bernanke stated: "Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties." [Federal Reserve, 11/25/08]
You have no idea how much it pains me to quote that bearded weasel in my defense -
Most Subprime Mortgages Not Issued By Institutions Under CRA. In a paper published on the website of the Federal Reserve Bank of San Francisco, Michigan law professor Michael Barr stated that as of 2005, "Only 25 percent of subprime loans were made by banks and thrifts, and the Federal Reserve reports that only six percent of subprime loans were CRA-eligible." ["Community Reinvestment Emerging from the Housing Crisis," Michael S. Barr, accessed 10/11/11]
SF Reserve Bank's Yellen: "[S]tudies Have Shown That The CRA Has Increased The Volume Of Responsible Lending To Low- And Moderate-Income Households." Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, in a March 2008 speech criticized efforts to blame CRA lending for weaknesses in the mortgage market, stating:
There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term. [Federal Reserve Bank of San Francisco, 3/31/08]
HUD mandated lending by Fannie and Freddie, as I had suggested, and 'demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside of the budget, at least in the short run. It was a political free lunch' says it all. Forget red ties and blue ties rhetoric, this was Clinton's left-field egalitarian delusion and it's what sowed the seeds of the crunch.
Try this from Feb 2008.
http://www.businessweek.com/the_thread/hotproperty...
Bill Clinton's drive to increase homeownership went way too far
Add President Clinton to the long list of people who deserve a share of the blame for the housing bubble and bust. A recently re-exposed document shows that his administration went to ridiculous lengths to increase the national homeownership rate. It promoted paper-thin downpayments and pushed for ways to get lenders to give mortgage loans to first-time buyers with shaky financing and incomes. It’s clear now that the erosion of lending standards pushed prices up by increasing demand, and later led to waves of defaults by people who never should have bought a home in the first place.
Read on at the link.
http://www.businessweek.com/the_thread/hotproperty...
Bill Clinton's drive to increase homeownership went way too far
Add President Clinton to the long list of people who deserve a share of the blame for the housing bubble and bust. A recently re-exposed document shows that his administration went to ridiculous lengths to increase the national homeownership rate. It promoted paper-thin downpayments and pushed for ways to get lenders to give mortgage loans to first-time buyers with shaky financing and incomes. It’s clear now that the erosion of lending standards pushed prices up by increasing demand, and later led to waves of defaults by people who never should have bought a home in the first place.
Read on at the link.
Relation to 2008 financial crisis
See also: Subprime mortgage crisis and Global financial crisis of 2008–2009
Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[100] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[105] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[106]
However, many others dispute that the CRA was a significant cause of the subprime crisis. Nobel laureate Paul Krugman[107] noted in November 2009 that 55% of commercial real estate loans were currently underwater, despite being completely unaffected by the CRA.[108] According to Federal Reserve Governor Randall Kroszner, the claim that "the law pushed banking institutions to undertake high-risk mortgage lending" was contrary to their experience, and that no empirical evidence had been presented to support the claim.[109] In a Bank for International Settlements (BIS) working paper, economist Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust", relying partly on evidence that the housing bust has been a largely exurban event.[110] Others have also concluded that the CRA did not contribute to the financial crisis, for example, FDIC Chairman Sheila Bair,[111] Comptroller of the Currency John C. Dugan,[112] Tim Westrich of the Center for American Progress,[113] Robert Gordon of the American Prospect,[114] Ellen Seidman of the New America Foundation,[115] Daniel Gross of Slate,[116] and Aaron Pressman from BusinessWeek.[117]
Legal and financial experts have noted that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[63][118] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[119] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[120] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[121] Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.[122]
During a 2008 House Committee on Oversight and Government Reform hearing on the role of Fannie Mae and Freddie Mac in the financial crisis, including in relation to the Community Reinvestment Act, asked if the CRA provided the "fuel" for increasing subprime loans, former Fannie Mae CEO Franklin Raines said it might have been a catalyst encouraging bad behavior, but it was difficult to know. Raines also cited information that only a small percentage of risky loans originated as a result of the CRA.
http://en.wikipedia.org/wiki/Community_Reinvestmen...
And there I will end the link tennis in the interests of bandwidth. I'll take the Financial Crisis Inquiry Commissions conclusions over Businessweek thanks.
See also: Subprime mortgage crisis and Global financial crisis of 2008–2009
Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[100] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."[105] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[106]
However, many others dispute that the CRA was a significant cause of the subprime crisis. Nobel laureate Paul Krugman[107] noted in November 2009 that 55% of commercial real estate loans were currently underwater, despite being completely unaffected by the CRA.[108] According to Federal Reserve Governor Randall Kroszner, the claim that "the law pushed banking institutions to undertake high-risk mortgage lending" was contrary to their experience, and that no empirical evidence had been presented to support the claim.[109] In a Bank for International Settlements (BIS) working paper, economist Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust", relying partly on evidence that the housing bust has been a largely exurban event.[110] Others have also concluded that the CRA did not contribute to the financial crisis, for example, FDIC Chairman Sheila Bair,[111] Comptroller of the Currency John C. Dugan,[112] Tim Westrich of the Center for American Progress,[113] Robert Gordon of the American Prospect,[114] Ellen Seidman of the New America Foundation,[115] Daniel Gross of Slate,[116] and Aaron Pressman from BusinessWeek.[117]
Legal and financial experts have noted that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[63][118] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[119] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[120] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[121] Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.[122]
During a 2008 House Committee on Oversight and Government Reform hearing on the role of Fannie Mae and Freddie Mac in the financial crisis, including in relation to the Community Reinvestment Act, asked if the CRA provided the "fuel" for increasing subprime loans, former Fannie Mae CEO Franklin Raines said it might have been a catalyst encouraging bad behavior, but it was difficult to know. Raines also cited information that only a small percentage of risky loans originated as a result of the CRA.
http://en.wikipedia.org/wiki/Community_Reinvestmen...
And there I will end the link tennis in the interests of bandwidth. I'll take the Financial Crisis Inquiry Commissions conclusions over Businessweek thanks.
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