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brorlob

Bailout plan

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I dont see anything which Clinton did which led to a boom. In the clinton era, there werent any policies which led to bubble-proportion housing boom nor easy credit (since rates were high, even if they were not historically high). During the Clinton years, the precursor to the rise in property values was a direct result of the increased net worth of citizens during the stock market boom which is not directly within the control of the federal reserve (and the Fed should not be trying to guide the equities markets anyways). It was not policy driven, as is the case with the Bush era Fed which kept rates absurdly low (thus creating an economic bubble).

 

The other reason why blame cannot be placed on previous Presidents is that even if policies were made back then, they were not proven to be failures until the Bush era. It was then incumbent upon Bush to make necessary changes. Failure to make changes is a negligent shirking of one's responsibility (assuming we believe in the general non-strict constitutionalist principles guiding most of this country). It is not always possible to predict the success or failures of an economic policy with any degree of accuracy.

 

Lastly, while I have always though Fannie/Freddie were giant messes to begin with, I dont think that they are the culprit of anything unique - they are still a product of low interest rates (which is by far the biggest contributor to the problem) and a low regulatory environment (which is the Bush-specific problem).

 

I think if you assign blame to Clinton, you assign blame to pretty much every president prior to him as well. And thats a meaningless journey.

 

The most important thing to note for all time on this issue is that the problem was identified quite early and it was severely underestimated by the Bush administration and despite the problems, the Bush administration (as a whole) did absolutely nothing to stop it from happening. And many of the options which would otherwise have been available were no longer available due to the extremely poor macroeconomic policies of the Bush administration as a whole.

Edited by Ankur

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Is it to late to stop payment on that 700 billion dollar check?

 

No. But the check might bounce. :)

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I dont see anything which Clinton did which led to a boom. In the clinton era, there werent any policies which led to bubble-proportion housing boom nor easy credit (since rates were high, even if they were not historically high). During the Clinton years, the precursor to the rise in property values was a direct result of the increased net worth of citizens during the stock market boom which is not directly within the control of the federal reserve (and the Fed should not be trying to guide the equities markets anyways). It was not policy driven, as is the case with the Bush era Fed which kept rates absurdly low (thus creating an economic bubble).

 

Youre right that Clinton didnt pass any policies that led to the housing bubble, but he strengthened the existing policies that led to it. He took the Carter CRA and beefed it up on steroids. He told lenders like Fannie and Freddie to not only give loans to people who couldnt afford them, but also to do it on the basis of race. Banks were given a CRA rating, and if the portfolio wasnt diverse enough, the bank was punished. The risky lending practices and bad loans promoted under the Clinton administration are now coming back to bite us. And I dont think you have to blame every President before Clinton too. He uniquely made the situation worse than any of his predecessors did (possibly excluding Carter).

 

And while I'll agree the Bush administration is not without blame, how can the blame not also fall on liberals in congress? I know asking Nancy Pelosi a question like that will get you yelled at, but look at the facts. In 03 the Bush administration tried to pass a massive housing regulation bill, but he was stopped by Congressional Democrats like Chris Dodd and Barney Frank who have taken massive amounts of money from Fannie and Freddie.

 

In 05 John McCain said, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole." And yet, apparently, hes the one who doesnt understand the economy, not Obama who has taken the 3rd largest amount of money from Fannie Mae and Freddie Mac over the last 20 years, despite only being there for 3.

 

The blame cant possibly all lie with Bush, Wall Street, and Republicans. Look at the facts objectively and there can be almost no way to argue that at least just as much of the blame has to fall to Clinton, Carter, and congressional Democrats.

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Youre right that Clinton didnt pass any policies that led to the housing bubble, but he strengthened the existing policies that led to it. He took the Carter CRA and beefed it up on steroids. He told lenders like Fannie and Freddie to not only give loans to people who couldnt afford them, but also to do it on the basis of race. Banks were given a CRA rating, and if the portfolio wasnt diverse enough, the bank was punished. The risky lending practices and bad loans promoted under the Clinton administration are now coming back to bite us. And I dont think you have to blame every President before Clinton too. He uniquely made the situation worse than any of his predecessors did (possibly excluding Carter).

 

And while I'll agree the Bush administration is not without blame, how can the blame not also fall on liberals in congress? I know asking Nancy Pelosi a question like that will get you yelled at, but look at the facts. In 03 the Bush administration tried to pass a massive housing regulation bill, but he was stopped by Congressional Democrats like Chris Dodd and Barney Frank who have taken massive amounts of money from Fannie and Freddie.

 

In 05 John McCain said, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole." And yet, apparently, hes the one who doesnt understand the economy, not Obama who has taken the 3rd largest amount of money from Fannie Mae and Freddie Mac over the last 20 years, despite only being there for 3.

 

The blame cant possibly all lie with Bush, Wall Street, and Republicans. Look at the facts objectively and there can be almost no way to argue that at least just as much of the blame has to fall to Clinton, Carter, and congressional Democrats.

 

First off, you should read my commentary better. I shall repeat it for you:

 

"No. I very much can lay the majority of blame on Bush. Well, technically not him alone, rather his entire presidency which includes his top aides, staff, executive administration, and yes, a largely republican led-congress until 2007, and after that time, the split ownership of congress."

 

So I dont blame it on Bush. I blame it on the entire administration and government of the Bush era.

 

Secondly, Democratic stonewalling during the first 6 years of the administration was token at best. The republicans had a strong control of Congress. The reality is that Bush & Co. failed to impress the need for reform to his own party.

 

Thirdly, it doesnt matter what the policies of the past are. NO policy is perfect. Conditions and markets change, and as such, change in policies is not optional - its necessary. During the Carter through Clinton years, one can easily make the case for a need for loose regulations of the housing and mortgage industry. Many people conveniently forget about the history of housing in the 70's and 80's which made necessary deregulation.

 

But what people are conveniently ignoring is that while arguably useful in the past, the policies had NO place in the post 2005 climate. Failure to remedy the problem at that point is an outright abdication of responsibility and all parties with the power to make change are responsible - that includes Obama and McCain.

 

The cause of severe and complex problems generally are a cascade of policies. But at the end of the day, the ultimate responsibility for the problem lies with the President with the power to make changes when the problem arises.

 

No one can deny it.

 

Bush's failures are borderline criminal.

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First off, you should read my commentary better. I shall repeat it for you:

"No. I very much can lay the majority of blame on Bush. Well, technically not him alone, rather his entire presidency which includes his top aides, staff, executive administration, and yes, a largely republican led-congress until 2007, and after that time, the split ownership of congress."

So I dont blame it on Bush. I blame it on the entire administration and government of the Bush era.

 

Secondly, Democratic stonewalling during the first 6 years of the administration was token at best. The republicans had a strong control of Congress. The reality is that Bush & Co. failed to impress the need for reform to his own party.

 

Thirdly, it doesnt matter what the policies of the past are. NO policy is perfect. Conditions and markets change, and as such, change in policies is not optional - its necessary. During the Carter through Clinton years, one can easily make the case for a need for loose regulations of the housing and mortgage industry. Many people conveniently forget about the history of housing in the 70's and 80's which made necessary deregulation.

 

But what people are conveniently ignoring is that while arguably useful in the past, the policies had NO place in the post 2005 climate. Failure to remedy the problem at that point is an outright abdication of responsibility and all parties with the power to make change are responsible - that includes Obama and McCain.

 

The cause of severe and complex problems generally are a cascade of policies. But at the end of the day, the ultimate responsibility for the problem lies with the President with the power to make changes when the problem arises.

 

No one can deny it.

 

Bush's failures are borderline criminal.

 

Well, as I said in my post, I'll also agree that Bush has to take some blame for this, but not nearly as much as you say he should. Bush failed in getting his proposal passed, but the fact is that Bushs reform was rendered ineffectual by Democrats like Chris Dodd and Barney Frank before it could come up for a vote.

 

And you fundamentally misunderstand my argument. The fact is, it isnt deregulation that caused this mess. It was the over regulation of the market. By telling banks that they had to fill a quota for minorities, the federal government overstepped its bounds by promoting these absurd loans. Letting the market go would have meant banks wouldnt of taken needless risks with their money because they needed to give out ridiculous loans to keep their CRA rating up.

 

And to lump McCain and Obama as equals in this mess is absurd. While McCain called for changes to be made in the system, Chris Dodd and Barack Obama actively campaigned against the changes, lest they lose their 6 figures in campaign cash from Fannie Mae and Freddie Mac.

 

But, while Bush had failings, if hes borderline criminal, then Clinton has to be a convicted felon (wait... he already shouldve been...)

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It's great to see that Republicans can find ways to blame the poor and minorities for everything instead of the rich white republicans who actually run things.

 

Anyway, I hate to disappoint you but your sad theory has been debunked thoroughly enough that I'm not going to waste my time looking for a link. There have been articles about this in just about every newspaper I've seen this week. Laws that forced banks to stop red lining are not responsible for this crisis.

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Well, as I said in my post, I'll also agree that Bush has to take some blame for this, but not nearly as much as you say he should. Bush failed in getting his proposal passed, but the fact is that Bushs reform was rendered ineffectual by Democrats like Chris Dodd and Barney Frank before it could come up for a vote.

 

And you fundamentally misunderstand my argument. The fact is, it isnt deregulation that caused this mess. It was the over regulation of the market. By telling banks that they had to fill a quota for minorities, the federal government overstepped its bounds by promoting these absurd loans. Letting the market go would have meant banks wouldnt of taken needless risks with their money because they needed to give out ridiculous loans to keep their CRA rating up.

 

And to lump McCain and Obama as equals in this mess is absurd. While McCain called for changes to be made in the system, Chris Dodd and Barack Obama actively campaigned against the changes, lest they lose their 6 figures in campaign cash from Fannie Mae and Freddie Mac.

 

But, while Bush had failings, if hes borderline criminal, then Clinton has to be a convicted felon (wait... he already shouldve been...)

 

You miss the point entirely -

 

the law was APPROPRIATE during its time of passage.

it was NOT appropriate during Bush's time.

 

the economy is an ever changing environment and as such the laws must change accordingly. as the economic climate changes, the law should change.

 

bush failed.

 

It doesnt matter one bit what clinton did because that was in a DIFFERENT ECONOMY.

 

 

 

And as a reminder, when I say 'Bush' I imply the government of the Bush era - not just Bush.

The democrats are at fault for offering token resistance during a Republican led congress.

The republicans are at fault for not overcoming the token resistance of democrats

The president is at fault for not pressing the issue during a time when he had much political capital thanks to war despite having a SOLID control of congress.

All of them are responsible for not fixing the problem once it was recognized.

 

Democrats cannot be nearly at fault as republicans because they didnt have the power to block the policy change. Its not possible in a congress which was OVERWHELMINGLY republican.

Edited by Ankur

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And you fundamentally misunderstand my argument. The fact is, it isnt deregulation that caused this mess. It was the over regulation of the market. By telling banks that they had to fill a quota for minorities, the federal government overstepped its bounds by promoting these absurd loans. Letting the market go would have meant banks wouldnt of taken needless risks with their money because they needed to give out ridiculous loans to keep their CRA rating up.

I call bullshit. The volume of minority home loans was not sufficient to trigger this mess. The problem was (and is) a larger, systemic issue regarding exotic, unsubsidized loans. I'd really like to see some warranted evidence that minority quotas led to this mess. I've not seen anyone serious make such a claim - it takes a troll to do so. What shocks me is that no one else here has called you on it.

 

Edit: To the person who neg repped me for this: A list of names does not amount to a warranted argument. Have a nice day.

Edited by brorlob
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It's great to see that Republicans can find ways to blame the poor and minorities for everything instead of the rich white republicans who actually run things.

 

Funny how you hate blaming groups of people for problems, at least until it comes to class warfare. And dont call me a rich white racist... look up what ethnicity people with the name gopal generally are.

 

And brorlob just because you havent seen the pieces written on the dailykos, it doesnt mean they dont exist. Do a quick google search, plenty of respected economists believe the problems started with the CRA.

 

I'll agree that not all of the crisis can be blamed on the CRA, some blame has to go to bad management and greed. But to say that the policy had anything less than an enormous effect would be wrong. The volume of loans that went through CRA wasnt it by itself. The fact that they started taking bad loans with the promise of government support caused other lenders to do the same for risk of losing their market share. And the reason the subprime market took off is that the price of the average American home doubled under the CRA. The increased demand for housing (due to public policy) caused a massive government induced housing bubble to form.

 

And Ankur, why do you think that the CRA was ever justified in the first place? People owning homes is nice, but its not a right.

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And you fundamentally misunderstand my argument. The fact is, it isnt deregulation that caused this mess. It was the over regulation of the market. By telling banks that they had to fill a quota for minorities, the federal government overstepped its bounds by promoting these absurd loans.

 

EVEN if this is true, which it is not, but I won't get into because previous posts pointed out the flaws in your logic, the lack of regulation of credit default swaps tremendously exacerbated the problem. Excessive collateral calls were what brought AIG down.

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look up what ethnicity people with the name gopal generally are.

 

interesting. i always thought your screenname was just a play on how you're such a gop pal, or maybe that your name was "al". i guess that's just a coincidence.

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And brorlob just because you havent seen the pieces written on the dailykos, it doesnt mean they dont exist. Do a quick google search, plenty of respected economists believe the problems started with the CRA.

You made the claim, jackass. It's not on me to research your bullshit.

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First of all, CRA did not cause the sub-prime problem. If you actually bother to read the CRA, it specifically emphasizes that bad loans to people with low credit worthiness should NOT be made because it would destabilize the lending corporation with higher than average rate of default. The concept of sub-prime mortgage lending is a concept which is wholly unrelated to CRA.

 

Second, its obviously clear you havent done your research with the origins of CRA or the mortgage and credit markets of the 70s and 80s. In the 70s and 80s, persons with very good credit were encumbered with high interest rates (mid-double digits). Persons of minority groups were treated differently under a process of redlining which resulted in comparatively high-interest loans with short repayment schedules despite their having superior credit scores as compared to the majority counterparts. CRA resulted in a greater availability of credit for minority and lower-income neighborhoods. That is NOT synonymous with making sub-prime lending a reality. Just because you earn less money doesnt uniquely mean that you're more likely to default. CRA was about equal opportunity to credit - that both Brett and I should both get the same interest rate if we have the same credit score and income - not about giving credit to credit unworthy individuals.

 

Third, there is no real meaningful penalty to no aiding by the CRA. At best it impacts growth prospects of acquisitions/mergers. Its not as if a bank is fined for not making enough loans to lower income neighborhoods.

 

Fourth, there was no 'housing boom' of epic proportions in the 90s - the supposed golden age of CRA. There was moderate growth as a direct result of increasing wealth acquisition as a product of soaring stock markets giving hypothetical values. Individuals with high incomes were the only ones buying new homes and accounted for the overwhelming majority of new construction and the underrepresentation of defaults. Lower income housing was NOT booming until the 2000s when the easy availability of low interest credit made home ownership a possibility for lower income persons. CRA did not cause the housing boom of the 2000s. Low interest rates caused the housing boom. Without low interest rates, CRA would have done functionally nothing. Its only in the presence of low interest rates that CRA can do any damage whatsoever. During the Clinton years, the average federal interest rate (which is lower than mortgage rates) was averaging 5.5x-6.00% Do the math - whats your monthly payment on a standard 30-year 200K loan at 7.50% versus the 4.00% that many people paid in 2005. To save you time, its more than 50% higher! Low income boom was non-existent during the Clinton years, thus ensuring that the appropriateness of CRA was still present.

 

Fifth, the practice of sub-prime lending was a direct product not of the CRA, but of the fact that the boom was causing growth in property values which provided an asset valuation which balanced the risk of default on loans made to individuals with low creditworthiness. If the housing boom was not occurring, i.e. growth in property values, then the risk would outweigh the benefit of the loan. In short, because banks were betting that a 200K house would be worth 250K in 3 years, they were betting that 50K asset value growth against the risk of default - and they didnt wait for appraisals; they simply went ahead and counted on the 50K and spent it in making new loans, compounding the problem in a deregulated environment which functionally allowed banks to count each dollar asset twice! The problem was that they didnt expect the Fed to be forced to raise rates so quickly (resulting in higher than average rate of default) coupled with a global credit crunch due to underestimation of dollars locked in improper valuation and risk assessments as well as the derivatization of asset backed securities.

 

Sixth, poor accounting rules and lax oversight resulted in the origins of the sub-prime notion. Low interest rates and soaring home prices made it both profitable and attractive as a business model. Everyone jumped aboard the train without proper risk analysis. Subprime lending warranted a shift in the minimum cash-on-hand requirements to balance the risk of plummeting valuations - it did not happen.

 

 

The moral of the story is that CRA:

1) Is not the source of 'subprime lending'

2) Only contributes to the housing boom in a 'low interest rate' environment

3) Is renedered ineffective when equality is achieved by low interest rates

4) was not the cause of a poor regulatory environment made subprime lending an attractive business model

5) Is irrelevant to the fact that low interest rates drove the unraveling of the business practice.

 

 

All of it still clearly indicates that the fact that subprime lending was functionally non-existent in the Clinton years and high interest rates prevented a housing boom during his years and years prior ensured that CRA was not a poor policy in the economic climate of that time. Only in low interest rate environments made possible by Bush era government could CRA fail. Thus its not CRA which is the problem - its the economy making the law a problem. Not the other way around.

 

Since the economy didnt make CRA a potential problem until the middle of the Bush years, it is incumbent upon Bush & company to rectify the problem.

 

The Democrats did not block reform. They offered token political resistance in a political climate during which anti-Republicanism was politically unfavorable and functionally impossible due to the composition of the houses by party. The Republicans, if reform was truly desired and deemed a necessity, would have had ample opportunity to ramrod legislation through Congress. They did not.

 

At the end of the day, nothing you say changes the fact that CRA had nothing to do with the economic realities of the 2000s, and thus only the Bush administration & Congress of ~2005-present had the opportunity to cause change. They failed. They should all be branded criminals.

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Let me sum up how this is going:

 

Ankur took Brian's 12-gauge out of the closet, blew off the dust, and bitterly destroyed you.

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To say that the [CRA] had anything less than an enormous effect would be wrong. The volume of loans that went through CRA wasnt it by itself. The fact that they started taking bad loans with the promise of government support caused other lenders to do the same for risk of losing their market share. And the reason the subprime market took off is that the price of the average American home doubled under the CRA. The increased demand for housing (due to public policy) caused a massive government induced housing bubble to form.

 

To simplify Ankur's post:

 

The conservative National Review Online trotted out a favorite whipping boy, the Community Reinvestment Act, claiming that the legislation was the result of "racially inflammatory campaigns" that forced banks to "make mortgages available to people without much in the way of income, assets or credit."

 

Why would anyone inject skin color into a debate over credit?

 

There is certainly no evidence to support this claptrap. Federal regulators have never "demanded parity between racial groups in lending." Not ever.

The CRA --- designed to stop banks from "redlining," or withholding loans from entire neighborhoods --- has long been under attack by conservatives, but for entirely different reasons. Critics called it vague, contradictory and useless. They claimed it was unfair to banks and thrifts, which were regulated, while other financial institutions were left to lend money as they saw fit.

 

That's where the argument tying the CRA to the credit crisis breaks down. The lending frenzy developed during the past few years, a period during which banks and thrifts made less than 25 percent of mortgage loans. (The law has been in place for 30 years, during most of which there was no mortgage meltdown.)

 

"The heart of the crisis was caused by unregulated and lightly regulated mortgage brokers and independent mortgage bankers and affiliates that are not subject to the CRA. It would be quite odd if an act ... caused institutions not subject to its purview to do things that were inappropriate," said University of Michigan law professor Michael Barr, who has studied the law

The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China's export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets 'round the world, driving up the price of everything from Florida condos to Latin American stocks.

 

That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan's Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous.

 

So the first cause of the crisis lies with the Fed, not with deregulation. If too much money was lent and borrowed, it was because Chinese savings made capital cheap and the Fed was not aggressive enough in hiking interest rates to counteract that. Moreover, the Fed's track record of cutting interest rates to clear up previous bubbles had created a seductive one-way bet. Financial engineers built huge mountains of debt partly because they expected to profit in good times -- and then be rescued by the Fed when they got into trouble.

 

Of course, the financiers did create those piles of debt, and they certainly deserve some blame for today's crisis. But was the financiers' miscalculation caused by deregulation? Not really.

 

The key financiers in this game were not the mortgage lenders, the ratings agencies or the investment banks that created those now infamous mortgage securities. In different ways, these players were all peddling financial snake oil, but as Columbia University's Charles Calomiris observes, there will always be snake-oil salesmen. Rather, the key financiers were the ones who bought the toxic mortgage products. If they hadn't been willing to buy snake oil, nobody would have been peddling it.

 

CRA was not a factor.

 

I encourage you to listen to this NPR News report (http://thislife.org/Radio_Episode.aspx?sched=1242) or this condensed version (http://www.npr.org/templates/story/story.php?storyId=90327686) about the genesis of the mortgage crisis. Thesis: Money was so cheap, and mortgage-backed securities so appealing, that mortgage lenders weren't able to create enough of the securities to meet the market's demand for them.

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Let me sum up how this is going:

 

Ankur took Brian's 12-gauge out of the closet, blew off the dust, and bitterly destroyed you.

 

I dont use guns... at least not the ones that actually fit in my hands.

Maybe a gatling gun or something I have to have mounted on a truck.

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what about something mounted to a helicopter? have you ever been wolf hunting?

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