Wednesday, October 08, 2008

Blaming the Do-Gooders and the Poor

Yes, the debate was last night, but I'm going to write about that tomorrow in my SP column. Instead, here's some more thoughts on the banking crisis.

The narrative continues to grow that the financial crisis is the fault of Fannie Mae and the Community Reinvestment Act. The CRA was passed in 1977 to "help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations."

The italics are mine, and are at the heart of the problems with this narrative. Loaning to low income folks is not as risky as you might think, assuming you do the work of identifying who is a credit risk and who isn't. It's why microloan programs all over the world are so successful, and why the Mennonite Economic Development Agency supports them.

The problem isn't hapless do-gooders and intrusive government policy, or those with the least power in the system irresponsibly signing up for predatory loans. Here's a couple great articles that provide perspective on it:

Daniel Gross at Slate:

The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn't apply.

That article references some great questions by Barry Ritholtz:


  • Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

  • 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs?

  • What about No Money Down Mortgages 0% down payments? Were they required by the CRA? Fannie? Freddie?

  • Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

  • How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

Plus too many other questions to print here. It's quite a list.

Yes, there is plenty of blame to go around for this crisis, but most of it comes down to simple greed on the parts of many people who saw easy money to be made, and a lack of oversight over the ones chasing the money.

15 comments:

PG said...

It is like the war. The hardline Republicans will inevitably say the financial mess isn't because of deregulation; it is not enough deregulation!

The war wasn't wrong; it was just implemented badly.

I blame capitalism itself. You can't serve God and Mammon.

Communism didn't work either.

A middle ground has served some countries well (and included sensible nationalized health care at the same time, instead of the profit motivated nightmare we have here).

Robert Sievers said...

pg,

The problem is not capitalism. The problem is capitalism without Godly participants. When this country was founded, it worked well, becuase most people were God-fearing, and even those that were not subscribed to the Judeo-Christian value set. Once that underpinning was removed, capitalism was bound to falter. No amount of social engineering or checks and balances will ever prevent bad behavior.

PG said...

I see. Robert, do conservatives like yourself believe that people are going to "return" to Godliness in today's capitalism? Good luck with that.

And if you perceive the Godly in people like George Bush, John McCain, Sarah Palin, James Dobson, Pat Robertson, Ralph Reed, Tom Delay, and the myriad other Republican and religious leaders who profess their Christian Godliness , well... That's going to be a hard sell. Look at the fruits of their labor. Not good.

I think I'll stick with the notion that American political conservatism is really all about the Mammon.

Robert Sievers said...

pg,

No, I don't believe Americans are going to return to Godliness. The point is that no social engineering strategy will remedy that.

But, since you asked a question, let me pose one. What marginal tax rate for millionaires would you consider "fair". I can never seem to get anyone to answer that.

PG said...

No clue. Money is one of life's mysteries. Jesus said we were to look to the lilies of the field. He had such a lousy work ethic.

brownie the flip flopper said...

This country from its very beginnings, as it was colonized by Europeans, was all about mammon. They came looking first for trade routes to India (hence, the West Indies) then as a way to rob the natives of their gold (ever hear of El Dorado?), and eventually just a place to rape of its natural resources (first agricultural: sugar, cocoa, tobacco, cotton), and that having the very "godly" ancillary benefit of enslaving an entire race of people for over 400 years; and finally it got rid of, in the form of genocide, those pesky "savages" that were already on this land.

Yeah, all pretty godly stuff.
GOD BLESS AMERICA!!

Afterthought...It was the progressive, liberal and "socailist" folks who freed the slaves, worked for equality for all, and social justice. Yes, the liberals have their faults, but I guess the question is Robert Seivers: how do judge a person or group? By how they profess their faith in public (like the Pharisees?) or those whose fruits are good?

Robert Sievers said...

brownie,

Let straighten out some history. The first colonists came to worship God freely. The abolitioonists were Christains. The person who signed the document to freed the slaves was Abhrama Lincoln, a republican. It was the republicans in Congress who passed the Civil rights bills.

It is today's liberal democrats who enact policies to keep minorities inmpoverished.

As for how I judge, I usually look to see whetheer they accept the Bible fully, or whether they toss out selected verses they don't like.

PG said...

That was then, this is now, Robert.

Read conservative David Brooks on how the Republican party died:

http://www.nytimes.com/2008/10/10/opinion/10brooks.html

PG said...

And then read Bob Herbert on the legacy of the GOP, too.

http://www.nytimes.com/2008/10/11/opinion/11herbert.html

I'm working on a plan to help Republicans save face.

Dan S said...

Brownie, you are such a liberal.

Bob, the Christians who historically enacted social justice, like abolotion, did so because they were the social progressives and liberals of the day, against the people who believed in the Bible literally, such as slave holders.

Judging someone based on whether they literally accept a book sounds a lot like the Pharisees. It also sounds like worshiping a book or an idol, rather than worshipping God. Like Jesus said, pay attention to the spirit of the law over the letter of the law.

brownie said...

If we're going to straighten things out then let's straighten them out.

1 "The first colonists came to worship God freely." FALSE. They came to set up a money making venture. Check a real history book.

2 Just because Lincoln was a republican doesn't mean he wasn't a progressive thinker. Same thing goes for the abolitionists. A person can be both progressive and Christian (i.e. Dan).

3 What civil rights bill are you talking about? The one that really mattered that I remember was the one suggested by a Dem (Johnson) and passed by a Dem controlled congress in the sixties.

4 The bible was written, like it or not, by flawed, prejudiced and sinful human beings. It was also adopted at the council of Nycea to today's canon by flawed, prejudiced, sinful human beings. The bible is great and has great stuff in it. But I've come to believe over the years it is not perfect either. God is perfect. We aren't. And it would be well for us to remember that.

Peace.

brownie said...

Dan,

It's spelled:
Libeconterianist.

Robert Sievers said...

So brownie, you believe a perfect God cannot perfectly transmit His message to us?

Dan, yes, we need to be careful not to put the Bible before God Himself. Idols are everywhere. I know a man who worships the love of God, rather than God Himself. Social justice is wonderful. Let's not force other people to do it anymore than we would force them to read Scripture a set amount per day.

PG said...

I thought God was love.

It's all moot anyway. It's the end of the world, according to Chris Hedges, in the most depressing article I've read in a really long time.

http://www.commondreams.org/view/2008/10/13-4

brownie said...

Robert: Good question.

And I had to think on that a while. I have to go back to the basics of communication. I believe what you say is true. God CAN perfectly transmit his message to us. But it's kind of like that old communication experiment where you tell a story to one person, it goes around the room, and by the time it gets back to you, it's changed quite a bit.

People DO distort God's message for whatever reason, unintentionally or intentionally, (see: Jim Jones, David Koresh, etc) with some having a greater effect than others on the first true message.

It's not God I question, but man's ability to properly interpret the mystery of the creator, and for that matter, the creation itself.