Pajamas Media

53 Comments

1. Another View:

I’m glad to be the first comment on this crap.
Sorry Von Barron your Neil Cavuto FOX subtle racism doesn’t fly. First of all there are not enough minority defaults of foreclosures to blame them for the collapse. Every home owning group has there share of blame.

Second it is a known fact Wells Fargo tried to steer first time home buyers into o%,3%, balloon and ARM mortgages.

Third why is nobody talking about all the refinancing. Every White homeowner I know refinanced at inflated prices took the cash and ran and know have a adjustable rate they can’t keep up with. So this finger is for you.

Dec 20, 2008 - 4:54 am 2. C Smith:

The ultimate cause is the erosion of the 57 state governments as a source of helping individual citizens.
As long as we rely on a Federal government solution, we can safely expect financially devastating shenanigans.
Keep power local; keep power transparent.

Dec 20, 2008 - 5:26 am 3. Ten:

Of course you’re mistaken, writer. The underlying cause of the crisis is Keynesian fiat currency. It was the paper dollar that allowed Greenspan to, in effect, print bubbles, this one certainly and most importantly included.

One wonders just how long we’ll delude ourselves that printing money works. Probably right to the brink of the next great depression.

The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution. . . . I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied. – Thomas Jefferson

Dec 20, 2008 - 5:38 am 4. Perry:

Bravo.

Does anybody out there hear?

Dec 20, 2008 - 5:40 am 5. Austin:

Another view has cited no statistics.

Dec 20, 2008 - 6:05 am 6. Bob:

Actually, the statistics seem to show that low income borrowers do not have a higher rate of default than higher income borrowers. Nevertheless, the lower credit standards applied across the board and encouraged home buyers at all levels to borrow more than was economically feasible. Also, the influx of more purchases under the lower credit standards tended to drive up the price of housing. Fannie and Freddie fueled the trend of lending more to those who couldn’t afford to repay by buying up subprime loans, so that the lenders were not stuck with collecting on their own bad loans. As stated, there is no evidence whatever that “deregulation” caused the problem. This is the sort of liberal mantra that is “proved” only by repetition.

Dec 20, 2008 - 6:11 am 7. S.Smith:

Another view is right on the money. House flipping(anyone can do it according to cable Tv shows), spending equity on household goods, keeping up with the Jones. This is where the failure starts. Low income working class people with low interest loans tend to pay their bills and know the value of money. It’s the suburban “I’m entitled to the American dream and 3500 square feet” folks that got too big for their britches.

Dec 20, 2008 - 6:17 am 8. zeezil:

Shocking Video Unearthed – Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis
http://mx.youtube.com/watch?v=_MGT_cSi7Rs

Dec 20, 2008 - 6:59 am 9. zeezil:

Spreading the Virus – How ACORN and Its Dem Allies Built the Mortgage Disaster

by Stanley Kurtz
http://www.familysecuritymatters.org/publications/id.1455/pub_detail.asp

To discover the roots of to day’s economic crisis, consider a tale from 1995.

That March, House Speaker Newt Gingrich was scheduled to address a meeting of county commissioners at the Washington Hilton. But, first, some 500 protesters from the Association of Community Organizations for Reform Now (ACORN) poured into the ballroom from both the kitchen and the main entrance.

Hotel staffers who tried to block them were quickly overwhelmed by demonstrators chanting, “Nuke Newt!” and “We want Newt!” Jamming the aisles, carrying bullhorns and taunting the assembled county commissioners, demonstrators swiftly took over the head table and commandeered the microphone, sending two members of Congress scurrying.

The demonstrators’ target, Gingrich, hadn’t yet arrived – and his speech was cancelled. When the cancellation was announced, ACORN’s foot soldiers cheered.

Editorial writers from Little Rock to Buffalo condemned ACORN’s action as an affront to both civility and freedom of speech. Editorialists also pointed out that the “spending cuts” the protesters railed against were imaginary – Gingrich proposed merely to slow the growth in some welfare programs and turn control back to the states.

Yet ACORN had only just begun. Two days later, 50 to 100 of the same protesters hit their main target – a House Banking subcommittee considering changes to the Community Reinvestment Act, a law that allows groups like ACORN to force banks into making high-risk loans to low-credit customers.

The CRA’s ostensible purpose is to prevent banks from discriminating against minorities. But Rep. Marge Roukema (R-NJ), who chaired the subcommittee, was worried that charges of discrimination had become an excuse for lowering credit standards. She warned that new, Democrat-proposed CRA regulations could amount to an illegal quota system.

FOR years, ACORN had combined manipulation of the CRA with intimidation-protest tactics to force banks to lower credit standards. Its crusade, with help from Democrats in Congress, to push these high-risk “subprime” loans on banks is at the root of today’s economic meltdown.

When the role of ACORN and congressional Democrats in the mortgage crisis is pointed out, Democrats reply that banks subject to the CRA represent only about a quarter of the loans that led to our current troubles. In fact, the problem goes way beyond the CRA.

As ACORN ran its campaigns against local banks, it quickly hit a roadblock. Banks would tell ACORN they could afford to reduce their credit standards by only a little – since Fannie Mae and Freddie Mac, the federal mortgage giants, refused to buy up those risky loans for sale on the “secondary market.”

That is, the CRA wasn’t enough. Unless Fannie and Freddie were willing to relax their credit standards as well, local banks would never make home loans to customers with bad credit histories or with too little money for a downpayment.

So ACORN’s Democratic friends in Congress moved to force Fannie Mae and Freddie Mac to dispense with normal credit standards. Throughout the early ’90s, they imposed ever-increasing subprime-lending quotas on Fannie and Freddie.

But then the Republicans won control of Congress – and Rep. Roukema scheduled her hearing. ACORN went into action to protect its golden goose.

It struck as Roukema aired her concerns at that hearing. Protesters, led by ACORN President Maud Hurd, stood up and began chanting, “CRA has got to stay!” and “Banks for greed, not for need!” The protesters then demanded the microphone.

With the hearing interrupted and the demonstrators refusing to leave, Roukema called the Capital Police, who arrested Hurd and four others for “disorderly conduct in a Capital building” – a charge carrying a penalty of a $500 fine, six months in prison or both. As the police arrived, two of the protesters menacingly approached Roukema’s desk, still demanding the hearing microphone.

Requests to the Capital Police to release the activists from Sen. Ted Kennedy (D-Mass.) and Rep. Joe Kennedy (D-Mass,) failed. Then Rep. Maxine Waters (D-Calif.) showed up at the jail and refused to leave until the protesters were released; the Capital Police relented.

Meanwhile, instead of repudiating ACORN’s intimidation tactics, Rep. Kennedy berated Roukema for arresting one of his constituents and accused the Republicans of preparing for “an all-out attack on CRA.” He also promised to introduce legislation to expand the CRA’s coverage to mortgage bankers and large credit unions.

THIS little slice of political life from 1995 had a variety of ripple effects. Above all, ACORN’s intimidation tactics, and its alliance with Democrats in Congress, triumphed. Despite their 1994 takeover of Congress, Republicans’ attempts to pare back the CRA were stymied.

Instead, Democrats like Rep. Barney Frank (D-Mass.) and Reps. Kennedy and Waters allied with the Clinton administration to broaden the acceptability of risky subprime loans throughout the financial system, thus precipitating our current crisis.

ACORN had come to Congress not only to protect the CRA from GOP reforms but also to expand the reach of quota-based lending to Fannie, Freddie and beyond. By steamrolling the GOP that March, it had crushed the last potential barrier to “change.”

Three months later, the Clinton administration announced a comprehensive strategy to push homeownership in America to new heights – regardless of the compromise in credit standards that the task would require. Fannie and Freddie were assigned massive subprime lending quotas, which would rise to about half of their total business by the end of the decade.

When the ACORN-Democrat alliance finally succeeded in blocking Republicans from restoring fiscal sanity in 1995, the way was open to virtually unlimited lending quotas – and to a whole new way of thinking about credit standards.

Urged on by ACORN, congressional Democrats and the Clinton administration helped push tolerance for high-risk loans through every sector of the banking system – far beyond the sort of banks originally subject to the CRA.

So it was the efforts of ACORN and its Democratic allies that first spread the subprime virus from the CRA to Fannie and Freddie and thence to the entire financial system.

Soon, Democratic politicians and regulators actually began to take pride in lowered credit standards as a sign of “fairness” – and the contagion spread.

And when financial institutions across the board saw that they could make money by trading what would once have been considered junk loans, the profit motive kicked in. But the bad seed that started it all was ACORN.

HOW does Barack Obama fit into all of this? Obama has been a key ally of Chicago ACORN going back to his days as a community organizer.

Later, as a young lawyer, he offered leadership training to the activists who were forcing Chicago banks into high-risk subprime loans. And when he made it on to the boards of Chicago’s Woods Fund and the Chicago Annenberg Challenge, he channeled money ACORN’s way.

Obama was perfectly aware of ACORN’s intimidation tactics – indeed, he oversaw a Woods Fund report that boasted of managing to fund the radical group despite its shocking behavior.

And as a lawmaker, in Illinois and in Washington, he has continued to back ACORN’s leglislative agenda.

ACORN’s high-pressure tactics live on. And congressional Democrats are still covering for ACORN, funneling it money and doing its legislative bidding. ACORN also continues its shady ways, using a vast network of technically separate but in fact quite interconnected organizations to evade federal laws on the politicized use of government money.

Perhaps most disturbing of all, the Obama campaign appears to have little more regard for freedom of speech than Reps. Kennedy or Waters did when they backed up ACORN’s thugs in 1995. The campaign actually practices ACORN-style tactics, sending out “action wires” that call on supporters to block Obama critics from radio appearances (a tactic once applied to me) and demanding legal actions against unfriendly political advertisers.

As president, Obama promises a massive national-service program closely allied with the nonprofit sector. He wants to remove “barriers for smaller nonprofits to participate in government programs.”

In other words, he plans a massive effort to funnel America’s youth into volunteer work alongside the likes of ACORN. So Obama’s favorite community organizers may soon be training your child.

ACORN’s alliance with the Democratic Party is at the root of the current financial meltdown. And Barack Obama has stayed true to ACORN’s ways.

Pretty soon, the folks who poured into the Washington Hilton to shut down Speaker Gingrich in 1995 may no longer need to take over the microphone. They’ll be in charge of it.

Dec 20, 2008 - 7:00 am 10. Sassenach:

It’s not about income; it’s about credit scores as predictors of the ability and WILLINGNESS to pay back loans. High income people can have low FICO scores.

When the pressure was put on banks to disregard credit scores, people at all income levels were able to get bigger loans than they could realistically afford. Of course, the higher the income altitude, the bigger the hole in the ground (and the greater the collateral damage) when the crash occurs.

Plenty of studies have shown that wealthy people (as opposed to those with high incomes who proceed to spend it all) tend to be the kind of people that S.Smith describes — they pay their bills, know the value of money, live in modest homes and drive old cars. Any random episode of “Bridezillas” is a moral object lesson on the futility of greed and self-entitlement….

Dec 20, 2008 - 7:02 am 11. zeezil:

Obama and the Dems lauded by Fannie Mae CEO:
http://www.youtube.com/watch?v=usvG-s_Ssb0

Dec 20, 2008 - 7:13 am 12. zeezil:

DEMOCRATS – Aiders and Abettors of the Financial Crisis

In light of the collapse of Fannie and Freddie, both John McCain and Barack Obama now criticize the risk-tolerant regulatory regime that produced the current crisis. But Sen. McCain’s criticisms are at least credible, since he has been pointing to systemic risks in the mortgage market and trying to do something about them for years. In contrast, Sen. Obama’s conversion as a financial reformer marks a reversal from his actions in previous years, when he did nothing to disturb the status quo. The first head of Mr. Obama’s vice-presidential search committee, Jim Johnson, a former chairman of Fannie Mae, was the one who announced Fannie’s original affordable-housing program in 1991 — just as Congress was taking up the first GSE regulatory legislation.

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.

See link for entire article: http://online.wsj.com/article/SB122212948811465427.html#printMode

Dec 20, 2008 - 7:15 am 13. zeezil:

Bob wrote:
“Actually, the statistics seem to show that low income borrowers do not have a higher rate of default than higher income borrowers…”

Please provide the data, Bob.

Dec 20, 2008 - 7:20 am 14. kdell:

anotherview and smith

you’re missing the point. it is not who is defaulting now. it is why they were enabled to be put into loans they couldn’t handle. sorry. reality sets in here, in one word. race. we lowered the bar for everyone, because of race, and loads of unqualified mortgage holders got in…of all races. that’s the bottom line. face up to it.

Dec 20, 2008 - 7:21 am 15. Jeff Weimer:

S. Smith and Another view – Bob has it right, and so do you. the rules were put into place to help lower income homeowners, but they also applied to higher income, normally “non subprime” borrowers. they were able to buy more home than they otherwise could afford. If the CRA only applied to whom it was intended, we wouldn’t have had this bubble. But it was flawed in that its regulation (YES, it’s regulation, not DE-regulation) applied across the board. Wew ahd the bubble because the CRA created a perverse incentive for groups it was never intended to help, banks and higher income borrowers. Banks saw their risk evaporate and their profits increase when the GSEs bought up their junk loans. Borrowers saw low interest rates and ran with them. All that money chasing only so many properties caused housing prices to soar, necessitating more risky loans due to higher prices for the same house.

First time home buyers were the point of the CRA, after all people in areas previously “redlined” would now be able to buy for the first time – many couldn’t afford the 10% or 20% downpayments that were traditionally required. You two would probably complain that that is too onerous and it’s inhibiting homeownership rates, and we need to do something to make it easier, like no-downpayment loans or ARMs.

Dec 20, 2008 - 7:37 am 16. cedarford:

I agree with others that “Another View” is more accurate in describing what we now know of the mortgage collapse than the “blame the liberals and the niggers” camp. (And yes, Cavuto is in that camp…blaming the whole housing bubble on “undeserving minorities)
The housing bubble is something that American speculators at all strata of society contributed to, not just some black office clerk moving into a 200K home.
You had whole families that moved into real estate speculation, (including many litigants in the infamous Kelo Case) where middle class families with 60K in income became the proud owners of 3 million in leveraged real estate spread over 8 home acquisitions they planned on paying the bills for with rent and a portion of the never-to-end rise in equity value. You had wealthy people who were nevertheless sitting on 80 in personal debt from 5-6 vacations a year and buying all the best stuff they could buy still blessed by greedy bankers with going further and springing for 2 million-dollar beachfront condos in hurricane alley – sure they could sell one and retire in luxury in the other one.
And it was the very wealthiest people – members of the ruling Elites – that worked together to create a most enriching industry for themselves out of the housing bubble with new dangerous financial instruments, creating construction companies staffed nearly 100% by illegal aliens, and constant advertising from developers and financiers to the masses that anyone could afford a 250K home now, even store clerks with the right “homeowner financing”..and any person living in a 250K home “deserved” at least a 100K upgrade to a bigger and better dwelling…with nearly “free money” ready to assist them into their awaiting dream house”. (or 4-5 dream houses if they were speculators like Kelo).

And it is nuts think this a partisan politics matter. Democrats and Bush were pushing home ownership to the poor, while Republicans cheered Wall Street, the “Free Markets!” and the Banks achieving financial wonders…and sure didn’t want to look to hard at how those wonders were achieved.

They all were complicit.

And when it all went bad – you had fools like McCain saying the 90% of us that DID NOT become major speculators into the bubble and remained fiscally conservative in our modest houses living within our means – were obligated to pay our tax money to keep the speculators in better homes than they could afford on their own.
It doesn’t fly very well.

Dec 20, 2008 - 7:46 am 17. Bill Perron:

I paid a 30 year mortgage off in 18 years, I wasn’t tempted to “put my equity to work” this is my home. Come hell or high water I got me a roof over my head that is paid for. …….. I know folks who “put their equity to work” that once lived in beautiful homes and because they got caught up in the “put your equity to work” fad they are now living on land owned by others in trailers.

Dec 20, 2008 - 7:53 am 18. cfbleachers:

Watching leftists on blogs is as fascinating as watching a rare bird in flight. Boorinthology should be made into a coffee table book. Maybe separated into regions, Rare Boors of Southwest, or Koz Kidz of the Northeast or something.

It is really great fun watching a hatchling take its first flight out of the nest and to hear the one note song over and over while the chirp out incessant little blame squawks.

Yep, seeing the little baby birds fed their opinions, then watching them regurgitate them to other little baby birds is one of the joys of boorinthology. Watching one discuss a subject it doesn’t know, with a rage it can’t control, against an opponent it can’t see, with facts that don’t exist, to come to a conclusion it can’t support. Truly fascinating.

The mortgage crisis has many offspring, but it has only one father. Leftists attempted to socially engineer homeownership. When the bullied the lending institutions into a near absence of fiscally sound underwriting, through the bullying tactics of ACORN and other “do gooder, make badder” social engineers…they sired a fire breathing monster that is eating the econonmy alive today.

NINJA loans (no income, no job, no assets) allowed for the complete and total absence of underwriting oversight on lending. As long as they were REQUIRED to create products that kept them out of the courtroom, SOME lenders decided to take lemons and make lemonade.

So, the adjustable rate mortgage allowed for some very nice products to grow thorns and thickets. The negative amortization loan (which predated the mess, it was not invented by it), became Pandora’s box for the economy. It hasn’t even hit with full force yet.

Understand this, Sheila Bair says that we are about to see a foreclosure rate coming on these homeowners that is unprecedented…and virtually nothing can be done about it.

It was the FORCING of lending institutions to implement yet another leftist social engineering project that begat the relaxing of underwriting under threat of serial bullying techniques and media conquests by leftists.

The lending institutions then rode the wave, like a surfer on the north shore of Hawaii…whose spectacular wipeout busted bones and board and is just now washing up onto the beach. Did Countrywide and others say “if you can’t beat ‘em, join ‘em? Absolutely.

Did they package these “junk mortgages” and sell them on the secondary market? Without question.

Did Wall Street trade in them as a commodity and utilize the rate of return to fuel even more lenders to join in? It strains credulity to suggest they didn’t.

Did the folks at Fannie and Freddie and their little toadies in Congress know precisely what the risks were and still believe they could cook the books and keep it hidden, if the whole thing didn’t collapse on our heads? Yep, they sure did.

Do the Democrats STILL to this day engage in complete sophistry on the cause of the issue, the perfect storm created, encouraged, enhanced and then covered up by them and their constituents? As sure as the sun rises.

The social engineering was designed SPECIFICALLY to assist minority participation in homeownership. Anything else that is said is completely disingenuous. This social engineering allowed OTHERS to partake in gaming the system and many others did join in…because the rules could not be written to ONLY allow minorities access to these products. But the intention of the social engineering was directed at increased minority participation.

Is there enough blame to go around, could everyone and anyone had said, “stop, this is dangerous and foolish”…? Yep. But nobody wanted to stop eating cake and candy for breakfast. The resulting tooth rot, economic diabetes, and sugar coma we now suffer from…nobody wants to take their share of the responsibility for creating.

But let’s stop the sophistry right here in its tracks. The horrors it originated, came from leftists trying to socially engineer an OUTCOME, while creating a monster it didn’t contemplate, and now try to run and hide from taking responsibility for siring.

Dec 20, 2008 - 8:34 am 19. DaveinPhoenix:

After I moved to Phoenix in 2002,got a job for a (very) short time as a loan officer. At the time, things were booming here and many loan officers were making megabucks. The constant push was towards interest only loans and ARMs. We made tons more money on these deals than on fixed rate stuff. What a sleazy business. You wouldn’t believe the money floating around this town back then. I ended up quitting the job and telling my boss to go screw himself….and when I re fied my house, I got a fixed rate – with everyone around me telling me what a fool I was. I got the last laugh in the end though – sold my house for a nice little profit at the peak of the market in 2005 and watched all my friends homes go into foreclosure. The lesson I learned from all this is that everyone is responsible for the mortgage meltdown – from the people who knew they could’t afford their new home, all the way up to the top of the chain – the leaders of the largest of banking institutions… everyone including the politicians who set up the rules of the grand game.

Dec 20, 2008 - 8:43 am 20. TomF:

OK, all these theories are interesting and maybe all have some validity. I would like to add another point to the pot.

I know of a whole group of immigrants (I won’t name the group, but they are legal.) who have been allowed to buy 3 or more house on credit. In one instance, I was shocked to find out that it was 10 houses. These are houses in the 150-300 range. Their jobs are not necessarily upper middle class, and I am not sure if they put down a lot on the houses (my guess is not). Then when they cannot make the payments, and the loan ends up being greater than the market value of the house, they just give them all back to the bank. Fine if this was an isolated case, but it isn’t.
Now I want to know who in the world gave them loans. Whoever it is, they too have their responsibility in this mess.

Dec 20, 2008 - 8:57 am 21. David Thomson:

“First of all there are not enough minority defaults of foreclosures to blame them for the collapse.”

The government’s forcing lending institutions to provide mortgages to minorities possessing poor credit histories opened the door to the disaster. Whites eventually desired to get a piece of the action. They did not want to be left on the outside looking in. The lenders were placed in an awkward situation where it was next to impossible to say no to them.

Dec 20, 2008 - 9:25 am 22. Mr Lucky:

Question: What are the common experiences of the so called public/private ruling elite? I surmise that there would be agreement to the proposal that the educational system and subsequent public/private employment experiences shaped to a large degree the philosophical view(s) of this ruling elite. The American experiment has invested in this elite a great deal of trust in many forms, financial and political to name two, and the result has been this latest failure that is now playing out. Those outside of the elite magic circle are not immune to this educational/work experience bias, they have less power, but ultimately, elections and spending patterns do matter. I do not mean that all educational/work experience is necessarily corrupt, but then again, one must look into the serial failures that have occurred in the public/private sector historically. Could the educational system be the root cause? With further maturation of what one was taught occurring as one moves up the political/private ladder reinforcing?

To Another View. I won’t call you a racist. I just disagree with your conclusions. I am one of those “Every White Homeowners” that you have never met. My partner and I (we are modestly middle class) bought a house, refinanced to ARM loan, and as interest rates fell, our payment became less. This turn of events helped in part to pay the loan off in 8 years, which was 2 years less than was originally planned. We then bought another house as a future residence, not using equity from the first, and rented it to a single white mother, and then a single black mother at cost (certification of PC bonifides, no?). The government then took the property via eminent domain. Indeed. Does this fit your “Every White Homeowners” paradigm?

That finger that was meant for me looks like it has been spending some time residing in your posterior, as the crap on it is compelling evidence of this. Pretend it’s a popsicle. Have a nice day.

Dec 20, 2008 - 9:47 am 23. Rubicon:

I read & re-read this article. It seems there are places in the article where the writer could be assigning blame to minorities. However, I really think he is assigning the real blame on those pushed loans to people whose financial situation was shaky or would be with one small change in their circumstances. The serious encouragement by those who convinced borrowers & forced questionable lending policies on lending institutions, caused these problems. If the financial situation of many of those borrowers had been more closely reviewed, the real possibility of default would have been obvious. The borrowers should have been told at the time they were about to sign loan documents that they stood an excellent chance of defaulting because their financial situation wasn’t all that good. And the borrowers who should have been told this were all of colors, all religions, from all regions. I am positive there is discrimination in America. But I am not positive this was all some sort of discriminatory campaign to stick it to minorities. After all, whites defaulted probably at the same rate as others. It was the credit worthiness of borrowers that should have driven decisions on whether or not a loan should have been approved. But there were activist groups who demanded lenders extend credit by ignoring lending principles to people on the edge or who would be on the edge with only a small change in their circumstances, who really caused this. Special interest groups whose agenda was to make government do what they thought was good, while these same special interest groups ignored financial realities. But even more insidious is a government that pandered to special interest groups & ignored actual financial principles that made it clear if you lend to a risky borrower, you may lose all!

Dec 20, 2008 - 10:39 am 24. therealist:

Fannie Mae and Freddie Mac have always had an explicit mission to serve low-income and minority borrowers and expand homeownership. They achieved this goal by lowing mortgage rates and weakening underwriting standards. This greater availability of purchasing power made home prices climb dramatically. In order to prevent the flood of this worthless paper from hitting the market and driving down prices for mortgages, they kept in on their own books at inflated prices creating a massive concentration of risk. And by mis-valuing these mortgages and securities they were able to make it look like their profits were increasing and give management tens of millions of dollars in bonuses.

While Fannie Mae and Freddie Mac are not the entire mortgage market, they certainly play a very large role and its easy to see how others would follow their lead. Democrats in congress repeatedly hindered efforts to reign the two GSEs in and at the same time the Republican SEC and credit rating firms looked the other way while worthless paper was being given triple-AAA credit ratings. The Fed also has a responsibility to regulate the GSEs and did nothing. Eventually the mortgages began to default and investors realized that hundreds of billions of dollars of MBS were effectively worthless. Given the high leverage of investment banks and commercial banks and some insurance companies, also rated AA or AAA by those same credit rating agencies, that quickly rendered them insolvent and risks spread like dominos, triggering another crisis in credit default swaps.

This analysis may not be perfect but I think its pretty solid. Its somewhat based upon this article written by my former boss. The article is neither liberal or conservative, but you know what they say – reality tends to have a conservative bias.

http://www.minyanville.com/articles/index.php?a=18681

Dec 20, 2008 - 11:03 am 25. Ian Thorpe:

There was a lot to be said for the old system that required mortgage companies to making loans only from mey deposited with them.

Somewhere along the way somebody with a lot of influence in the English speaking world attached a social stigma to living in a rented home. There is no stigma in being a tenant, a mortgage holder does not truly own a house they merely pay interest rather than rent.

Dec 20, 2008 - 11:06 am 26. cthulhu:

“It’s Time to Uproot the Real Cause of the Mortgage Crisis”

– what, we’re going to eliminate congressional stupidity? There’ll be nobody left!

Dec 20, 2008 - 11:36 am 27. Another View:

21. David Thomson:

“First of all there are not enough minority defaults of foreclosures to blame them for the collapse.”

The government’s forcing lending institutions to provide mortgages to minorities possessing poor credit histories opened the door to the disaster. Whites eventually desired to get a piece of the action. They did not want to be left on the outside looking in. The lenders were placed in an awkward situation where it was next to impossible to say no to them.
Dec 20, 2008 – 9:25 am

David if you wish to open doors you cannot close.
When you you say “Whites desired to get a piece of the action”. You are treading on thin ice. How long do you think Blacks “desired” a piece of the action.

22. Mr Lucky:

racist

adjective
1. based on racial intolerance; “racist remarks”
2. discriminatory especially on the basis of race or religion

noun
1. a person with a prejudiced belief that one race is superior to others

Don’t give me your populist garbage. I have no reason to be racist nor do I feel superior. With that said I will tell you what you don’t wanna hear even though it hurts your feelings.

Did I say you? Do you want a list? If the shoe fits wear it. Oh,no I said the people who couldn’t afford like your above mentioned friends.

Rubicon;

All it takes is subtle racism. It’s not being sensitive. The author clearly blames minorities. Then He begins to rail against the politics that tried to help lower income families. Which by defacto is minorities. You may not see that but look at Austins comment above.

Dec 20, 2008 - 11:57 am 28. syn:

“And it was the very wealthiest people – members of the ruling Elites – that worked together to create a most enriching industry for themselves”

Are you trying to say it was 5%ers Oprah Winfrey, Warren Buffet, The Kennedy Klan, Ted Turner, Madoff, Trump, Gates to name a few top Elites?

Interesting, I thought Obama’s main supporters were about helping the poor instead it turns out the Elites have been conning their poor into proverty.

Now is Oprah Winfrey a racist or a minority?

Dec 20, 2008 - 12:23 pm 29. Elayne:

Do-Gooder Jimmy Carter started the whole mess by insisting that unqualified minorities who would never be approved under any prevailing underwriting standards be allowed to participate in the American Dream by circumventing the prevailing mortgage lending criteria:
2 yrs on job, good credit history, sufficient income to support the housing expenses, and in some cases, sufficient down payment. Then Jesse Jackson and his crowd joined in with bullying tacticts against lenders who balked at lowering credit standards. Along comes Bill Clinton with more threats of boycotts and extortion from the Jackson and Sharpton crowd, now requiring lenders to make the loans whether they wanted to or not. If there were no loan programs that would accomodate these applicants, lenders were forced to come up with creative financing to make it happen. Under threat of Janet Reno who would make it ‘tough’ for any lender who did not comply with a 40% minority loan ratio on their portfolio,later increased by Andrew Cuomo to 50% minority ratio, the “no-down, no-income-doc, stated-income, ARM” etc loans were created. When the advantage of these loans became known, more of the borrowing public took advantage of them. As the cloud of probable disaster when ARMs came due to re-set at a higher interest rate after 5 years, members of the GOP called for investigation of Fannie/Freddie, but were shot down by the democrats, many of whom had a vested interest in maintaining the status quo. Christopher Dodd and Barney Frank are at the top of that list. GOP made another attempt at investigation around 2005, but were again
blocked by the democrats. Now that the whole house of cards has collapsed, the very miscreants who were in the middle of the whole mess, are now the head of the committee to fix the problem. This whole fiasco is a result of misguided social engineering by the democrats who have used the minority voters solely to maintain their power base.

Dec 20, 2008 - 12:30 pm 30. Oregonian:

Great posts by zeezil! There is nothing like the blinding light of the truth to send the cockroaches scurrying back under the refrigerator!!

I’m with cfbleachers: “The social engineering was designed SPECIFICALLY to assist minority participation in homeownership. Anything else that is said is completely disingenuous…let’s stop the sophistry right here in its tracks. The horrors it originated, came from leftists trying to socially engineer an OUTCOME, while creating a monster it didn’t contemplate, and now try to run and hide from taking responsibility for siring.” Amen to that!!

And to Another View and posse: blacks are not the only minority, and not even the largest one! No matter what Congress implied, there is still no free lunch and we are all paying for their attempt to buy votes by providing one!

Dec 20, 2008 - 12:32 pm 31. Dr. Lumplevin:

Eevn if it has utterly wrecked our once strong economy, put millions unecessarily out of work, placed an unimaginable burden of debt over future generations heads that will rob them of economic prosperity and opportunity, and wakened our reutation not to speak of ourability to defend ourselves..

….it was well wortit to attempt a little social experimentation to and social justice.

Dec 20, 2008 - 12:58 pm 32. zanne:

The reason poor people can’t buy is easy. THEY ARE POOR!

Dec 20, 2008 - 1:01 pm 33. G Farmer:

You also forgot the Commodity Futures Modernization Act that all 100 US senators voted for. Check out page 262, the one that has the exemption from prosecution for violating local and state gambling laws in all 50 states. That is how all the credit default swaps were traded…..

Dec 20, 2008 - 1:51 pm 34. 888:

You got it right, zanne (32) and Elayne (29).

The CRA, signed into law by Jimmy Carter in 1977 then re-signed and reinvigorated by Bill Clinton, were not only designed to assist and increase minority home ownership, but also to claim and keep beholden to them millions of minorities (potential votes), especially black homeowners who will be forever grateful for helping them become a homeowner.

An excellent expose of CRA written in 2000,
http://www.city-journal.org/html/10_1_the_trillion_dollar.html, explained why CRA is corrupt and should not continue, and correctly predicted an financial disaster. The article’s author wrote, “Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being…Even without a no-down-payment policy, the pressure on banks to make CRA-related loans may be leading to foreclosures. Though bankers generally cheerlead for CRA out of fear of being branded racists if they do not, the CEO of one midsize bank grumbles that 20 percent of his institution’s CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure. “The problem with CRA,” says an executive with a major national financial-services firm, “is that banks will simply throw money at things because they want that CRA rating.” From the banks’ point of view, CRA lending is simply a price of doing business—even if some of the mortgages must be written off…Looking into the future gives further cause for concern: “The bulk of these loans,” notes a Federal Reserve economist, “have been made during a period in which we have not experienced an economic downturn.” The Neighborhood Assistance Corporation of America’s own success stories make you wonder how much CRA-related carnage will result when the economy cools. The group likes to promote, for instance, the story of Renea Swain-Price, grateful for NACA’s negotiating on her behalf with Fleet Bank to prevent foreclosure when she fell behind on a $1,400 monthly mortgage payment on her three-family house in Dorchester. Yet NACA had no qualms about arranging the $137,500 mortgage in the first place, notwithstanding the fact that Swain-Price’s husband was in prison, that she’d had previous credit problems, and that the monthly mortgage payment constituted more than half her monthly salary. The fact that NACA has arranged an agreement to forestall foreclosure does not inspire confidence that she will have the resources required to maintain her aging frame house: her new monthly payment, in recognition of previously missed payments, is $1,879…Like affirmative action, it robs the creditworthy of the certain knowledge that they have qualified by dint of their own effort for a first home mortgage, a milestone in any family’s life. At the same time, it sends the message that this most important milestone has been provided through the beneficence of government, devaluing individual accomplishment. Perhaps the Clinton White House sees this as a costless way to use the banking system to create a new crop of passionate Democratic loyalists, convinced that CRA has delivered them from an uncaring Mammon—when, in all likelihood, banks would have been eager to have most of them as customers, regulation or no.”

The other culprit to our current worldwide recession and this economic crisis, is Alan Greenspan who continued to lower interest rates to dangerously low levels during his reign at the Federal Reserve. His low interest rates cause the money supply to expand and make money and credit available everywhere.

Alan Greenspan, Jimmy Carter and Bill Clinton started this mess, and then the likes of Barney Frank and Chris Dodds who refused to fix it a few years ago, are also to blame. Shame on all of them.

Dec 20, 2008 - 2:26 pm 35. Sour ON McCain:

Yes, the CRA did cause banks and other lenders to lower their standards and yes, it did open many home ownership opportunities up to minorities.

However, the biggest defaults are not just minorities, but people who bought more house than they could afford. They got interest only loans or other similar loans betting the house would rise in value and they could flip it for another.

These people should not be bailed out. They and the lending agencies should sink together, and anything else is just screwing the American taxpayer……..

Dec 20, 2008 - 2:36 pm 36. Ed Wallis:

YES, #34.

It *is* CRA and minorities’ bad loans.

PERIOD.

Plus the investment crowd’s “shenanigans.”

NEVER AGAIN (see “cfbleachers #18″).

Dec 20, 2008 - 5:10 pm 37. BC:

No, it wasn’t the CRA:
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=109949&t=01003417101430356940

http://www.marketoracle.co.uk/Article6335.html

And check out this little article from 1998:
http://www.usagold.com/derivativeschapman.html

Dec 20, 2008 - 7:12 pm 38. njcommuter:

The CRA-And-All-That followed from a deliberately told falsehood–a lie–that became an unjust accusation. It was a tool in the hands of a mob.

Shall we recognize how dangerous these are to our freedoms and our livelihoods, or shall we let all that is good perish?

Dec 20, 2008 - 7:27 pm 39. BMoon:

An anecdote…

Last year I was buying a house in Texas. Our agent showed us a property he owned, a real “fixer-upper”- code for something that should be condemned. After looking it over for two minutes and saying “no thanks.” we retreated to the car. Next door was a few shacks and apartments – a nest of illegal immigrants. You could see at least 12-15 men hanging about drinking beer, beer cans abd beer cases strewn about the weeds that was the lawn. One middle-aged Mexican drunkenly strolled over and tried to accost my teenage daughter. I came at him with a stream of Spanish threats and cuss words and he slinked off, just as the agent appeared. “Hey, you speak Spanish. How about helping me sell the house to them?” “But, they are illegals..they likely are not working, they look like alcoholics. How the hell could you sell them a house?” I asked dumbfoundedly.”Programs,” he replied. “There are programs out there!”

How innocent we all were back then.

Dec 20, 2008 - 8:36 pm 40. Jeff:

Let’s throw out all the racism and look at strictly data. It helps put things into perspective.

First, there are many roots to the crisis. First, the Fed created too much money. Interest rates were low for too long. Second, ACORN and other community activists did pressure banks to loan money to minorities, but that was miniscule compared to all loans. Third, when Congress wanted to reign in a problem, they couldn’t. many of them had been bought by Country wide with low interest favorable loans. Fourth, the rating agencies didn’t do the necessary due diligence to rate loans, and when the packages that were sold by the Investment Banks of NYC became available, they didn’t dissect them and rate them correctly either. Lehman was selling junk loan packages and telling their customers that there was only a 5% chance that housing prices would decline or stay the same in the next year. That allows you to point a finger at Lehman’s customers. No one told them to buy the junk-and they also didn’t do their due diligence on the packages.

In 2001, less than 10% of all loans were Alt-A or Subprime. By 2007, 35% of all loans were subprime or Alt-A. That was the spec bubble that was created by the above. You cannot have over a third of your market in high risk assets and not have a lot of volatility.

What to do going forward? Obvious fixes in government oversight, Fannie and Freddie etc. But the market needs to use a clearing house to mitigate counter party risk and have actual cash put up on trades. The mark to market discipline that a clearing house enforces will keep the free market honest. If all this junk were run through a clearing operation in the late 90’s forward, we would never have had the expansion of credit that we did, and we would not have had the bust. Until that basic problem is rectified, free and easy borrowing and credit will not e restored to the economy. We will not get out of the morass that we are in without it.

Dec 20, 2008 - 9:17 pm 41. David Thomson:

“…but that was miniscule compared to all loans.”

You are missing the point. The government’s forcing the lenders to provide mortgages to minorities with poor credit histories opened the door to the rest of the nonsense. This harsh fact cannot be denied. Try imagining someone standing on top of a heavily snow covered mountain—and shooting off a rifle a number of times. It is highly probable that this will start an avalanche.

Dec 20, 2008 - 11:19 pm 42. John:

Wow, Wow!! I never thought about what steps have been taken to correct the root cause of this financial crisis. I always believed this crisis was manufactured by the Socialists (Once the Democratic Party) to nationalize a major segment of the economy. As things unfold, it seems the new tool to “spread the wealth”, the hallmark of Socialism, is called the “bailout.” Bailouts will be repeated over and over. Now states are asking for “bailouts” to spread the wealth from those states who have exercised fiscal conservatism. Very interesting and clever way to implement Socialism without direct taxation.

Dec 21, 2008 - 12:27 am 43. John:

I think the debate on who was at fault is over. Further analysis is missing the bigger agenda. This has been the problem all along. Somehow people thisk this financial crisis has just been one big screw up. I happen to think this “financial firestorm” was deliberately set. No one in their right mind can think that you can force banks to disregard all lending standards and give loans to people who clearly couldn’t repay do this for 15 years and there would be no impact to the financial community!

A huge change (”we can believe in”) to Socialism requires a crisis. A big crisis. Obama, Raham Emannuel and Saul Alinsky said so. There’s never going to be any attempt to correct a policy (CRA) that works perfectly.

So, lets see where we stand in the implementation of Socialism in the good old USA. (1) Financial institutions, (2) government schools, (3) retirement income (s.s., (4) national health care – 1/9 of the economy, (5) automotive industry, and the next big crisis to be manufactured (6) ENERGY.

Let’s get focused and begin talking about the real agenda that being worked in the country by George Soros and comapny. My liberal friends, wake up — your Democratic ideology has been hijacked. My conservative friends, wake up — quit bringing a knife to a gun fight!

Dec 21, 2008 - 1:30 am 44. The Historian:

DISASTER ON THEIR WATCH MERITS A RAISE?
We need to get rid of our reprehensible representatives and the earliest opportunity:

http://greensrealworld.blogspot.com/2008/12/economy-in-crisis-congress-gets-raise.html

Dec 21, 2008 - 8:33 pm 45. tanarg:

Looks like 43. John: wins the brass ring.

Dec 22, 2008 - 4:14 am 46. spike:

42, 43, and 44 are all winners in my book-and for those of you who keep playing the race card against anyone criticizing the CRA, the incompetent management history of fannie and freddie, and the socialist cult of the obamessiah, try to understand that you’re only playing with yourselves; the rest of us have opted out of your silly intellectually dishonest and morally bankrupt game. time to grow up

Dec 22, 2008 - 9:34 am 47. don L:

Regardless who’s to blame the standard liberal cure of doubling up on error needs to be implemented. If low mortgages and cheap money caused it, we need more of the same – I call for a negative prime rate to save America and jump start this economy. (Gosh Mommy, if it starts where do I drive to?)

Dec 22, 2008 - 12:30 pm 48. G Alston:

Another view is substantially correct. Artificial price inflation played a role. I read articles in 2006-2007 regarding crooked appraisal practices where the appraisers would value (e.g.) a $100k house at $125k because their pay was based on the loan value.

Dec 23, 2008 - 1:49 am 49. AZgirl:

It seems to me that many people who bought houses did so based upon the monthly payment they could afford at the time. The system seemed to work for years until the ARMs reset.

In many cases rental rates for anyone… including minorities… are higher than the monthly payments they were making month after month after month. You rarely heard about defaults until the interest rates went through the roof.

Were these just unsustainable “teaser rates”? I know what these people were thinking… “Even if when the ARM resets, if I’m not making more money by then, my house will have appreciated so much that I can just sell it and move into something I can afford.”

We all know how well that line of thinking worked out.

What tears me up is that these people were making the monthly payments they could afford. They didn’t default on their loans until the rates went so high that they couldn’t afford to feed themselves.

Dec 24, 2008 - 12:04 am 50. Rashputin:

“My conservative friends, wake up — quit bringing a knife to a gun fight!”

That’s just silly. It’s not like you can’t buy yourself a Senate seat and then vote for change.

have a nice day

Dec 24, 2008 - 2:18 am 51. Roderick Reilly:

Seeming to place the blame on the backs of the economically disadvantaged may seem tacky, but many posters here have pointed out that the practice intended for this group was expanded to all potential homebuyers. Also, the well-intended program to allow the “poor” to be able to buy homes was poorly conceived and fraught with problems.

At the root of the sub-prime/disadvantaged buyer concept is the pernicious philosophy that those who are working class or less should be entitled to the trappings of middle class life, even if they themselves don’t have the means to sustain it. Such practices drain us all as well as creating resentment from those others who actually earned their homes, cars, upscale apartments (Section 8 is that well-meaning but bone-headed program to provide subsidized rentals to those who would otherwise be living in public housing) and high-end consumer goods.

It makes a lot more sense to do what is necessary to expand the economy to provide more opportunities for the “disadvantaged” to earn incomes that enable them to afford better everything without any subsidies. If such groups must be targeted for preferential treatment within the context of a growth-oriented economic policy, it might make short-term sense.

Dec 24, 2008 - 2:28 pm 52. cjrian:

Equality of opportunity and equality of results are two very separate and distinct dogmas. Msgrs Frank, Dodd, Pelosi, Watt, etc equate them to be one and the same. Naturally these “leaders” don’t want blame assigned. If root causes were corrected these problems could be resolved and the blame would weigh like an anchor around their necks. They prefer that we all pay for these “unexplainable” events. The gall of leadership like this is appalling.

Dec 24, 2008 - 9:32 pm 53. Carl:

“As Professor Liebowitz said in testimony before Congress this past summer, the government’s entire housing policy was based “on a false claim, or lie” that mortgage lenders were discriminating against minorities.”

What has been happening for over a decade or more:

The Growing Farce of Fair Housing
http://www.fff.org/freedom/0798d.asp

still happens today:

http://stategonecrazy.com/

Jan 15, 2009 - 8:18 am

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