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Yesterday I found myself in a political discussion that included my very lonely Republican friend. Eyes rolled when he claimed the Clinton administration was to blame for the mortgage fiasco. His argument is that during the Clinton era, lenders were pressured by the government, and by interest groups, to loosen loan standards in order to increase minority home ownership. This strategy reportedly worked splendidly while home prices were increasing. You know the rest of the story.

My Republican friend followed up with a link to an article that I have seen twice in the comments to this blog, so I hereby promote that link to my post:

http://www.nypost.com/seven/09242008/postopinion/opedcolumnists/house_of_cards_130479.htm?page=0


I'm not persuaded by the article, but neither do I discount it entirely. My problem, as always, is that I don't have enough knowledge to make a judgment about it. It sounds credible, but that doesn't mean much.

At best, the pressure to increase minority home ownership was only part of the problem. The executives in the mortgage industry must have known that the increased lending activity would make them even more stinkin' rich than usual, at least short term. In the long term, they would be living on their yachts. Without the greed angle, the executives might have better resisted what they knew was a risky path.

Second, as Warren Buffett said when he saw all the complicated financial derivatives based on mortgage activity, "My eyebrows are huge!" He didn't actually say that, but he did warn that trouble was brewing in the derivatives game long before it was obvious to people with normal sized eyebrows. So the exotic and complicated financial derivatives market made a bad situation worse, and that had nothing to do with the liberal agenda.

If there is any truth to the idea that the Clinton administration was a major cause of the mortgage crisis, you have to ask yourself why the media is mostly ignoring that angle. If it isn't true, does anyone have a link to a rebuttal?

 
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Oct 7, 2008
Scott,

Here is something that you might find interesting.

http://www.slate.com/id/2201641/

It is on blaming the poor for the collapse of the economy in relation to the housing market.
 
 
Oct 3, 2008
You had asked for an article to confirm what you'd read in a New York Post article. Check out this article from the New York times that was published in September of 1999. That looks like a lot of proof to me.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&partner=permalink&exprod=permalink
 
 
0 Rank Up Rank Down
Oct 2, 2008
Presumably they're trying to pin everything on the C.R.A. (Community Re-investment Act). Here's a study which finds that the CRA actually made banks less likely to make bad loans and more likely to charge lower interest:

http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
 
 
Sep 28, 2008
I do agree to some extent that blame rests with the Clinton administration, and in part the Bush administration. But I have no doubt that the majority of responsibiltiy rests with the congress, particularly the liberal democrats, but also with the weak republicans who cannot make a case for sticking to their apparent conservative principles. I also blame the media to some extent for turning away from true investigative journalism.

Where is the mainstream reporting of the democrats' liberal policies of steering Freddie/Fannie toward revising mortgage policies to help people get mortgages (sorry-homes) that they could not afford? Where is the reporting of McCain's warnings 2-3 years ago, pushing for reforms, that the dem's vetoed? Where is it reported that Obama was one of the dem's that failed to act? Where is it reported that Obama keeps blaming McCain as part of the problem though?

Of course, the same policies that made it easy for poor people to get loans made it very easy for everyone else to speculate on more expensive properties, resulting in the real estate bubble that ended up bursting when everybody figured it would simply deflate.

The Hot Air blog has done a great job of pulling the pieces together: http://hotair.com/archives/2008/09/17/mccains-attempt-to-fix-fannie-mae-freddie-mac-in-2005/

Follow the links to references. Note that Obama is also #2 on the list of recipients of funding from Freddie & Fannie and their employees. I am not interested in listening to someone publicly blame somebody else for something when the actual records say the opposite. Where I come from, that's LYING.
 
 
Sep 27, 2008
Just a question: Is your friend very lonely in his Republicanism? Or is he lonely in general?

I have the first problem. Haven't had the second since high school.
 
 
Sep 27, 2008
duh! the mainstream media is on the left / unDemocrat side. Or are you one of those nutjobs who thinks the media is not in the tank for Obama ?

Surely this guy is partially correct. The main explanation for all this however is interest rates were effectively 0% or negative for a very very long time. This will always lead to speculation. However each political party likes them low as they borrow time ahead of the curve to pump up the economy. Its not unlike amphetamine usage. Today you feel all peppy but just wait until tomorrow.

That being said liberals / socialist / communist / unDemocrats suck. They always will. The higher your IQ the more likely you are a liberTarian. We liberaTarians don't use coercion. If a policy is good then you won't need to force anyone to do anything. Taxes are an example of where we're forced. I can very easily imagine willingly paying for items on an internet form that I check off. But ask me to pay for senseless liberal programs....? sorry.

I know I am wasting my time posting here as you are an engineer who could not make it as an engineer.
 
 
Sep 26, 2008
This is all started with Jimmy Carter and every president since then has contributed to it.
 
 
+1 Rank Up Rank Down
Sep 26, 2008
A few comments from an Canadian's perspective:

1. Clinton seems to get blamed for a lot of stuff down there. Not saying he should or shouldn't get blamed, just an observation.
2. Assuming Clinton did something wrong between 1992-2000, was there nothing Bush could have done in the intervening 8 years to fix it?
3. I caught a bit of Bill on the View. The question was put to him and he had what sounded like an intelligent response to the criticisms - he spoke of a few bills that he tried to pass but I have no idea whether that is the case or whether those bills, if passed, might have prevented this mess.
 
 
Sep 26, 2008
Most importantly the NYT's article is dated Published: September 30, 1999.

"Fannie Mae Eases Credit To Aid Mortgage Lending "
 
 
Sep 26, 2008
I'm very tired of this crisis, but this might add some light for the left wing, Bush Sux clueless types. It's from YOUR newspaper, not Fox. Everyone knew this was going to happen, why it was going to happen. The BS is that it's a surprise. I don't want to blame the minorities, ever. The banks just loaned money to people who could not afford it. The banks made a lot of money doing it. The Democrats just wanted to help people and the old saying, "The best intentions .." applies.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1

"Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry."

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent. "





 
 
Sep 26, 2008
OK, so let me get this straight the 'liberal media' that helped crucify Clinton for having sex in the White House, is the same 'liberal media' that has let Bush get away with just about everything (see WMD, gutting the Constitution, Gitmo torture, Alberto G, "Where is Cheney?",etc), is the same 'liberal media' that who has helped cover-up all of the Financial mess for Clinton for the last 8 years that is just now hitting the fan??
On the matter at hand though I am curious how many of the recent foreclosures, bad loans etc. were written prior to Bush taking office, or even to give a benefit of the doubt to the current regime after 2002 even? If it is loans that are that old, then banks and financial institutions have made plenty of money from these 'poor' folks (remember you pay Interest first, before you start on the principle). I would be tempted to guess that a majority of the "bad paper" that is making up the $700B is a bit newer than 2002.
Also in watching the way some of these financial institutions are being bought up I am reminded of a classic quote from "It's a Wonderful Life"
"Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's pickin' up some bargain. Now, we can get through this thing all right. We've, we've got to stick together, though. We've got to have faith in each other."
 
 
Sep 26, 2008
The CRA was responsible for half of the subprime loans. Stupidity was responsible for the other half.
http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis
Regardless of whether the CRA caused the current crisis, it certainly gave it an extra push in the wrong direction. And don't forget the fact that Freddie Mach and Fannie Mae were encouraged by the government to buy up subprime securities even from banks that weren't covered by the CRA. Anyone with any sense at all should have known the housing bubble would burst eventually; fluctuations like this are natural in a free market economy. But the government's interference has made the natural periodic downturn of the market into a full blown crisis, and their current attempt to fix the problem they caused will likely make it even worse in the long run. As far back as 1776 Adam Smith was making the point that government regulation only ever hurts the economy overall, but we still don't get it.
People who take out loans they can't pay back deserve to be foreclosed on. People who lend money to people who can't pay it back deserve to loose their shirts.
 
 
Sep 26, 2008
We are like sheep being lead to the slaughter, and we continue to volunteer for it.. For centuries the elite wealth class has raped the masses economically and still we believe their BS.. We must take you money for the good of the nation they keep telling us, and we continue to buy it. Now the tax payers must bail out the money changers again or the nation will crumble!!! Fear has always been the best friend of the ruling classes. There will be no more credit if you don't bail us out, or so they tell us. GOOD!! Maybe its time credit is used only sparingly. Maybe the stock market should be scrapped as the illegal scam of a gambling operation that it is. How long must the masses be flogged before we get it?
 
 
+3 Rank Up Rank Down
Sep 26, 2008
In addition to any effects of pushing minority home ownership, Clinton also signed Phil Gramm's
"Commodity Futures Modernization Act." into law. Among other things, this bill deregulated a little known financial instrument known as a 'Credit Default Swap'. AIG (remember them) holds lots of this instruments. They are effectively an insurance policy on a risky mortgage loan. Their existence makes the purchase of these loans more attractive to the secondary mortgage market. But...because they are unregulated, the issuers are not required to have any cash reserves to pay off claims as they would for regular (regulated) insurance instruments. For more info, see the article from (the admittedly left leaning) Mother Jones:

http://www.motherjones.com/news/feature/2008/07/foreclosure-phil.html

Oh yes, this is the same Phil Gramm that was the architect of McCain's economic platform and, until recently, the #2 person in his campaign organization.
 
 
Sep 26, 2008
1999

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
 
 
Sep 26, 2008
Is anyone else disturbed at the tone of the rhetoric in discussing the TARP? Sounding more like a lynch mob going after: Wall Street, fat cats (who uses this term anymore), greedy bastards, and on and on...

The level of ignorance is only matched by the size and complexity of this crisis.

Listening to the Senate and House hearings with Paulson and Bernanke on the hot seat, I have come to the sad conclusion that the politicians:
1. Do not have a grasp or clue as to the financial markets, the complexity of the financial system/instrumenets and gravity of the problem
2. Some have used this as their opportunity to deliver a 5 minute oratory in the form of a non-question - so much for trying to solve the problem - photo ops and grand standing are much more important...sarcasm intended
3. Few equal the intellect, patience, and respectfulness shown by Paulson and Bernanke
4. Are doing their jobs well...making sure that they get re-elected (like CNBC's business is selling advertising)
5. The politicians are exactly what we deserve if we keep voting them into office – especially the ‘lifetimers’
6. Most talk of the 'poor taxpayers' who were 'tricked' into the mortgage crisis and wrongly state over and over that the taxpayers now have to 'bail out Wall St."

To understand the TARP, you need to understand the proposed structure of the plan.

1. The taxpayer funding will be limited to a small capital base. TARP will then issue its own debt guaranteed by the US government. The up-front cost is small but the contingent liability is huge
2. Banks will sell their "troubled assets" to TARP through a reverse auction. Banks will receive the average price created by the auction so that they will have to take a substantial write-down but will realize something better than a worst case, "fire sale" price
3. Banks will receive a combination of cash and TARP capital notes for their assets. The capital notes will allow the banks to share in any profit TARP makes by holding its troubled assets to maturity and it will provide a degree of protection for taxpayers in case TARP has to realize losses on its portfolio

IT IS NOT A TAXPAYER BAILOUT OF WALL STREET!
 
 
-2 Rank Up Rank Down
Sep 26, 2008
the business people who accepted such programs to help those less fortunate weren't politicians. they were business people. and what would it have looked like if democrats tried to help with such programs, and republicans, as well as business leaders, would have rejected it? the democrats would have made them look like poor-hating weasels, for allegedly denying them decent housing. the republicans are screwed either way, because the democrats are skilled at marketing inefficient programs that sound like a gift from god to those who are too emotionally vulnerable to think whether the program is realistic or not. two other examples are medicare and social security. but remember the controversy when bush tried to push the private accounts idea, so that people could be more independent?
its not that republicans care necessarily about receiving criticism for their ideas, but if they're going to get screwed whether they try to fix the problem or, why try to fix the problem?
however, i do agree with democrats, that this bailout is the ultimate butt-plug in america's rear end...

-an Independent, who's sick of the same bs from both sides, campaigning under different *party names.*
 
 
-2 Rank Up Rank Down
Sep 26, 2008
This sounds a lot like Robert Mugabe blaming all Zimbabwe's problems on the British even though they haven't been in charge for 20-odd years.

If the Clinton Administration sewed the seeds of the financial crisis, surely it's still the fault of the guy who's BEEN IN CHARGE FOR EIGHT YEARS!!!!
 
 
Sep 26, 2008
Mohamed El-Erian, Co-CEO of PIMCO Advisors explains all of this in his newly published book, "When Markets Collide." The push to make homeownership available, banks and financial services companies thinking that Freddie and Fannie would back stop any and all mortgages, low interest rates and huge increases in liquidity collided with people wanting homeownership without a down payment, financial institutions who then pooled the mortgages into complex securities that were sold around the world.

There were many contributors to this mess, and taking the high moral ground, viewing Wall Street as the trivecta of evil and homeowners as victims is neither accurate nor helpful.

If people did not defalut on loans, we would still be blissfully riding the bubble.
 
 
+3 Rank Up Rank Down
Sep 25, 2008
All can agree that relaxed lending standards were the source of our financial crisis, so the point of debate is whether the standards were relaxed to help minorites buy homes, or were they relaxed simply so banks could make more more money. Leiowitz's article does not claim that the relaxed mortgage standards were compulsory. He claims that a flawed study put pressure on banks to make more loans. This would be more convincing if the bankers hadn't made a ton of money by making the loans. That was much more powerful motivation than idealistic fervor. Leibowitz admits that the relaxed standards were not just applied to minorities and the poor. Houses were wildly overvalued, and many middle-clas people bought houses that were out of their price range because they thought they'd make a killing. Greed, not some minority lending program, caused the crisis.
 
 
 
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