re: #433 000G

Please stop spreading this lie.

re: #377 Obdicut

Even though loaning to poor people and minorities did not cause the meldown, the crisis of the subprime mortgage market was an integral part of the credit crisis, was it not? Of course even more fundamental was the fact that everyone involved in the financial schemes was treating obligations as assets… (helped by the fact that some involved parties created schemes for this with completely deceptive and misleading names like “asset-backed security” or “collateralized debt obligations” in order to sell their crap) which really only banks should do and only so in connection with a lot of scrutiny as to the borrower’s collateral and their own securities – but this process missing was one of the major reasons for the subprime lending market to exist in the first place.

Always worth a re-watch (subprime stuff starts getting introduced at about 6:22):

[Video]From [Link: littlegreenfootballs.com…]

The problem with LLH and Dark Falcon’s mythology is that they’re conflating subprime loans in general with a narrower subset of Community Reinvestment Act loans that were better regulated and actually defaulted less than the national average. Obdicut is correct, their coded language about loans to the poor and minorities as having caused the problem not only doesn’t hold up to actual scrutiny, it’s an out and out lie. A lie that they’ve swallowed, digested and in all likelihood will continue to regurgitate well into the foreseeable future.

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).

Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops.

Better targets for blame in government circles might be the 2000 law which ensured that credit default swaps would remain unregulated, the SEC’s puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital and that same agency’s failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt.