Stan Gets it…
HOUSE OF CARDS
LIBERALS FUELED WALL ST. WOES
By STAN LIEBOWITZ
Posted: 3:51 am
September 24, 2008
HOW did America wind up in its worst financial crisis in decades? Sen. Barack Obama explained it this way last week: “When sub-prime-mortgage lending took a reckless and unsustainable turn, a patchwork of regulators systematically and deliberately eliminated the regulations protecting the American people.”
That’s exactly backward. Mortgage lending took that “reckless and unsustainable turn” because of regulation – regulation driven by liberals and progressives, not free-market “deregulators.”
The mortgage market was humming along just fine when, in the late 1980s, progressives decided that it needed to be “fixed.” Their complaint: Some ethnic groups got approved for mortgages at lower rates than others.
In reality, mortgage lenders were simply being prudent – taking care to provide mortgages to those who could best afford to make the payments.
The shift began in 1989, when Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates. Banks were “Shamed By Publicity,” as one 1993 New York Times headline put it.
In fact, they found a racial disparity only by ignoring relevant data on applicants’ ability to make mortgage payments – such as their assets and credit history.
Remember those FACTS when the next friggin’ legislator gets on TV and talks about the “greed of bankers” and “predatory lending.” Remember those FACTS when someone says that the free market doesn’t work and the government needs to regulate, well…anything. Remember the congress-coined term “Redlining” and the congress-initiated “Community Reinvestment Act” when anyone tries to tell you that this mess is due to deregulation. Bullshit! The government regulated us right into this frackin’ mess!
The underwriting disciplines that mortgage lenders had voluntarily put in place in the 1980s and 1990s were there for a reason. They worked. They weeded out those people who were not good credit risks. When the congress forced lenders – under the threat and force of law – to lower their standards, what did they think was going to happen?
The mortgage lenders didn’t turn stupid overnight with the advent of this idiotic regulation. They simply decided they didn’t want to carry the credit risk of these loans. So, we had lenders out there writing loans for anyone who could fog a mirror (because they had to), then turning around and bundling and selling those mortgages, thereby relieving themselves of the credit risk. The mortgage buyer took the risk. The “market” took the risk. Ultimately, you and I took the risk.
Only it gets worse than that. Because now the (democratic) congress is adding consumer debt to this wealth redistribution bailout scheme, including auto loan debt and student loans (WTF???). We now have the American Dream paid for by wealth transfer. Go to college for free, buy a house and a car you can’t afford, and live the American Dream! You don’t need to pay for them! Someone else will!
Here’s a clue Joe and Jane Sixpack: If you can’t afford the payments, don’t buy the house, the car, the 60″ plasma TV or the boat.
Do I think there were unscrupulous lenders out there preying on the uneducated and illiterate? Of course there were. There always are and always will be, no matter how much regulation congress decrees. But they weren’t the majority, and they weren’t the root cause of this shit.
Here’s another clue: Credit is not a civil right!. Go out and build your credit score over time the way the rest of us adults did. Grow up a little bit and realize that you don’t need it all right now and can’t afford it all right now. And don’t look to the rest of us to bail you out when you make the wrong decisions. We made the right decisions. We bought the house we could afford, not the one that gave us status. We bought the used car, we didn’t lease the luxury car. We put money in our savings accounts (no matter how little) each payday, we didn’t rack up the limits on 5 credit cards.
Jesus Christ on a moped, its like talking to a bunch of little kids! Life is about choices. You can choose to do whatever you want, you just have to be prepared to live with the consequences. Only not in this case, I guess. Dumbasses.
September 25, 2008 at 11:13 pm |
Dude, this is a huge reach. (1) If the lenders were were forced by liberals to make bad loans starting in 1989, the loan recipients would have defaulted in the 1990s, not 15 years down the road. (2) The reason why those defaults started piling up over the last 2-3 years is because they were new financial products – adjustable rate mortgages (ARMs) – and their rates just started to “adjust” upward in large numbers 2-3 years ago. (3) The quoted material ignores the market incentives for mortgage brokers. They didn’t make money by making prudent loans, they made their money selling mortgages to larger financial institutions. The more mortgages you approve, the more you can sell. So they come up with the subprime mortgage. As long as those larger financial institutions are buying, the mortgage broker had little incentive to ensure that borrowers could actually pay off the loan. (4) I cannot believe that liberals forced the lending industry to make bad business decisions for 15-plus years and the industry just went along with it until the inevitable crash. If that’s how things actually happened, the industry is even less worthy of a bailout than I previously thought.
September 26, 2008 at 8:09 am |
ARMS and subprimes are products that lenders came up with to offer otherwise un-credity-worthy borrowers.
If you have the credit and income to take out a traditional loan, you don’t need to get an ARM or subprime.
This “market” is NOT worhty at all of a bailout, just as AIG and the auto industry are not. They made their management decisions and they should live or die by them, just as any other business should.
Why the hell should our tax dollars go to save someone who already proved they can’t handle capital efficiently?
September 26, 2008 at 8:52 am |
Sorry, I don’t think I made my point very clearly. I completely agree with the parts you wrote, what I disagree with is the assertions in the quoted material. I believe the current crisis was primarily caused by a combination of factors that include ARMs and subprime products going to people who aren’t credit worthy and the delinking of market incentives for mortgage brokers through the use of the secondary market. The econ professor who the article believes, but failed to demonstrate, that the 1989 legislation he rails against led to the current crisis. That’s what I’m calling a huge reach.
I’m on the same page as you with regard to personal responsibility for your loans, the idiocy of lending money to people who can’t repay the loan, and the foolishness of sending MASSIVE amounts of tax dollars to people who already proved they can’t manage capital. If the administration is correct in that allowing these businesses to fail would cause crushing economic harm, then the taxpayers should get the stock in the companies they bailout. When the companies are solvent again the bail out capital should be paid back (like Chrysler had to do in the 1980s), and the shares should be sold with the profit returning to the taxpayers.
September 26, 2008 at 9:38 am |
Nunya:
Also, read this article from the front page of Investors Business Daily today:
Congress Pushed Fannie, Freddie In Wrong Direction During 1990s
BY TERRY JONES
INVESTOR’S BUSINESS DAILY
Posted 9/25/2008
It was October 1992, nearly 15 years before the housing meltdown and subprime crisis.
Republican Rep. Jim Leach of Iowa was on the floor of the House, talking about something that no one at the time seemed to care about: the potential danger that Fannie Mae (FNM) and Freddie Mac (FRE) posed to the economy.
In remarks later reported by the Washington Post, Leach warned that Fannie and Freddie were changing “from being agencies of the public at large to money machines for the stockholding few.”
Leach’s prescient comments went unheeded — indeed, Congress spent the next decade and a half avoiding the alarms going off around Fannie and Freddie. Until, that is, it was too late.
Led by top Democrats, including Rep. Barney Frank in the House and Sen. Chris Dodd in the Senate, Congress not only did nothing about the growing risks at Fannie and Freddie, it in essence doubled down on their risks.
The Democrat-led Congress of the early 1990s eased capital limits on the two mortgage lending giants, letting them use enormous leverage — 2.5% of assets at Fannie and Freddie, vs. 10% for banks — to expand lending to low-income, minority communities.
Regulator Reined In
Congress, with the passage of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, also created a regulator for Fannie and Freddie — but made sure that, from the very beginning, it would essentially be neutered.
That regulator, the Office of Federal Housing Enterprise Oversight, an arm of the Department of Housing and Urban Development, was unique among financial regulators in that it had to go back each year to Congress for its budget.
This assured its total dependence on Congress — a less-than-ideal situation for a regulator.
Over the next decade or so, Fannie and Freddie made sure that OFHEO stayed off their backs, funneling $200 million to various political causes and community activists while donating to 354 political candidates of both parties.
Congress Eases Lending Rules
In 1994, the Democratic Congress again moved, passing the Community Reinvestment Act — an update of the original 1977 law.
For the first time, homeowners that previously didn’t qualify — either because they couldn’t put any money down or had bad credit — were made eligible for government-backed loans.
The housing boom was on.
During the 1990s, according to one Fed study, Fannie and Freddie enjoyed a subsidy of as much as $182 billion, with most of that going to shareholders — not to poor borrowers, as supporters of the government-sponsored enterprises have often claimed.
Still, even after the GOP won control of Congress in 1995, Democrats in both houses worked with President Clinton as Fannie and Freddie’s enablers.
Clinton, bypassing Republicans in Congress, had HUD rewrite the rules for Fannie and Freddie to let them get involved in the subprime market for the first time.
Robert Rubin’s Treasury got involved too, reworking its own rules to crack down on banks that didn’t make enough loans to distressed, minority neighborhoods.
That year, Fannie Mae bought an estimated $18.6 billion in subprime loans from banks. By 2004, that amount had exploded to $175 billion, or 44% of the total.
Republicans controlled Congress from 1995 through 2006. But under Clinton their hold was precarious, and with the Internet boom on and several foreign financial crises to deal with, Fannie and Freddie got lost in the shuffle.
Too Little, Too Late
At the tail end of Clinton’s administration, Treasury officials under the new secretary, Lawrence Summers, became alarmed at Fannie and Freddie’s excesses.
Undersecretary Gary Gensler went to Congress in 2000 seeking an end to the companies’ special status — especially the “implicit” federal guarantee of their now-$5.4 trillion loan portfolio — and more power for regulators to boost the companies’ capital requirements.
Democrats raised a ruckus. So did Fannie and Freddie, which were both headed by politically well-connected CEOs who knew how to strategically reward — and punish — those who crossed them.
“We think that the statements evidence a contempt for the nation’s housing and mortgage markets,” Freddie Mac spokeswoman Sharon McHale said at the time, summing up the sentiment in Congress.
It was the last chance during the Clinton era for anything like real reform.
September 26, 2008 at 2:45 pm |
And watch this video…