Wed
Feb 18 2009
10:44 am

Alan Greenspan, Communist sympathizer and proxy for the global Zionist financial conspiracy*, calls for nationalization of foundering US banks, calling such action "the least bad option."

Ayn Rand** could not be reached for comment.

* sarcasm fully intended

** sarcasm not so much

gonzone's picture

Whoa!

First Huckleberry Graham and now Uncle Alan?

This has gotta be a sign of the apocalypse!

Rand's favorite acolyte and drink fetcher advocating commie government action right alongside one of the right wing nut's favorite senators. Dissonance filter kicking in at 5 ... 4 ... 3 ... 2 ...

"The arc of the moral universe is long, but it bends toward justice."

Greg's picture

"The arc of the moral

"The arc of the moral universe is long, but it bends toward justice."

…does this mean the responsible will be forced to coddle and hold the hands of the irresponsible? That corporate and individual greed will receive continuous fostering from congress and the Whitehouse? Is no one concerned about the exponential growth the United States Government has experienced in the past 20+ years? Are there any people reading these forums that can see the irresponsible are now in charge and have been running the country into the ground be they republican or democrat? And it is going to get much more exciting”: (link...)
Reference HR 645, Sec. 2 Paragraph (b) line item (4)……and think of different scenarios a democrat or republican administration can insert into this gem of a bill. I have visited one of the “National Emergency Centers”, the razor wire topped fences and baric type housing is unlike anything a reasonable person would consider staying in.
I, under no circumstances, buy into conspiracy theories but looking back at President Carter’s super well intentioned CRA, who would have thought that Act would ultimately bring the financial world to its knees?
WAKE UP AMERICA!

rikki's picture

who would have thought that

who would have thought that Act would ultimately bring the financial world to its knees?

Delusional freemarketeers willing to believe anything that steers blame from their simplistic ideology.

R. Neal's picture

The CRA did not cause this

The CRA did not cause this mess.

Greg's picture

The expanded practice of the

The expanded practice of the CRA involved every financial institution in the United States. This is a prime example of how administrations good intentions are prostituted as administrations come and go. WAKE UP FOOL!

Greg's picture

Well then R. Neal...tell us

Well then R. Neal...tell us what did start the snowball rolling? And please don't use the tired excuse that Bush caused all of this. He is responsible for a lot of bad crap and inflating the situation. Yes he is guilty of growing an evasive government but this did not all happen on the Bush watch over that past eight years.

R. Neal's picture

Nah, instead why don't you

Nah, instead why don't you show us some statistics to back up your claim?

Greg's picture

Goodness me...typical lamb

Goodness me...typical lamb being led to slaughter....

Start reading and don't come back until you're educated on the subject.

Simon Johnson, Peter Boone & James Kwak's The Base Line Scenario

(link...)

It is a good starting point but a bit complex so you many not understand.

R. Neal's picture

So you are unable to cite

So you are unable to cite any facts to back your claim. I'll help you out:

In this memorandum, we discuss key features of the CRA and present results from our analysis of several data sources regarding the volume and performance of CRA-related mortgage lending. In the end, our analysis on balance runs counter to the contention that the CRA contributed in any substantive way to the current crisis.

Since 1995, there has been essentially no change in basic CRA rules or the
enforcement process that can be reasonably linked to subprime lending
activity.

Analysis of 2006 Home Mortgage Disclosure Act (HMDA) data indicates that two-thirds of mortgage loans (first-lien home purchase and refinance loans for site-built properties) are entirely unrelated to CRA; these loans were extended to middle- or higher-income borrowers or to borrowers located outside of lower-income neighborhoods (table 1). These data also indicate that only ten percent of all loans are “CRA-related” — that is, lower-income loans made by banks and their affiliates in their CRA assessment areas.

More important for this discussion is CRA’s relationship to subprime mortgage lending. As shown table 2, in 2005 and 2006, the peak years of subprime volume, independent mortgage companies (institutions not covered by the CRA) accounted for about half of all higher-priced loans (our proxy for subprime lending derived from HMDA data).

Also, 57 percent of all higher-priced loans in 2006 were effectively unrelated to CRA because they were made to non-lower-income borrowers or neighborhoods (table 3). Most importantly, only 6 percent of all higher-priced loans in 2006 were made by CRA-covered institutions or their affiliates to lower-income borrowers or neighborhoods in their assessment areas.

Another way to measure the likely effects of the CRA on the subprime crisis
is by examining foreclosure activity across neighborhoods classified by
income. Data made available by RealtyTrac on foreclosure filings from
January 2006 through August 2008 indicates that most foreclosure filings
(e.g. about 70 percent in 2006) have taken place in middle- or higher-income
neighborhoods and that foreclosure filings have increased at a faster pace in
middle- or higher-income areas than in lower-income areas that are the focus
of the CRA.

Taken together, the available evidence to date does not lend support to the argument that CRA is a root cause of the subprime crisis.

Source: The Federal Reserve. Thanks for playing!

gonzone's picture

Lemon Socialism

That's what Rubin calls this.

The same old "socialize risk, privatize profit" that Randians (and all acolytes of Milton) will NEVER admit to.

"The arc of the moral universe is long, but it bends toward justice."

Greg's picture

You quote the Federal

You quote the Federal Reserve Bank…???....what a joke! You do know who owns the Federal Reserve Bank? Are y’all that naive? Quoting the Fed relating as to the effects of CRA on the current economic crisis is akin to asking a dog to guard your steak dinner. And again to refocus your tiny brains back to my original point. The banking system, congress and the White House are taking us in a direction that R. Neal and metulj are dying go which leads me to believe they are part of the tax sucking irresponsible dregs that responsible folks are having to bail out. Even CNN kicked the housing bail out a few minutes ago……

gonzone's picture

sure

The only joke around here is in your hand, you wanker.

"The arc of the moral universe is long, but it bends toward justice."

R. Neal's picture

What a joke. I'm starting to

What a joke.

I'm starting to think the joke is on us. You keep saying CRA wrecked the economy, yet you have not provided any backup for that claim. I gave you some info to check out, and you discredit the source (pray tell, who DOES own the Federal Reserve?) yet still can't provide any backup for your claim that CRA wrecked the economy.

Whatever. The rest of it is just rude.

Greg's picture

I apologize for being rude;

I apologize for being rude; I should not use derogatory descriptions, I’m sorry.

Cause and Effect
Government Policies and the Financial Crisis By Peter J. Wallison

The Community Reinvestment Act

As originally enacted in 1977, the CRA was a vague mandate for regulators to "consider" whether an insured bank was serving the needs of the whole community it was supposed to serve. The "community" itself was not defined, and the act stated only that it was intended to "encourage" banks to meet community needs. It was enforced through the denial of applications for such things as mergers and acquisitions. The act also stated that serving community needs had to be done within the context of safe and sound lending practices, language that Congress probably inserted to ensure that the law would not be seen as a form of credit allocation. Although the act was adopted to prevent "redlining"--the practice of refusing loans to otherwise qualified borrowers in low-income areas--it also contained language that included small business, agriculture, and similar groups among the interests that had to be served. With the vague compliance standard that required banks only to be "encouraged" and their performance to be "considered," the act was invoked relatively infrequently when banks applied for permission to merge or another regulatory approval, until the Clinton administration.[1]

The decisive turn in the act's enforcement occurred in 1993 and was probably induced by the substantial amount of media and political attention that had been paid to the Boston Federal Reserve Bank's 1992 study of discrimination in home mortgage lending.[2] The study concluded that while there was no overt discrimination in the allocation of mortgage funds, more subtle forms of discrimination existed in which whites received better treatment by loan officers than members of minorities. The methodology of the study has since been questioned,[3] but it seems to have been highly influential with regulators and members of the incoming Clinton administration at the time of its publication. In 1993, bank regulators initiated a major effort to reform the CRA regulations. Some of the context in which this was occurring can be gleaned from the following statement by Attorney General Janet Reno in January 1994: "[W]e will tackle lending discrimination wherever and in whatever form it appears. No loan is exempt, no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement."[4]
The regulators' effort culminated in new rules adopted in May 1995 that would be phased in fully by July 1997. The new rules attempted to establish objective criteria for determining whether a bank was meeting the standards of the CRA, taking much of the discretion out of the hands of the examiners. "The emphasis on performance-based evaluation," A. K. M. Rezaul Hossain, an economist at Mount Saint Mary College, writes, "can be thought of as a shift of emphasis from procedural equity to equity in outcome. In that, it is not sufficient for lenders to prove elaborate community lending efforts directed towards borrowers in the community, but an evenhanded distribution of loans across LMI [low and moderate income] and non-LMI areas and borrowers."[5] In other words, it was now necessary for banks to show that they had actually made the requisite loans, not just that they were trying to find qualified borrowers. In this connection, one of the standards in the new regulations required the use of "innovative or flexible" lending practices to address credit needs of LMI borrowers and neighborhoods.[6] Thus, a law that was originally intended to encourage banks to use safe and sound practices in lending now required them to be innovative and flexible--a clear requirement for the relaxation of lending standards.
There is very little data available on the performance of loans made under the CRA. The subject has become so politicized in light of the housing meltdown and its effect on the general economy that most reports--favorable or unfavorable--should probably be discounted. Before the increases in housing prices that began in 2001, reviews of the CRA were generally unfavorable. The act increased costs for banks, and there was an inverse relationship between their CRA lending and their regulatory ratings.[7] One of the few studies of CRA lending in comparison to normal lending was done by the Federal Reserve Bank of Cleveland, which reported in 2000 that "respondents who did report differences [between regular and CRA housing loans] most often said they had lower prices or higher costs or credit losses for CRA-related home purchase and refinance loans than for others."[8] Much CRA lending after 2000 occurred during a period of enormous growth in housing values, which tended to suppress the number of defaults and reduce loss rates.
The important question, however, is not the default rates on the mortgages made under the CRA. Whatever those rates might be, they were not sufficient to cause a worldwide financial crisis. The most important fact associated with the CRA is the effort to reduce underwriting standards so that more low-income people could purchase homes. Once these standards were relaxed--particularly allowing loan-to-value ratios higher than the 80 percent that had previously been the norm--they spread rapidly to the prime market and to subprime markets where loans were made by lenders other than insured banks. The effort to reduce mortgage underwriting standards was led by the Department of Housing and Urban Development (HUD) through the National Homeownership Strategy published in 1994 in response to a request by President Clinton. Among other things, it called for "financing strategies, fueled by the creativity and resources of the private and public sectors to help homeowners that lack cash to buy a home or to make the payments."[9] Many subsequent studies have documented the rise in loan-to-value ratios and other indicators of loosened lending standards.[10]
After 1995 and the adoption of the new CRA regulations, homeownership in the United States grew rapidly. Having remained at 64 percent for almost twenty-five years, it grew to 69 percent between 1995 and 2005.[11] The increased availability of credit under CRA requirements probably also spurred housing demand, which doubled home prices between 1995 and 2007.[12] The key question, however, is the effect of relaxed lending standards on lending standards in non-CRA markets. In principle, it would seem impossible--if down payment or other requirements were being relaxed for loans in minority-populated or other underserved areas--to limit the benefits only to those borrowers. Inevitably, the relaxed standards banks were enjoined to adopt under CRA would be spread to the wider market--including to prime mortgage markets and to speculative borrowers. Bank regulators, who were in charge of enforcing CRA standards, could hardly disapprove of similar loans made to better qualified borrowers. This is exactly what occurred. Writing in December 2007 for the Milken Institute, four scholars observed: "Over the past decade, most, if not all, the products offered to subprime borrowers have also been offered to prime borrowers. In fact, during the period from January 1999 through July 2007, prime borrowers obtained thirty-one of the thirty-two types of mortgage products--fixed-rate, adjust-able rate and hybrid mortgages, including those with balloon payments--obtained by subprime borrowers."[13]
The fact that Fannie and Freddie were permitted--indeed encouraged--to grow after the S&Ls collapsed speaks volumes about the inability of congressional lawmakers to learn any lessons from the past.
Sure enough, according to data published by the Joint Center for Housing Studies of Harvard University, from 2001 through 2006, the share of all mortgage originations that were made up of conventional mortgages (that is, the thirty-year fixed-rate mortgage that had always been the mainstay of the U.S. mortgage market) fell from 57.1 percent in 2001 to 33.1 percent in the fourth quarter of 2006. Correspondingly, subprime loans (those made to borrowers with blemished credit) rose from 7.2 percent to 18.8 percent, and Alt-A loans (those made to speculative buyers or without the usual underwriting standards) rose from 2.5 percent to 13.9 percent. Although it is difficult to prove cause and effect, it seems highly likely that the lower lending standards banks were required to adopt under the CRA influenced what they and other lenders were willing to offer to borrowers in prime markets. Needless to say, most borrowers would prefer a mortgage with a low down payment requirement, allowing them to buy a larger home for the same initial investment. There is nothing immoral about this; if the opportunity is there, most families can think of better uses for their savings than making a large down payment for a home.
The problem is summed up succinctly by Stan Liebowitz of the University of Texas at Dallas: "From the current handwringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards--at the behest of community groups and ‘progressive' political forces. . . . For years, rising house prices hid the default problems since quick refinances were possible. But now that house prices have stopped rising, we can clearly see the damage done by relaxed loan standards."[14] The point here is not that low-income borrowers received mortgage loans that they could not afford; that is probably true to some extent but cannot account for the large number of subprime and Alt-A loans that currently pollute the banking system. It was the spreading of these looser underwriting standards to the prime loan market that encouraged the huge increase in credit availability for mortgages, the speculation in housing, and ultimately the bubble in housing prices.

Greg's picture

The CRA is a fantastic plan.

The CRA is a fantastic plan. It was most certainly not the main cause of the current crisis by any means but it contributed to the economic ills intentionally or unintentionally. Talk to a bank loan officer or mortgage broker who made loans back in the 70’s and early 80’s and ask if they were not rewarded / encouraged to keep loans (Products) in their portfolios made to high risk borrowers. Be they CRA or similar products with lowered acceptance standards.

The Federal Reserve Bank: Here is the link to FactCheck.org: (link...)
Synopsis being the Fed is run by bankers and their board derives their power from congress. Seems to me this is like leaving the chicken coop door open. The current administration has the power to fix this mess by temporarily nationalizing the trouble banks but the world’s most powerful people (Bankers, Congress and the White House) are really good friends. I guess we’ll have to see what is stronger…doing the right thing or friendship.

rikki's picture

It was most certainly not

It was most certainly not the main cause of the current crisis by any means but it contributed to the economic ills intentionally or unintentionally.

CRA is barely relevant to the crisis. The main cause of the crisis is in how mortgage bonds were collateralized. Without the creation of an unregulated "securitization" market, CRA hums through the past few years as trouble-free as it passed through its first few decades.

The friendship among bankers and Congress has been a corrupting influence throughout American history, and Obama is the best chance for taming that influence we have had in decades.

Risky mortgages are a new thing, not a consequence of decades-old legislation. It was the legislation allowing lenders to take mortgages OFF their books that seeded the crisis, and that was Phil Gramm's baby, birthed in 1998 and 2000. Packaged mortgage bonds created upstream buyers, and mortgage specialists like Countrywide took the field. Upstream buyers bundled insurance policies in with mortgage debt to offset the risk of defaults, and soon they convinced themselves they had cured debt of risk.

They also convinced bond appraisers, and under Bush, regulation got so lax it became possible to turn garbage debt into highly rated bonds. That is the seed of the current crisis and when the predatory mortgages started getting written.

CRA was nothing but a hapless character in the sales pitch for risk-free mortgage bonds. Republicans with deep and abiding friendships with bankers play the lead roles in this opera. Democrats have several supporting roles. The distance between Obama and such influences is why he won the Presidency. You are very late to the "bankers run Washington" party. In fact, we just got them to shut off the Jimmy Buffett last month.

SnM's picture

who DOES own the Federal Reserve?

didn't the zionist conspiracy buy it out about the same time the masons put the mark of the beast on u.s. currency?

gonzone's picture

Every one knows that

It's that dangerous George Soros and his Jewish friends that own the Fed!! :-)

That all-seeing-eye on the back of the dollar bill proves it!!

Masons are godless, Jew loving, money grubbing, 'merikkka haters!

"The arc of the moral universe is long, but it bends toward justice."

R. Neal's picture

Wait a minute. I thought

Wait a minute. I thought Masons were behind the Trilateral Commission that the Rockefellers turned over to bin Ladin and the Carlyle Group? It's hard keeping up.

MDB's picture

Just wait....

... us homos will take over the Fed once Obama forces good Christians to allow gay marriage.

Once we change the greenback to pink, we'll have won.

Voting is like driving. If you want to go backwards, select R. If you want to go forward, select D.

Andy Axel's picture

And again to refocus your

And again to refocus your tiny brains back to my original point.

Wrap your tiny brain around this one: Greenspan, with his dogged insistence that regulation was a thing of the past because all of the risks in the market had been securitized, was as close to the root of the problem as anyone else.

Since you're a master of the intricacies of the bond market, explain to us how a A-rated CDO could be written against a bunch of subprime slop in a BBB-rated tranche.

____________________________

Dirty deeds done dirt cheap! Special holidays, Sundays and rates!

G's picture

Andy, I totally agree. Allen

Andy, I totally agree. Allen Greenspan was / is part of the problem. And let me preface my comment by stating I am neither a democrat nor republican. I’m someone who works two full time jobs; 70 plus hours each week trying to make ends meet. I think the system is broken. The only proof I have is that the system is truly busted broken down like an old AMC Pacer.

Regulation by whom? The SEC…the same regulators that knew about Bernie Madoff since the late 90’s and did nothing about his ponzi scheme? I’m surprised they caught up with the Clinton / Pelosi lover Allen Stanford. Or maybe we should have Chris Dodd over see the regulations or Barney Frank? Is no one concerned that golden spoon crew that specializes in self-preservation and mediocrity is creeping into every aspect of your life?

I hate to disappoint but if I were a master of the bond market my safety deposit box would not be heaped full of gold.

redmondkr's picture

I became suspicious at the

I became suspicious at the 'Amerika Erwache' at the bottom of the first post.


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redmondkr's picture

Another Republican expert

Another Republican expert weighs in:

That’s why I say, I, like every American I’m speaking with, we’re ill about this position that we have been put in, where it is the taxpayers looking to bailout. But ultimately, what the bailout does is help those who are concerned about the healthcare reform that is needed to help shore up our economy, helping the—oh, it’s got to be all about job creation, too, shoring up our economy and putting it back on the right track. So, healthcare reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americans. And trade, we have—we’ve got to see trade as opportunity, not as a competitive, scary thing, but one in five jobs being created in the trade sector today. We’ve got to look at that as more opportunity. All those things under the umbrella of job creation. This bailout is a part of that.

Remember when Lily Tomlin did similar skits on Laugh In?


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Nobody's picture

I want some of what you're

I want some of what you're smoking...please?

Up Goose Creek's picture

Redlining is real

"The study concluded that while there was no overt discrimination in the allocation of mortgage funds"

Redling was and is a very real problem. I've had bankers come right out and tell me I had to increase a down payment because "we don't like to loan money in that area" (1986), coming by the house for a loan app to see what color kids get off the school bus, "I'm having a hard time finding comps on that building, can't we use one of your other properties as collateral?" (2001). Hmm, well that last loan closed in a hurry after I hinted to the loan officer that it seemed like redlining to me. In my view CRA was/is a very important law.

What changed sometime around the turn of the century is that down payments were no longer required. That and relaxed (nonexistant) lending and appraisal standards is what brought on the housing bubble.

____________________________________
"Whoever corrects a mocker invites insult; whoever rebukes a wicked man incurs abuse."

Up Goose Creek's picture

Party

Rikki, you know I like Obama and I wish I could agree with you. But with Rubin and Geitner on board I'm not sure the party will end. Toned down a bit perhaps, but now the punch bowl will be spiked by taxpayers instead of the Chinese central bank and unsuspecting European pensioners.

____________________________________
"Whoever corrects a mocker invites insult; whoever rebukes a wicked man incurs abuse."

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