Monday, December 22, 2008
This is just a quick link to follow -- an "aside." These are links to interesting things that, for one reason or another, I didn't place into a full posting. Click the link to visit the full article. Go to the blog index for a regular listing of posts.
PJM: It's Time to Uproot the Real Cause of the Mortgage Crisis - '...Consider a faulty study the Boston Fed conducted in the 1990s. It claimed that minority mortgage applicants were rejected at higher rates because of discrimination. Yet a detailed analysis by University of Texas economists Stan Liebowitz and Theodore Day showed that the Boston Fed study was so full of data transcription errors that it was "outrageously unreliable." When those errors were eliminated, there was no discrimination. Some minority groups do have a higher rejection rate for mortgages on average, but because of weaker credit histories, not discrimination by lenders...'
The CRA is not the cause of the Credit or Mortgage Crisis: http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html
There's a lot to recommend that post, I'm sure. OTOH, it's a textbook case of not getting the point. All of those "where does it say that" should really be saying "how could it have lead to that?" No act of congress mandated a mortgage meltdown, no one ever intends that and you won't find it in any law (directly). But things like the CRA always obey the one that no one can avoid, and that is the law of unintended consequences. In this case, once the rules start being adjusted for some people, they start getting adjusted (and atrophying, and acquiring contempt) for everyone. It's a cascade. Of course pointing to one thing is simplistic, but that doesn't mean it doesn't hold a great deal of truth.
That's a darn pretty blog, btw.
The CRA and the GSEs and how the latter were mismanaged and failed in terms of Congressional oversight are not remotely the same thing. The CRA per se has a reputable history in terms of redressing some notable inequities in some minority and economically depressed areas, but more recently the CRA was one of the instruments used in justifying, in turn, the gross mismanagement and other excesses perpetrated by the GSEs.
(And though I disagree with the emphasis, the article does not indict the CRA as such, it calls into question specific aspects of the CRA and the uses it has been put to by some interest groups.)
Solomon,
Thanks for the blog compliment. :>
While I disagree with the CRA itself, I don't see it as a major player of the financial straits in which we now find ourselves. Disrespect for the law due to the CRA certainly might be a piece of the puzzle that led to this, but it's only speculation. As was written in the article, "Eventually this lie began to poison the mortgage market, and now the entire economy is at risk." It's like it magically morphed to engulf the entire industry. Pure greed is a much more likely culprit, because no one could turn down the ridiculous bonuses that were being given out.
Fraud was definitely a major player in this fiasco, too, and I'd like to see a lot of people going to jail for creating so many fraudulent loans and appraising homes for astronomical prices while the major banks either looked the other way or tacitly encouraged such behavior. They made their fees up front, they got their unimaginably large bonuses, and they pretended it was all okay by creating bogus insurance for the AAA-rated securities. Any securities made from those loans would've been deemed junk if not for the fabricated insurance.
I was talking about the Big Picture thing, but yours is quite nice, too. Heh.
I will steal a compliment any way I can. :>