Much as it pains us to point out that it was government pressured lending that got us here in the first place, it was government pressured lending that got us here in the first place. Having absorbed exactly zero from the last bubble’s explosion…
President Barack Obama will require banks to boost lending to consumers and companies in return for taxpayer aid from the $700 billion bailout fund, in a departure from Bush administration policy, a key lawmaker said.
“You’re going to see the Obama administration,” learning lessons from the first phase of the program, “push for much more lending,” House Financial Services Committee Chairman Barney Frank, who helped write the financial-rescue law, said yesterday on ABC television’s This Week program. “There are going to be some real rules in there.”
If there is a formula to load the balance sheets of institutions with more bad loans, this probably looks a lot like it.
We can’t really say we want to see banks doing all that much lending at the moment. Debting our way out of the current crisis is simply not a solution. It merely delays the problem, and pays it back later- with interest.
The United States enjoyed an eye-popping period of largely artificial growth the last two or three years (if not the last five), and one thing that never seems to sink in is that many of these “losses” are merely the evaporation of as much mist under the harsh sunlight of reality. This is a short way of saying that there is no escape from the pain but to endure the pain for awhile- you never had those assets anyhow, unless you sold them for cash. They were an illusion. Your only way to capitalize on them was to unload them on a greater fool before the sun came up. If you missed the boat, that’s too bad but those are the breaks.
Certainly, the present administration is under a lot of pressure to produce “results” and press the magic button under the President’s desk to make everything all-better. This is a self-inflicted wound, since they got themselves elected by setting expectations high. Very high. Unfortunately, it doesn’t work that way, and until someone points out that more debt (particularly that issued by decree) is not exactly an answer, we are all in a lot of trouble.
Obama to Require Banks Receiving Aid to Boost Lending [Bloomberg]
Lycans can only beget Lycans
seriously? you’re going to blame this on poor people?
This peanut recall is driving me nuts!
SPODE
@4
We have? Where?
I’m going to give this a shot:
to become productive again, we need some improved infrastructures. we also need to halt a contagion going on at the neighborhood level: much of our national ‘wealth’ as it were is tied up in our neighborhoods and our culture of home ownership.
the fed can borrow money at an interest rate near 0. we cna’t borrow money.
so, government does WHAT IT IS SUPPOSED TO DO- IT DOES THE THINGS FOR US WE CAN’T DO FOR OURSELVES IN ATOMISTIC FASHION.
rather than sending us the money as cash, though, the government is actually doing something very Republican (take note, Freepers). the government is instead giving the money to wealthy Republicans and trusting them to re-allocate it among us based on private sector notions of what is, and isn’t, a good use for the money.
it’s very simple.
and it’s very grating to continue to read the inane blabber in here otherwise.
So the solution is to make more loans available to people/entities that are even less likely to repay those loans now than they were, say, two years ago? Talk about going backwards. The old model (consumption and overspending fueled by massive amounts of cheap debt) is broken. The economy has to contract before we can go forward.
@ 2 – just WTF are you talking about?
EP’s right on this one — too much easy credit got us in this mess, and shoving loans down everyone’s throats won’t fix a damn thing. EP’s in good company, btw:
Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.”
F.A. Hayek, 1932
@5
here’s a start: http://economistsview.typepad.com/economistsview/2008/12/more-cra-idiocy.html
There’s some other pretty good links at the bottom
You guys don’t get it, do you? The banks are supposed to make loans to those with less-than-worthy credit so those new borrowers can repay the loans that they weren’t able to pay before they got the loan.
I do find it funny that although the government is willing to come down with another “stimulus” package that they don’t try to dictate how the taxpayers spend that money, although the taxpayers/idiots like Frank are trying to dictate how the banks use the TARP funds (which have to be repaid w/ interest).
What a great world.
Barry Ritz is going to flip his lid over this. He makes some solid points re the CRA, but is wholly irrational on the topic. A true blue partisan, this post will send him off.
@6,
Fuckface the cunt, read the stimulus bill Nancy and co. passed before lecturing anyone on govt’s role. Hint, it is severely lacking in infrastructure spending, loaded with special interest payoffs. He with the most lobbists wins, this is the DC way whether the pres in black or white.
You cheat on you taxes, or is that just for your leaders?
@4
“In connection with its merger with Dime, Washington Mutual recently established a ten-year, $375 billion community commitment which targets funding to low- and moderate-income borrowers, and minority borrowers, as well as direct investments and other forms of support in communities where the company operates, including the greater metropolitan New York area. One of the largest community commitments of its kind, the ten-year pledge will be implemented with the assistance and support of a variety of non-profit community partners.”
If you dont think this had an impact, you are asleep at the keyboard.
A quote from Hayek, i like it.
I think we all need to agree on one thing;
repub or democrat, straight or homo (yeah I said homo), black or white:
Barney Frank is the devil and should not be allowed to make a meaningful decision on anything, ever.
And this is why you don’t nationalize banks. Because then the government tells you who to lend to, and chances are that if you have to be TOLD to lend to them, then they ain’t great credits.
So nationalize the banks to get rid of the toxic assets, right?
What if GM wants money? Hey – let the nationalized banks lend it, they owe us. Next thing you know, banks are loaded down with toxic assets they were forced to lend to, starting the cycle again.
Grab your bankrupt partner and dosey-do!
I am reminded of an apocryphal story about the aftermath of the famous Tacoma Narrows bridge collapse (you’ve all seen the movie of it: the suspension bridge wobbling wildly and dumping cars in the river before failing catastrophically. See http://www.youtube.com/watch?v=j-zczJXSxnw&eurl=http://ferramis.wordpress.com/2007/01/29/tacoma-narrows-bridge/)
Insisting that it was a fluke and that he had faith in the state’s engineers, the Governor of Washington declared:
“We are going to build the exact same bridge, exactly as before.”
Upon hearing this, a noted engineer remarked, “And it will fall in exactly the same way into the exact same river.”
The conclusion is left as an exercise for the student.
@2&4: I took the name as a clever pun, not a direct referral to the CRA (the piece itself doesn’t mention low-income lending at all.) It doesn’t matter if you lend to rich people or poor people: all that matters is whether they can pay you back. If the government is forcing banks to loan to people, it probably means they’re poor credit risks, whether they’re in CRA areas or McMansion-filled subdivisions.
I truly believe that this type of policy encouraged the Grand Slam giveaway tomorrow at Denny’s. Thanks Barry.
Unfortunately there isn’t one person in Washington with policy making power that will present your philosophy.
It isn’t expedient.
I look forward to EP’s cogent, well-thought out counterproposal since everything I see looks like rehash of a discussion out of a freshman Economics study group.
The devil is in the details of the execution of these loans, how tight the documentation is, criteria for qualification – one can be low-income and have decent credit. I’ve definitely seen the high-income $hitty credit varieties. Not all of those f’d up mortgage products went to the low-income folks. Check the real default stats on the CRA and ITIN loans, not the ones passed out through either left/right slanting blogs/sites.
“I look forward to EP’s cogent, well-thought out counterproposal since everything I see looks like rehash of a discussion out of a freshman Economics study group.”
You’ll have to read my blog then. This is Dealbreaker. (i.e. A rehash of freshman Econ is over the head of many readers).
Let’s face it, he needs to put Sarah Palin in charge of fixing “everything”.
Keep plugging away, EP. That’s the way to mobilize the base.
Look, the next election is only two years away. That just might be long enough to cleanse the GOP of the taint from the Bush years.
Lets see if I got this right, we got in trouble by making bad loans, and we are going to make bad loans to get us out of trouble? Hmmm any one else see a problem with this? The banks are lending, just not to everyone, and quite frankly they shouldn’t lend to everyone, they should be very selective and should have been from the beginning. The banks are in trouble for loan loss reserves how does adding to that help?
12 The “billion” is a typo. It should be $375 million. So much for impact.
“Keep plugging away, EP. That’s the way to mobilize the base.”
I’m not a republican. Sorry.
@ EP,
Shilling for your personal blog while you are getting paid to write on this one is in rather poor form.
@9
The article you posted makes some valid points. However the last paragraph contains about as much “idiocy” as it claims to debunk.
“This is a an intellectually silly argument from other perspectives also. Why was there no credit/housing meltdown from 1977 to 2005? Why did 30 other countries, none of which have are covered by the CRA, have a remarkably similar housing boom and bust to the USA? Husock’s arguments not only fail legally and factually, they also fail in terms of time and space . . ”
Answer these questions:
1) What is refinancing and how has it prolonged defaulting on the mortgage loans given out by the CRA during the 1977-2005 time period you have mentioned?
2) What are mortgage securities and how have they affected lending institutions, both foreign and domestic, that would be approving new mortgages and re-finances of them?
3) What is a boom / bust? How does it happen?
Those few questions sound about as loaded full of BS as the ones at the end of that article. @9 please tell me this isn’t where you ACTUALLY read about finance…
Either way, 23 has it right.
“@ EP,
Shilling for your personal blog while you are getting paid to write on this one is in rather poor form.”
Do you see me posting links? That’s something I avoid rather religiously.
Aren’t a lot of toxic mortgages related to spec properties, bought to flip? Therefore all the problems in CA, FL, AZ. May be coming to NY soon. Friend tells me that at a recently completed condo project on far west 42, owners who bought to flip are now doing monthly leases in order to help with their carry. A month in a small one bedroom costs about as much as 10 days in a hotel, so a lot of tourists are at it. The permanent residents are pissed. Sounds like it could become ugly.
Barney Frank and Madoff are the biggest scam artists in modern history. No punishment is too harsh for these two.
Mr. Obama & CO need to take Economics 101.
Barney Frank is anything but “frank”, Madoff certainly “made off” and Kashkari (Cash and Carry) is trying to figure it all out. Sheesh what other names appear to have these kind of odd, screenplay, almost made up kind of associations?
Government pressured lending didn’t get us here: otherwise Spain and the UK, to which the FCRA did not apply, would not have experienced commercial and residential real estate bubbles like our own.
Likewise, greedy executives and lax regulatory oversight didn’t get us here either, otherwise the UK, Iceland, Switzerland, and Germany wouldn’t have had similar troubles in their banking sectors.
Re: “The last 3 (or 5) years of growth were illusional” ?!
This is just more defeatest liberal talk from people who hate America, and the troops.
@33
I think you meant to post that to another forum.
@29 i don’t think as many condo buildings were built on spec as in say miami or vegas. i know that building on w42 (i live a few blocks away) and frankly, it’s in the middle of nowhere. 3.5 aves away from the nearest subway, it’s closer to the water taxi.
many pure rental buildings are doing vaca sublets to tourists also. it’s easy profit compared to finding renters who haven’t lost their jobs. tourism is still up in nyc.
where the hell is the forehead slapper?
@ 20 LOL!
@32 – Do you find that people walk back to their desks when you approach the water cooler?
This whole concept of pinning everything on one aspect of a complex financial meltdown belongs nowhere outside of a freshman study group.
If blaming Barney Frank, CRA, or any number of outliers makes you feel like you have any grasp on it at all, go ahead, but don’t think anyone will think you do.
39 “belongs nowhere outside of a freshman study group..” You obviously haven’t been reading the WSJ editorial page or listening to conservative talk radio.
@33 This may be too difficult for you to understand but here goes.. extending credit to previously uncredit worthy subsequntly increadsed demand which then inflated prices until the bubble burst..in an effort to remove the crappy loans from balance sheets ib devised securitized hybrids ..spinkle bad with good.. incourage FNM and FRE to buy said loans get a gov implied no default rating sell it the world and interest rate are artificially low world wide thus increasing realestate prices worl wide.
@39
There is also Dodd and Obama (#1 and #2 recipients, respectively, of Fannie/Freddie money) and Bill Clinton (fought to have unemployment and welfare benefits count toward qualifying income for mortgage approval) to blame too. It’s not just the CRA and Frank.
barney frank is a waste of oxygen…would any of you hire him to run your money?
The CRA canard will never die. Once a politically expedient meme gets lodged in a Republican brain the dye is well and truly cast (see: Gore, internet or stick, hockey). You’d have better luck cleaning a spill with goretex then getting fresh information on the subject in there.
For those of us lacking a phobia of research (i.e. that aren’t Republicans) intransigence cum rigor mortis is not so much a problem. The St. Louis Fed did a study of the subprime mortgage market in early 2006 before it became the political football it is today. Here’s a short list of things that didn’t merit a single (as in
@44 And like the Pope the The St. Louis Fed Study is infalable, non political, and very rigorous.. to exclude the things you mention FNM CRA is almost as laughfable as your understanding of economics
No, you’re right 45. The best method to discover knowledge is to start with the answer- whether that comes from the gut or some server at the RNC is not of particular importance- and then work back into the explanation. In that sense, the St. Louis Fed, (whose penchant for prescient political polemics is world renowned), was going about this all wrong.
And here I am surprised at where we’ve arrived ourselves what with clowns like the esteemed economist author of #45 running the show for 8 years…
“government pressured lending that got us here in the first place”
LOL, that would be like Churchill complaining about Mussolini. Kind of like the right villain, but actually completely wrong.
Lets make this simple 45: Wall Street and its appendages (law firms, rating agencies) created an entire industry centered around wrapping toxic mortgages in bows and selling them like they were gilt edged. And the profits kept flowing. And now that the bubble burst you’re trying to convince us that that BF and the CRA are to blame?
Dealbreaker has lost so many brilliant commentors because of the stupidity of discussions like these.
It is rather obvious that the overly biased short-term incentives made to all parties allowed this system to perpetuate. Everyone from the mortgage buyer and the mortgage broker up to the investor is to blame. Who makes the system and how has this system changed over the last 30 years? Do not hate the player, hate the game.
This crisis is rooted in the governments, both GOP and Dem, of the past 30 years. Wash the partisan shit out of your eyes and look at the factors that contributed to our predicament. Stop turning this into some sort of political seesaw when everyone who is not an ideological hack or a mental midget knows both sides fucked this up. This will be the chicken and egg debate of our time.
Stop being such a bunch of fucking twits.
ah yes, more people claiming poor people buying 200k houses brought down the entire Global financial system to its knees.
40 to 1 leverage ratios, ability to Repackage already repackaged goods till you can’t see what your buying, faulty credit ratings, and banks own willingness to extend credit were merely fringe causes.
@49 – your right. Politicizing this misses the point entirely and only serves as a vehicle for party promotion.
For those who still don’t get it, the banks are considered to be a ward of the state after they took TARP money. The banks can’t survive without protection and financial support provided by the US Taxpayer. That has consequences.
Notice that EP always says he is not a republican while all his political posts are constructed to rally against Democratic Party politicians. But that’s to be expected from someone who doesn’t use a real byline when writing for a publication. That’s so 2005!
@53 – you’re so wrong dude. Ep is chick.
@49 is right. Please stop posting, you twits.
@54
Prove it.
@56 – true story
@49
Amazing, incentives did exactly what we’d expect them to do, who’da thunk it?!
50 Lets also not forget predatory lending – teaser rates, payments that started out doable then reset to exhorbitant levels. Oh wait: the rule here is buyer beware, every man for himself, survival of the fittest. Except of course when your bonus gets cut, in which case its fine to complain and cry like a baby.
EP, keep on telling this story again and again and again. Anyone who can’t see how Fan/Fred’s guarantee or ownership of half the mortgages in the country created a colossal asset bubble using the taxpayer’s credit card, one whose effects flowed through balance sheets throughout the economy and throughout the world, is delusional. CRA also paid a part, also the mortgage interest tax deduction and other supports for the housing industry. And beyond housing, don’t forget basic tax discrimination against ordinary income (that alone encourages all sorts of games to perpetually inflate the value of assets and find a greater fool rather than, God forbid, take income generated from an asset). Would be much better to have a consumption tax and not tax income, capital or ordinary, at all. Both parties were on the F/F gravy train and both deserve blame. And we voters deserve blame, too, for thinking we can get a free lunch and not punishing politicians for wasting our money. Let’s start now.
@EP One of your best posts ever. But don’t blame the government, blame the legislative financial complex. Was so excited to learn you are a chick ;).
@2 She isn’t blaming poor people; She is blaming people who think printing more
money / issue more debt will solve the problem with the economy.
@13 I would almost go further but I understand they monitor these things. He is a danger to modern civilization. Though there are those on the other side of the aisle who are just as bad.
@49 People should wake up; The Kool-Aid isn’t really that strong.
@60
Große Lüge
“His primary rules were: never allow the public to cool off; never admit a fault or wrong; never concede that there may be some good in your enemy; never leave room for alternatives; never accept blame; concentrate on one enemy at a time and blame him for everything that goes wrong; people will believe a big lie sooner than a little one; and if you repeat it frequently enough people will sooner or later believe it.”
– A report prepared during the war by the United States Office of Strategic Services in describing Hitler’s psychological profile.
I see many people on this thread biting and fighting each other. I see many people pointing their contempt at others. If you all think you’re so right, what’s the solution? If what the government’s are trying to do is so wrong, what’s right? The problem has occurred, the blame isn’t the issue, the issue is how to fix the problem. So come on genius’ let’s see what ideas you’ve got, put your money where your mouth is, have some conviction and put the solution here. It’ll be torn apart, shot down and ridiculed but that’s what come of being “free”. I’d be interested to see what comes up as I haven’t got a fucking clue how to clean up this mess.
why can barney frank be called a “homo” but john thain not? this place is turning into a republican shithole, and as it happens it is being overrun by freeper couch potatoes who know nothiing about anything.