Right wing blogs and FOX News hold the Community Reinvestment Act (CRA) responsible for the mortgage meltdown. And it’s Bill Clinton’s fault for forcing the CRA down our throats. I’m not a fan of former president Clinton’s but I think his share of the blame for the mortgage meltdown is smaller than most. He was connected to Allen Greenspan for sure and he was caught up in his desire of leaving a legacy of economic boom but there are many others who contributed more. I intend to read the latest Time Magazine article on who is to blame for our current predicaments and use that as a jumping off point for research on Clinton’s liability. Time placed him 13th most responsible and that may be right.
To try to get a handle on this I recommend that everyone look at CNBC’s recent documentary “House of Cards” and read “Fannie Mae’s Last Stand” by Bethany McLean in Vanity Fair’s, February issue. Both of these pieces give names, dates and places surrounding our housing crisis. After these I suggest that you get on the Net and start verifying for yourself.
As to the CRA, it was passed in 1977, so you should really blame former Pres. Jimmy Carter. He’s always a good one to go after. The Act was designed to encourage community banks and S&Ls to meet the need of borrowers in all sections of the community, including low and moderate income neighborhoods. The authors of the bill hoped that by monitoring the lending practices of regulated banks “red lining” would be ended. Red lining is the practice of denying loans to those in low income geographic areas without regard to an individual’s ability to qualify for a loan. This practice was one of the last legal ways of discriminating against people of color. Before the CRA, stereotyping based on where you lived or where your business was located without regard to your individual credit-worthiness was the norm. Few outside sociology class knew this was going on and few today would think this was appropriate. Tiger Woods couldn’t have gotten a loan to start a business in one of these poorer areas before this law went into place. The Federal Reserve Website or Wikipedia, for those of us in a rush, are good places to start to research the CRA.
Years after the passage of CRA, in May 1995, Pres. Clinton signed an amendment to the CRA that was meant to strengthen the original bill. In order to track the effectiveness or lack thereof there was a provision in the bill for a review of its performance after seven years. I’m not go into the 1995 amendment since the bill was later amended by Pres. Bush in August 2005 and it was only after 2005 that the subprime mortgage problem began to occur to any measurable degree. The 2005 amendment significantly altered the Act and was seen by liberals and housing advocates as a weakening of the CRA law. The changes allowed less restrictive definitions of small and intermediate-small banks that amounted to an exemption of more institutions from original CRA rules. If any reader would like to explain or amplify on this I’d greatly appreciate it.
The fact is that the bulk of high risk loans were offered by lenders who were not even subject to CRA regulations. A good article on this is by Michael Barr published in The NYU Law Review in 2005. Barr estimates that only 25% of the subprime loans were made by institutions fully regulated by CRA. It appears that the crisis comes from unregulated loans not from those granted by regulated institutions.
The facts are that the CRA did not require loans be made to those who did not qualify. The CRA did not create or require subprime loans. The CRA also did not require Fannie Mae or Freddie Mac to create Alt-A mortgages, the ones we now call “Liar Loans.”
Loans, made by greedy lenders, not CRA regulated institutions, started an avalanche of risky lending. Their loans were sold to Wall Street firms which sold their own mortgage-backed securities, private label securities (PLS). Fannie and Freddie did buy CRA loans but didn’t enter this market until 2007 in an effort to keep their share of the mortgage market.
Another topic for another day and another blogger is whether the CRA has been effective in accomplishing its original goal to increase lending to low income neighborhoods. Experts come down on both sides of this issue. The Cato Institute, The Competitive Enterprise Institute, Ben Bernanke, The U.S. Treasury and many others have commented on this. A study conducted by The Woodstock Institute of loans made by CRA regulated banks in the Chicago area showed that most loans went to higher income areas. It found that only 16.6% of CRA loans went to low income areas.
From the above, I conclude that the problem wasn’t caused by the CRA, a law that required banks to make a portion of their loans to benefit the community in which they operate. If I’m right, then why is the CRA getting all this grief? It wouldn’t have to do with the fact that the CRA is seen as benefiting low income areas, inhabited by minorities would it? Today CRA is read to mean BLACK. And that is why the CRA is to blame.
Wednesday, February 18, 2009
Tuesday, February 10, 2009
Caught Skipping Class
The University of Louisville College of Arts and Sciences had better toughen its standards. Its leading graduate, Sen. Republican Leader Mitch McConnell, either didn’t take a modern American history course or was truant when they lectured on the first part of the 20th century.
I come to this conclusion because, yesterday, Sen. McConnell took time to grab some attention on the Senate floor by stating that the New Deal didn’t work. He made his speech to show his disdain for the recovery package called for by Pres. Obama, the majority of both houses of congress, and 51% of Americans who believe that it is “critically” important to improving the nation’s economy.
Here’s McConnell’s quote: “But one of the good things about reading history is you learn a good deal. And we know for sure that the big spending programs of the New Deal did not work. In 1940, unemployment was still at 15%.” He goes on to admit that it was WWII that “got us out of the doldrums.” I hate revisionist history unless, of course, it is founded on legitimate new discovery. No new research here. This is just partisan sour grapes, 70+ years of sour grapes.
I don’t know which text McConnell was reading to come up with his ideas. I’m partial to checking the Bureau of Labor Statistics, which has been collecting economic data since the 1880s. Using this reference, we can track both unemployment and GDP (in the 30s called GNP). I’m neither a historian nor an economist but I can follow their numbers pretty easily.
Unemployment: 1932=23.6%, 1933=24.9%, 1934=21.7%, 1935=20.1%, 1936=17.0%
GDP: 1932=58.7B, 1933=56.4B, 1934=66.0B, 1935=73.3B, 1936=83.8B
By 1933, 21 states had closed their banks. You couldn’t get a loan; you couldn’t cash a check or access your own deposits. Between 1929-33 the stock market lost 90% of its value. Prices were falling, there were foreclosures, and hope was all but lost.
Herbert Hoover, who was a kind man, a successful business man and administrator despite what popular history has made of him, had a plan that would end the nation’s economic woes. He had established the Reconstruction Finance Corporation (RFC) to help stem a run on the banks which was a good move. The rest of the plan was not so good. He demanded all government expenses be cut and that Congress balance the budget. He would not spend federal money on the states but did loan money through purchases of state issued bonds. He greatly favored private organizations providing help, as if the Salvation Army could solve the problems of the Great Depression.
With the economy in the shape it was in and doleful persona of Pres. Hoover the Republicans were in for an uphill battle that election year. Added to this along comes Franklin D. Roosevelt, the antithesis of Hoover.
The first mention of the phrase “New Deal” was made by Franklin Roosevelt in his acceptance speech at the Democratic National Convention held in Chicago. “I pledge you-I pledge myself to a new deal for the American people.” FDR’s goal was to put people back to work, help the markets recover and reform the financial system so that recovery would be sustained. Just about the opposite of the Republican plan. FDR won. The people wanted to try it a new way, to shed the destructive policies of the 1920s.
Right after the swearing-in the new programs began to roll out. FDR instituted the programs collectively known as The First 100 Days- the TVA, hydroelectric power, roads, parks, public buildings, etc. There was so much Keynesian deficit spending for New Deal programs poor Herbert Hoover must have gone into his own depression. It was FDR’s first term on steroids that restored hope by putting millions back to work, restoring consumer confidence, and tripling the Dow. A look at other economies around the world show that countries that did not apply massive government spending or began it late in the game had a worse time of it than we did.
In 1936 the public demonstrated that it thought the New Deal was working by reelecting Democrats by landslide majorities. The contagious optimism of the elegant president put us back on track so much so that FDR wanted to cut public spending and concentrate on balancing the budget. This action was followed an economic slow down. Some called it the “Roosevelt Recession.” Ironically it was cutting back too soon not spending too much that was the problem. It wasn’t much of a slow-down for we soon began a second round of massive government spending, this time for a war build-up. This round of spending preceding our entry into WWII followed by war spending itself put a lid on the Great Depression once and for all. Mitch McConnell got this part right.
The similarities between 1933 and now are eerie – from the greed, corruption, over leveraging of the banks, the drop in the Dow, lay offs, foreclosures, bank closings, and finally the emergence of a charismatic leader promising change. Let’s hope our new leader does as well as the other one
I come to this conclusion because, yesterday, Sen. McConnell took time to grab some attention on the Senate floor by stating that the New Deal didn’t work. He made his speech to show his disdain for the recovery package called for by Pres. Obama, the majority of both houses of congress, and 51% of Americans who believe that it is “critically” important to improving the nation’s economy.
Here’s McConnell’s quote: “But one of the good things about reading history is you learn a good deal. And we know for sure that the big spending programs of the New Deal did not work. In 1940, unemployment was still at 15%.” He goes on to admit that it was WWII that “got us out of the doldrums.” I hate revisionist history unless, of course, it is founded on legitimate new discovery. No new research here. This is just partisan sour grapes, 70+ years of sour grapes.
I don’t know which text McConnell was reading to come up with his ideas. I’m partial to checking the Bureau of Labor Statistics, which has been collecting economic data since the 1880s. Using this reference, we can track both unemployment and GDP (in the 30s called GNP). I’m neither a historian nor an economist but I can follow their numbers pretty easily.
Unemployment: 1932=23.6%, 1933=24.9%, 1934=21.7%, 1935=20.1%, 1936=17.0%
GDP: 1932=58.7B, 1933=56.4B, 1934=66.0B, 1935=73.3B, 1936=83.8B
By 1933, 21 states had closed their banks. You couldn’t get a loan; you couldn’t cash a check or access your own deposits. Between 1929-33 the stock market lost 90% of its value. Prices were falling, there were foreclosures, and hope was all but lost.
Herbert Hoover, who was a kind man, a successful business man and administrator despite what popular history has made of him, had a plan that would end the nation’s economic woes. He had established the Reconstruction Finance Corporation (RFC) to help stem a run on the banks which was a good move. The rest of the plan was not so good. He demanded all government expenses be cut and that Congress balance the budget. He would not spend federal money on the states but did loan money through purchases of state issued bonds. He greatly favored private organizations providing help, as if the Salvation Army could solve the problems of the Great Depression.
With the economy in the shape it was in and doleful persona of Pres. Hoover the Republicans were in for an uphill battle that election year. Added to this along comes Franklin D. Roosevelt, the antithesis of Hoover.
The first mention of the phrase “New Deal” was made by Franklin Roosevelt in his acceptance speech at the Democratic National Convention held in Chicago. “I pledge you-I pledge myself to a new deal for the American people.” FDR’s goal was to put people back to work, help the markets recover and reform the financial system so that recovery would be sustained. Just about the opposite of the Republican plan. FDR won. The people wanted to try it a new way, to shed the destructive policies of the 1920s.
Right after the swearing-in the new programs began to roll out. FDR instituted the programs collectively known as The First 100 Days- the TVA, hydroelectric power, roads, parks, public buildings, etc. There was so much Keynesian deficit spending for New Deal programs poor Herbert Hoover must have gone into his own depression. It was FDR’s first term on steroids that restored hope by putting millions back to work, restoring consumer confidence, and tripling the Dow. A look at other economies around the world show that countries that did not apply massive government spending or began it late in the game had a worse time of it than we did.
In 1936 the public demonstrated that it thought the New Deal was working by reelecting Democrats by landslide majorities. The contagious optimism of the elegant president put us back on track so much so that FDR wanted to cut public spending and concentrate on balancing the budget. This action was followed an economic slow down. Some called it the “Roosevelt Recession.” Ironically it was cutting back too soon not spending too much that was the problem. It wasn’t much of a slow-down for we soon began a second round of massive government spending, this time for a war build-up. This round of spending preceding our entry into WWII followed by war spending itself put a lid on the Great Depression once and for all. Mitch McConnell got this part right.
The similarities between 1933 and now are eerie – from the greed, corruption, over leveraging of the banks, the drop in the Dow, lay offs, foreclosures, bank closings, and finally the emergence of a charismatic leader promising change. Let’s hope our new leader does as well as the other one
Sunday, February 8, 2009
NYTimes.com: Mistresses of the Universe
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Thursday, February 5, 2009
Feminist Hero
I just heard that Justice Ruth Bader Ginsburg was operated on to remove a small cancerous tumor in her pancreas. This is very worrisome since she has already survived one round of cancer and this is number two. I am hopeful though that she will come through this second battle and return to her place on the USSC bench.
I’ve revered Justice Ginsburg since I was in law school and read three of her cases. I was active in the women’s movement at the time and had a great interest in the decisions that led the Court nearer to recognizing the equal rights of women. In the landmark case Craig v. Boren the Supreme Court held that gender discrimination cases should be decided by applying a heightened level of scrutiny. These cases still didn’t receive the same standard of review used to decide cases involving race or religion but none the less, Craig v Boren was a giant step toward securing equal opportunity under the law for women.
What I really admired was the measured approach taken by Ms. Ginsburg. She adopted the same strategy of patience used by Justice Thurgood Marshall when he and his NAACP colleagues fought the battle to end racial segregation. They picked their cases very carefully, prepared methodically and built one case upon another. Ginsburg did not use a head on aggressive approach instead she cleverly achieved her ultimate goal of improving the lot of women by upholding the rights of men. In the most well known case, Craig v. Boren, she fought for the rights of 18 year old males in
Another fact I always found interesting was that like Sandra Day O’Connor, Ruth Bader Ginsburg could not get a job after graduating from law school even though she was at the top of her class (O’Connor was third). With such life experiences I always felt pretty confident of getting a fair hearing on gender based cases from both women.
Speedy recovery, your honor.
Andy Card's Dress Code
Help me.
Andy Card, Chief of Staff for Former Pres. George W. Bush and former Sec. of Transportation under Pres. George H.W. Bush, appeared on Michael Medved's conservative talk show criticizing Pres. Obama for his lack of respect for the Oval Office. This disrespect came to light recently when a photo showed the new president working at his desk in shirt sleeves. Card spoke of the Oval Office as the "symbol of freedom for the world." As Americans we surely don't want the world to think less of us because of this blatant fashion faux pas.
The right wing is up in arms because of this departure from the dress code of Bush 43. W always dressed up when he worked. I'm sure he dressed formally, in the black number, when deciding to bomb Iraq, ignoring the advice of his own security advisor, Dick Clark and others when they said that Saddam Hussein was not complicit in the 9-11 attacks. Does any sartorial maven remember which suits he wore when he signed the USA Patriot Act; when he OK'd warrant less wiretaps of U.S. citizens; when he denied habeas corpus; or when he decided that waterboarding was not torture? O, I remember, those were the days he often favored the navy with complimenting light blue tie. It was likely the dark brown pinstripe with blue shirt and gold cuff links that he wore when he ignored Treasury Secretary, Paul O'Niell's warning that his tax cuts would drive us into large budget deficits. Trying not to wear the same suit twice, he chose the beige one when he cooked up the idea that we should all have private investment accounts in lieu of traditional social security. Bowing to the irony of the situation, I bet he chose the charcoal double-breasted when he announced his opposition to carbon emissions controls. Did he think to wear a wet suit when he ignored the plight of thousands during Hurricane Katrina?
I don't think this devil wore Prada - Armani perhaps.
Andy Card, Chief of Staff for Former Pres. George W. Bush and former Sec. of Transportation under Pres. George H.W. Bush, appeared on Michael Medved's conservative talk show criticizing Pres. Obama for his lack of respect for the Oval Office. This disrespect came to light recently when a photo showed the new president working at his desk in shirt sleeves. Card spoke of the Oval Office as the "symbol of freedom for the world." As Americans we surely don't want the world to think less of us because of this blatant fashion faux pas.
The right wing is up in arms because of this departure from the dress code of Bush 43. W always dressed up when he worked. I'm sure he dressed formally, in the black number, when deciding to bomb Iraq, ignoring the advice of his own security advisor, Dick Clark and others when they said that Saddam Hussein was not complicit in the 9-11 attacks. Does any sartorial maven remember which suits he wore when he signed the USA Patriot Act; when he OK'd warrant less wiretaps of U.S. citizens; when he denied habeas corpus; or when he decided that waterboarding was not torture? O, I remember, those were the days he often favored the navy with complimenting light blue tie. It was likely the dark brown pinstripe with blue shirt and gold cuff links that he wore when he ignored Treasury Secretary, Paul O'Niell's warning that his tax cuts would drive us into large budget deficits. Trying not to wear the same suit twice, he chose the beige one when he cooked up the idea that we should all have private investment accounts in lieu of traditional social security. Bowing to the irony of the situation, I bet he chose the charcoal double-breasted when he announced his opposition to carbon emissions controls. Did he think to wear a wet suit when he ignored the plight of thousands during Hurricane Katrina?
I don't think this devil wore Prada - Armani perhaps.
Wednesday, February 4, 2009
Lack of Class
I am appalled at former Vice-President Dick Cheney's remarks that call into question the new administration's dedication to keeping our country safe. We have never before had such sharp and immediate attacks from a former VP. This shows a definite lack of class. I think he has a small Rush Limbaugh audience who would like to sabotage our current leaders. We can't go back to the petty policies that ate at the American spirit for the last eight years. We can't be proud of what went on during the Bush/Cheney years; we must recapture the ethical backbone that made us the most respected nation in the world. We can't retreat into the dark recesses of illegal wiretaps, water boarding, and the end justifies the means mentality.
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