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From Slashdot News Story | Nothing To Fear But Fearlessness Itself?

Re:Come to California… (Score:5, Informative)

by blahplusplus (757119) on Sunday November 01, @07:06PM (#29945632)

“How is it that, with such easy access to information, people still think the crash had anything to do with business? ”

More right wing lies.

As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that’s what triggered the stock market meltdown and the freeze on credit. They’ve specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie’s and Freddie’s financial problems.

Federal housing data reveal that the charges aren’t true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom 2004 to 2006.

Federal Reserve Board data show that:

_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

In Slate, Daniel Gross, senior editor of Newsweek, lays out the right wing mantra on the financial crisis:

http://www.slate.com/id/2201641 [slate.com]

On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there’s a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.

The thesis is laid out almost daily on the Wall Street Journal editorial page, in the National Review, and on the campaign trail. John McCain said yesterday, “Bad mortgages were being backed by Fannie Mae and Freddie Mac, and it was only a matter of time before a contagion of unsustainable debt began to spread.” Washington Post columnist Charles Krauthammer provides an excellent example, writing that “much of this crisis was brought upon us by the good intentions of good people.” He continues: “For decades, starting with Jimmy Carter’s Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity.” The subtext: If only Congress didn’t force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel’s Neil Cavuto put it, “I don’t remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.”

* * * * * * * *

The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren’t regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn’t apply. There’s much more. As Barry Ritholtz notes in this fine rant, the CRA didn’t force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.

There were many factors that came together to create the current financial crisis. Altruistic lending based upon Bill Clinton encouraging banks to comply with the CRA before he left office isn’t even a straw on the back of the camel.

On the other hand, the growth of the idea that spin is more important than actual facts does play more than a de minimis role in where we find ourselves today. Appraisers who valued houses based upon wishful comparisons ratched up the “value” of real estate, one overvalued property serving as a stepstone to the next property that would be even a little more overvalued. And the ratings agencies – Moody’s, Standard & Poor’s – stretched the investment grade ratings with a willful blindness to the truth that lay below the tranches.

The cynical substitution of spin for facts is going on every day on the right wing talk shows. This completely falacious attempt to pin the meltdown of the world economy on a 1977 law that never even applied to the big subprime mortgage players. The fact is: the motives for these loans were purely capitalistic. There was money to made and no regulations to slow the dangerous growth of CDOs and MSBs that were built on a foundation of sand, and insured without the reserves.

This entry was posted on Tuesday, November 3rd, 2009 at 3:01 pm and is filed under Scrapbook. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.