Friday, June 26, 2009

Nobody's Wrong. Everybody's Wrong. The Liberals Are Wrong.

Ohhhhhhh, goody goody. Poor black people aren't getting off scot-free today! No sir, we've got some Community Reinvestment Act attacking going on today. Now to be sure, our muse realizes that much of the criticism of the CRA has come from over zealous market humpers and backhanded racists, but you just cause they're paranoid doesn't mean that their isn't a Zionist conspiracy to take over the world banking industry.

John Carney has been doing a lot of blogging about the role of the CRA in the financial meltdown. That role is overstated by conservatives who are unwilling to admit that markets can have bad outcomes, but it is understated by liberals who are unwilling to admit that regulation, too, can produce hideous unintended consequences.
Thanks for pointing this out. See, as a liberal, I thought that every idea that I've ever supported was infinitely good. I had no idea what neither the word "unintended" nor the word "consequences" meant! I hope she'll elaborate on this lesson for me. BTW, she does not ever actually say what CRA stands for. I remember when I still struggled to find new jokes to make about that kind of think.
The CRA did not singlehandedly cause the meltdown. But the relaxation of credit standards that allowed the meltdown did start, as far as I can tell, with the CRA.
Well, hold on a sec, are we sure about that? I think we can go back further. See, the CRA was passed in 1977ish. Now it might seem reasonable to say that lax lending practices happened then and somehow culminated 27 years later. Seems reasonable to expect that when a bill was passed to prevent banks from giving blanket mortgage denials to entire neighborhoods full of swarthy financially unviable people. However, I think the lax lending standards actually started with the advent of banking thousands of years ago. I mean, obviously, before there was banking, there were never any bad loans written. God damn you Ugulatata, for pointing man down this path! We should've just stopped with fire.
And perhaps more importantly, the CRA, and the mentality behind the CRA, made regulators extremely unwilling to intervene. Everyone wanted to make credit more widely available to the poor. Well, the poor aren't good lending risks. So if you want to give them access to credit, you need to relax your lending standards. Any attempt to tighten lending standards on the part of the government would have resulted in a massive contraction in the credit available to core Democratic constituencies. Meanwhile, the Republicans were hoping that turning poor people into homeowners would make them more Republican.
Hmmm, I didn't realize how pernicious those poor people were. See, if only we hadn't given them half a million dollars to buy houses during an asset bubble that we knew they couldn't afford but sold them anyway under the false certainty that we'd all be saved by ever increasing housing prices. Why the fuck did someone write that we should do exactly that in the CRA text? That was a definitely lack of foresight there. We should have known all those sprawling exurbs of urban blacks and migrant Latin workers were a bad idea.
Regardless of how much causal blame you assign it, the financial crisis has certainly proven that the CRA seems to have been a very, very bad idea. Yet Barney Frank is still trying to keep risky loans flowing in the hope that things will all somehow come right in the end if we just pretend, as hard as hard can be, that there isn't substantial risk attached to doing things like buying a condo in a building that is less than 50% occupied.
I totally agree. A whopping 20% of subprime loans were administered by banks under heavy CRA authority. Another 30% had loose ties to the CRA. God damn that "help the darky act." Hasn't Barney Frank learned that we just have to accept that indolence and violence are just part of the nature of Homo Africanus and we'll just have to leave them to their ghettos and rap music. Sometimes, you just have to keep walking.


Ken Houghton said...

"A whopping 20% of subprime loans were administered by banks under heavy CRA authority. Another 30% had loose ties to the CRA."

Wrong call. The CRA loans strengthened those banks's balance sheets, as even John Effing Carney admits. (I was thinking about defending him from Brad DeLong's description of him as "a mendacious hack," but he rather proved DeLong's point with that exchange.)

See Ryan Chittum for the full summary. Not failing, not "looser standards"—quite the opposite actually; more thorough review of finances and lifestyles than even the standard 30-year Fixed (when I consulted at Fannie Mae, one of the reasons they wanted to tag CRA-eligible loans was that the market pays better for them than generic issues)—not fucking idiot-McMegan bullshit under any condition.

Tell the truth and shame the Devil: the CRA loans were the stable, valuable part of the balance sheets that were leveraged into those horseshit NINJA loans that McMegan's best buddies got along with their white-collar welfare jobs.

M. Bouffant said...

I remember when I still struggled to find new jokes to make about that kind of think.

I know the feeling.

NutellaonToast said...

Ken, thanks for the details. I didn't mean to suggest with those numbers that CRA loans were bad or good for banks, but merely that they were so few (much less than 20%) they couldn't possibly have had the effect attributed.

Ritholtz said...

20% of banks that subprime loans were covered by CRA?

You are implying that is an informative piece of data, but it is not. The fact is that all banks with branches in low income areas are covered by the CRA.

So your statement tells us exactly ZERO about the CRA's role.

Now, let's move forward to an actual data-based question that addresses the issue at hand: HOW MANY OF THE CRA LOANS WENT BAD?


Until you answer these questions, you are just another innumerate wordsmith providing no insight into the CRA question at all. Your lack of actual useful data is quite revealing of your bias: Blame first, rationalize later.

ifthethunderdontgetya™³²®© said...

Barry Ritholtz, when you say Your lack of actual useful data is quite revealing of your bias: Blame first, rationalize later.

I wonder if you realize who is doing the CRA blaming here. It is glibertarian Megan McCardle, who has no expertise in anything besides shooting her mouth off.


NutellaonToast said...

Rit, there are 80 million articles about how the CRA did not affect shit and the number don't add up. I linked to one. I could have linked to more if I weren't lazy.

The point of this blog is not to inform. The point is to assume a modicum of awareness of the reader and to mock Megan's unawareness.

If I wanted to educate people, I'd go write long comments in their blogs about how bad their articles are because they're not in a style that I like.