Republican talking point whack-a-mole, yet again

The NYT’s Floyd Norris, who usually knows better, gives “it’s all the fault of teh poor” the some say/others say treatment.

In case anyone is interested in an example of a repulbican using the CRA talking point, here’s an email sent by a Michigan Republican, Jack Hoogendyk, who is running for senate against Carl Levin:

It All Started With the Community Reinvestment Act

Unless you just returned from a three-month fishing trip in Yellowknife where there are no radios, cell phones or Internet, you certainly know that the financial markets are in difficulty. It seems all these mortgages that so many folks obtained with little or no equity or credit rating, have suddenly crashed around all of us.

The genesis of this collapse is the Community Reinvestment Act (CRA) of 1977. This act which was championed by President Carter required lending institutions to offer credit and home ownership opportunities to “underserved populations.” This happened as a result of pressure from community organizers and groups like ACORN.

What it ultimately led to was a large number of no-money-down or poor-credit-rating mortgages. These mortgages were only moderately risky as long
as housing prices continued to escalate. In 1995 under Bill Clinton, the CRA was liberalized to “generate billions of dollars in new lending and extend basic banking to the inner cities and to distressed rural communities.”

Now that the housing market is in full collapse, the chickens are, as they say, coming home to roost. Could this have been foreseen? Could this have been prevented? Of course. If all of us had exercised a little common sense added to a strong dose of personal responsibility, this would not have happened. Short of that, some solid regulation would have helped.

In fact, regulatory reform was proposed in the U.S. Senate in 2005. The bill, S.190 was introduced by Republican Senator Chuck Hagel and co-sponsored by Sens. Dole (R), Sununu (R), and McCain (R). It would have put some good controls in place to largely prevent the meltdown that is occurring today. The bill was supported by four Republicans and no Democrats. Where was Senator Levin on this? I cannot find any evidence of his support for the bill and, in fact, it was Democrats that effectively killed the bill out of committee.

President Bush had proposed a significant regulatory overhaul of the housing finance industry in 2003. It even included reducing the power of the administration. The New York Times reported on it. Democrats opposed it. Again, Carl Levin does not appear to have supported it. Senator Barney Frank (D), said it was unnecessary. It never saw the light of day.

Going back a little further, a bill was introduced in 1999, S.900, which would have put some controls in place and, in effect, “weaken” the Community Reinvestment Act. Carl Levin opposed it saying this, “I oppose the provisions weakening the CRA included in S.900, a bill intended to modernize the financial sector of our economy.”

It certainly looks like Carl Levin and his Democrat (and some Republican) colleagues passed on numerous opportunities to address the crisis that was rising on the horizon as far back as 1994. Legislation was offered to reign in the problem. Senator Levin is certainly motivated to find answers now, but where was he in 1994, 1999, 2003, and 2005? It’s no wonder that in his interview with Paul W. Smith, he mentioned that we should not look back, but rather, look forward.

John,

This post would be more persuasive if you actually bothered to link to the moles that you are trying to whack. And, also, please seek out the strong arguments rather than the weak ones. Anyway, as a service to your readers, here is a mole:

The claim is not: There would have been no credit crisis and/or housing bubble if it were not for CRA or Fannie/Freddie or insert-your-favorite-government-program. Bubbles happen all the time, even if the government is not involved, e.g., the tech bubble.

The claim is: In a world without CRA or Fannie/Freddie the crisis/bubble would have been smaller. Now, reasonable people can argue about how much smaller it would have been, but surely you will admit that it would have been smaller? The CRA did force some banks to make loans that they would not have otherwise made. Some of those loans have gone bad. If there were no CRA, those loans would not have been made and the crisis/bubble would have been smaller.

Once we agree that there was an impact, we can argue about magnitude.

And, note that every smart conservative I read thinks that Fannie/Freddie was 1000 times more important to the bubble than CRA. How many prominent Democrats tried to rein in Fannie/Freddie?

It’s probably unfair to revisit the past lest the revisionist hand comes out of the pocket, but sometimes it worth the stroll to look at goals and wonder how [well] they have been achieved.

# Make sound science, not ideological whim, the basis for regulation, with peer-reviewed risk assessments and full disclosure.
# Require periodic review of existing regulations, to strengthen where necessary and change where obsolete.
# Require agencies to disclose the cost to consumers and small businesses of any proposed regulations.
# Let the American people know the full price they pay for government regulations, through a new regulatory budget that explains the likely cost for meeting regulatory requirements.
# Use cost-benefit analyses of regulations to develop alternatives to the outdated command-and-control attitude of recent years.

# Implement the “American Dream Down Payment” program, which will allow a half million families who currently draw federal rental assistance to become homeowners, and allow families receiving federal rental payments to apply one year’s worth of their existing assistance money toward the purchase of their own first home, thus becoming independent of any further government housing assistance. This approach builds upon our long standing commitment to resident management of public housing and other initiatives.
# Increase the supply of affordable housing for low-income working families and rehabilitate abandoned housing that blights neighborhoods by establishing the Renewing the Dream tax credit. This investor-based tax credit will create or renovate more than 100,000 single-family housing units in distressed communities.
# Build savings and personal wealth through Individual Development Accounts, in partnership with banks, to accelerate the savings of low-income earners.

Homeownership

Homeownership is central to the American dream, and Republicans want to make it more accessible for everyone. That starts with access to capital for entrepreneurs and access to credit for consumers. Our proposals for helping millions of low-income families move from renting to owning are detailed elsewhere in this platform as major elements in Governor Bush’s program for a New Prosperity. For those families, and for all other potential homebuyers, low interest rates make mortgages affordable and open up more housing opportunities than any government program.

Affordable housing is in the national interest. That is why the mortgage interest deduction for primary residences was put into the federal tax code, and why tax reform of any kind should continue to encourage homeownership. At the same time, a balanced national housing policy must recognize that decent housing includes apartments, and addresses the needs of all citizens, including renters.

We will turn over to local communities foreclosed and abandoned HUD properties for urban homesteading, a citizen renovation effort that has been remarkably successful in revitalizing neighborhoods. We affirm our commitment to open housing, without quotas or controls, and we applaud the proactive efforts by the realty and housing industries to assure access for everyone.

In many areas, housing prices are higher than they need to be because of regulations that drive up building costs. Some regulation is of course necessary, and so is sensible zoning. But we urge states and localities to work with local builders and lenders to eliminate unnecessary burdens that price many families out of the market. We see no role for any federal regulation of homebuilding, but we do foresee a larger role for State and local governments in controlling the federally assisted housing that has been so poorly managed from Washington. We also encourage the modification of restrictions that inhibit the rehabilitation of existing distressed properties.

off your main point, John, but do you anticipate a massive run on the hedge funds on the Tuesday witching hour? And if so, what happens next?

The CRA…. THIRTY-ONE YEARS AGO… And they only just found out… Lying schmucks.

I don’t think it is a right-wing talking point, but isn’t a fair amount of evidence that the mandated change to mark-to-market accounting played a big part?

The interesting thing about that as a problem is that it is exactly the type of regulation that most people (including conservatives) are ok with–transparency regulations. If you had asked me 1 year ago if switching to mark-to-market was a good idea, I would have almost certainly said yes. From the right, it allows for market efficiency in identifying companies with bad assets (think Ford with too many cars that they aren’t ever going to sell once the model year is over).

What was unexpected is the extent to which it made normal long term holding investment strategies very difficult to pull off even by the biggest public companies.

This was an area of fairly broad agreement on the right and the left. But it seems to have turned out really poorly.

Matt Y links another

http://www.newamerica.net/blog/asset-building/2008/no-larry-cra-didn-t-cause-sub-prime-mess-3210

D) Continue lending to people who lack the human capital to economically justify home ownership in a modern post-industrial society.

What might “human capital” mean?

Both those who think that the problem is CRA and those who think mark to market rules were the problem are incorrect. The problem is leverage. More specifically, cheap leverage. Without 30:1 leverage mark to market rules make not a bit of difference. Let’s call this “Balance Sheet 101”.

Without CRA you still get a massive flow of investment into the housing market because credit was cheap, mortgage initiation was deregulated, and the productive sectors of the economy were not generating profits. On CRA Quiggin is correct. CRA is designed to keep loans in areas where deposits are taken, not help the poor with subprime loans. PS CRA was passed in 1977. If all the “CRA sucks” people were correct then the bubble would have happened in 1986 or something. The only reason CRA comes under attack is because Phil Gramm hates it and his policies and ideology have sped us to this point. It is simple buck-passing. Maybe the people who believe this will get lucky and have this crank as a Treasury Secretary and celebrate when he really screws up the economy!

This is not to say that liberals are not complicit in the problem. The general celebration of homeownership as a path to wealth rather than a source of shelter was bipartisan, which is why our housing policy is ridiculously skewed in that direction.

Phil Gramm is responsible for the bubble???? Some of your commentary is spot-on: the problem is completely bi-partisan. The CRA *does* suck, but it is not sufficient to explain the phenomena we are now seeing.

Knock off the infantile partisan hackery.

Anyone who retails the idiotic “hedge funds are fine!” point has instantly demonstrated they know nothing about the financial markets.

note that every smart conservative I read thinks that Fannie/Freddie was 1000 times more important to the bubble than CRA.

1000 times almost totally unimportant still means not very important, right? If you want anyone to take you seriously make an actual argument.

How many prominent Democrats tried to rein in Fannie/Freddie?

How many Republicans tried in the 12 year period they controlled Congress and the 6 year period they controlled Congress and the Presidency? You’d think if they were so fired up about it, something would have happened in that period. Bush didn’t get anything through Congress in 2001-2006, when he at certain points had 70%+ approval ratings and pushed through massive pieces of economic legislation.

No where did I say Phil Gramm was “responsible”. I said cheap credit was responsible. I said Phil Gramm “hates CRA” and his policies “sped us” to this point, which they did. I know reading can be a challenge…

[aeiou] @Michael

No where did I say Phil Gramm was “responsible” … his policies “sped us” to this point, which they did.

Hilarious. Um, if his policies speed us to where we are today that is simply another way of saying that he’s responsible. Priceless that you manage to say completely contradictory things in the space of two sentences. Oh, and “cheap credit” is only one link in the chain; please specify how we arrived at cheap credit. Hint: re-read my quotes of GWB where he asserts the need for cheap credit to provide home-ownership to minorities.

There is nothing wrong with partisanship. But you, sir, are a vulgar hack.

@Walt

Yes, black people are too stupid to own a house.

A) I don’t use vulgar terms like “stupid”
B) Paul Krugman recently wrote a column questioning whether or not ever-increasing rates of home ownship is an intrinsically good thing.
C) Facts are stubborn things. If there is an innate average difference between different ethnicities in terms of human capital then wishing it away does little good.

My preference is for finding ways where we can make life livable for that strata and turn them into contributing citizens. Pretending reality doesn’t exist makes for poor policy decisions.

Asher, the fact that you see those two things as contradictory is much more of an indictment of your capacity to reason than my capacity to write (admittedly weak).

Asher, you don’t have to use vulgar terms for your comments to be completely vulgar. You, sir, are a self-righteous, pompous, racist hack.

More to the point, emphasis on F/F is calculated to avoid discussion of the Gramm-Leach-Bliley Act of 1999, the obvious regulatory antecedent to our current difficulties.

Damn Bush — so he managed to sign bills ‘shredding regulations’ two years before he took office. And it’s certainly worth noting that Gramm-Leach-Bliley is what has enabled part of the clean-up of this mess (that is, the merger of commercial and investment banks) — but, how, precisely, did Gramm-Leach-Bliley contribute to the problem?

Fannie & Freddie were very tough quasi-govt organizations that seized enough rope to hang themselves; neither party could reign them in.

I think ‘would’ is more appropriate than ‘could’ in that sentence. And it seems pretty clear that Democrats were the principal patron/protectors/beneficiaries of Freddie and Fannie. The Republicans were more likely to try to bring pressure on the GSEs, not out of ‘good government’ public-spirit, but because the GSEs were seen as more friendly to Democrats.

But without the unregulated Credit Default Swaps, and bogus blue-chip ratings (for which the SEC found them “accessories”), the damage might have been essentially limited to the mortgage sector, the way the tech bubble was focused on the tech stocks.

Like Gramm-Leach-Bliley, the use of credit default swaps got started under the Clinton administration. Where is the evidence they were under good regulation until January 2001? Where is the evidence Democrats fought valiantly to reign them in, only to be thwarted by the Bush administration? Warren Buffett gets full credit for prescience on CDSs, but what is the evidence that Democrats deserve the same?

[aeiou] @Michael

In reference to human action to say that someone is “responsible for” and to say that their policies are the “cause of” is to say the same thing. It’s utterly hilarious that you do not comprehend that. (And, no, Phil Gramm’s policies are not responsible for this, although many other Republican’s are).

@Righteous Bubba, sg

The human species began splitting off somewhere between 100 and 200 thousand years ago into distinct population groups. These groups spent the intervening period adapting to far different social, sexual and physical environments. The theory that best explains the evidence is that different groups developed different genetic landscapes that are suited for the environment in when they spent the last few thousand years. Most of the evidence currently is circumstantial, but the amount is overwhelming.

It’s people like you for whom the term “left-creationist” was coined, because you all are no better than the other sort of creationist.

@Hogan

Do you use the accelerator to steer your car?

This is a great example of how at some point all metaphors breakdown.

[aeiou] Asher,

You are learning the fundamental principle, the prime directive as it were, of the liberal and esp. liberal academic world. All identifiable groups are exactly equal in every trait.* To allow slightest doubt about that to cross your lips is to invite hysterical gibbering which, though it seems to resemble human speech, when analyzed is more akin to something Jane Goodall might have recorded on the Serengeti .

* There is a possible exception** for pale folk whose ancestors hailed from Europe, the jury is still out whether they are inborn racists or just conditioned into their racism by ‘false consciousness’.

** There is an exception to the exception. These are folks who can be found in such shires as Oxford, both Cambridges, and Madison. While living surrounded for the most part by other pale people, they don’t really like it and make vocal protestations of the greatness of diversity at every turn.

@michael

You are confusing metaphors and analogies.

Metaphor:

your love is the sun dawning on my heart

Analogy:

your love is to my heart as the sun is to a flower

its not at all clear where the various references are going

The initial problem iswith your wild insinuation of Gramm as a major contributing factor to the situation. in the future I would suggeat a more sober and rigorous approach to things.

I live in Yellowknife. We have radio, TV, and internet.

This is textbook Nasty Authoritarian White Guy here.

He says that black people don’t plan for the future, but accuses his critic of raising a “cliched objection” when this is described as “impulsive”.

Ditto when his claim black people aren’t willing to work 60 hours a week is restated as “laziness”.

Then he continues to deny that his claims about IQ have anything to do with black people being stupid.

And now, to improve it all, we have black people being “more polygynous” than white people, who are more polygynous than “asians”.

So those lazy stupid impulsive black men have destroyed your civilised banking system with their lazy, impulsive, stupid mortgage-taking, and now they’re coming for your women.

This is certainly a novel thought, Asher, did you come up with it yourself. Now, instead of talking in silly generalities, can you share with us all your knowledge on the current banking crisis? What is the relative risk of mortgage default for blacks compared to whites? How about the distribution of race among the different classes of loans? Do you even know what it is?

Right sg, his textbookness is banal. Nothing worth paying attention to. That’s conventionally craptastic. No, its the mix of confidence and and a highly cultivated moronitude that I find captivating.

Hey, Asher, it’d be nice if you started with something resembling evidence, instead of unfounded assertions, then maybe we’d have room for discussion. But right now you’re just coming over as bitter.

Take this for example: “Coincidentally, the percentage of sub-prime loans as a percentage of recent loans to each ethnic group almost mirrors the percentage of each group’s percentage of the population under 87 IQ: 17 percent for whites, 46 percent for hispanics, 55 percent for blacks.”

Pulled out of your ass? Or do you actually have a reputable source for that data?

““Coincidentally, the percentage of sub-prime loans as a percentage of recent loans to each ethnic group almost mirrors the percentage of each group’s percentage of the population .”

Coincidently, yesterday’s fall in the Dow was 777–a magick number too! EP ers & ESP ers are brothers under the stats.

I don’t know how to edit or disenvowel posts and don’t have the time or inclination to learn – if any other CT editors disagree with my decision to delete Asher’s contributions to this thread, then I “unapproved” them to the moderation queue so you can do what you like with them.

Oh and dsquared, don’t just disemvowel, delete.

I once saw a horse do something that was in hindsight real stupid. The horse had acted somewhat instinctively but it’s environment was ‘poor’. The ranched had but one option which involved a firearm. Sad. The second shot was easy to understand and comprehend. The 6th thru 15th shots however would have mystified [had they in reality occurred].

Did Cheney’s redundant repetition of “WMD” make them appear in Iraq?
Repetition works and not always in a good manner. It would be one thing if whoever had made use of substance and or even coherence. Calling in Hazmat for a dirty diaper pail, while tempting at times, may reflect more on the caller than the soiler of cloth.

Slocum at 33: I actually agree that it’s hard to assign completely clear political blame for this, in the sense of Republican / Democratic. But I think it *is* pretty easy to assign clear ideological blame. And the Republican party is the party most profoundly influenced by the ideology of market worship / deregulation we’ve seen take hold in the U.S. since 1980 or so. It affected the Democratic party a lot as well, but they are a better place to start in rolling it back.

If the change to mark-to-market accounting is responsible for as much of the immediacy of the crisis (making it impossible to have a longer wind-up as the housing market wound-down) as it seems to, that wasn’t the fault of deregulation.

Now mark-to-market is exactly the type of ‘transparency’ regulation that even most conservatives or libertarians would support. I certainly would have supported it if asked a year ago. So this isn’t really a neat ideological point. Just saying that unforseen consequences can be a bitch.

“It”

But I think it is pretty easy to assign clear ideological blame. And the Republican party is the party most profoundly influenced by the ideology of market worship / deregulation we’ve seen take hold in the U.S. since 1980 or so. It affected the Democratic party a lot as well, but they are a better place to start in rolling it back.

No — this is ridiculously weak. The atmosphere of deregulation is responsible? With no proposed mechanism or details or proposed regulations that were — fatally — rejected. C’mon, that’s B.S. It may turn out to be effective politics this season, but intellectually, that’s pure snake oil.

One reason not to think that the unique ‘deregulation mania’ in the U.S. was the underlying cause (even in some undefined, atmospheric sense) is that EU markets seem to be in the early stages of coming unglued due to housing bubbles bursting over there. Can you tell me where are the finger prints of Republican laissez faire-ism in those markets?

Let’s see. Since 2000 US GDP has risen about 25%.
http://www.data360.org/dataset.aspx?Data_Set_Id=354

It’s now about $14T. Of that, housing is about $1.7T and finance/insurance is about $1.1T.
http://www.nemw.org/gdp1.htm

What if it were to turn out that our housing is not nearly as valuable as estimated, and our finance/insurance instruments are not worth very much? All those weird derivative things that nobody understands, and their value is what somebody will pay for them….

It might turn out that GDP hasn’t actually increased at all. It might have gone down, if you readjust the values to what they’re worth today.

If GDP hadn’t increased then all the calculations we make against GDP would be off. Like, people say that our military spending isn’t really important, it’s only 4% of GDP. We used to spend a lot more than that, why during WWII it was a whopping part of GDP. If we could afford 6% of GDP all through the war surely we can afford 4% now. But if GDP is only 80% of what we thought, then it’s 5% of GDP, not 4%.

Similarly people argue that the national debt is really not out of line, it’s only $10T while GDP is $13T. But that doesn’t look as good if GDP is actually only $10T.

And they argue that US external debt of $13T isn’t so bad when US GDP is also $13T. Etc.

If you want to estimate the part of GDP from automobiles, the methods are reasonably clear. You can count the cars produced, and what they sold for. You can count the auto workers paid etc. Hard to get it far wrong without some fraud.

But if you want to estimate the value of the stock of housing, it’s murkier. It’s worth what somebody would pay for it if it was for sale. And the value of a house’s mortgage depends on the chance of default. And the value of derivative instruments that insure against the chance of default depends heavily on the rate of default. Etc.

The atmosphere of deregulation is responsible? With no proposed mechanism or details or proposed regulations that were—fatally—rejected. C’mon, that’s B.S.

If you’re going to estimate the value, shouldn’t it be by some standard way? That’s what government regulation was supposed to do. But it didn’t. New kinds of fraud that didn’t get stopped.

It seems plausible to me that the policy of not regulating bad practice had a lot to do with the tremendous increase in claimed value for things that at the moment have no buyers. I personally am not ready to prove it, but it doesn’t sound like BS to me.

How is housing accounted for in GDP? The standard methods are income, output or sales.