On Tue, Oct 7, 2008 at 5:55 PM, Jim Devine <[EMAIL PROTECTED]> wrote: > Slate Magazine / moneybox > > Subprime Suspects > The right blames the credit crisis on poor minority homeowners. This > is not merely offensive, but entirely wrong...
Article URL: http://www.slate.com/id/2201641/ This meme was recurring on the PEN list last spring, mostly propped up by David Shemano. One of his fave sources, Stan Liebowitz just published a paper that tries to make this argument. http://www.independent.org/publications/policy_reports/detail.asp?type=full&id=30 It is a fairly dreadful piece of scholarship. Though it concludes that it is the fault of lending to minorities (aka "the poor"), the only real connection he can draw is that there was a sort of contagion effect: loosening underwriting standards in one segment of the credit market--the part actually related to Freddie/Fannie/CRA--spilled over into all the others. In his popular press appearances, he likes to talk about Countrywide and Bear Stearns as if they were simply lambs led astray by the hulking legitimacy of various GSEs. The first few sections are just close readings of promotional materials that discuss none of the context and rely mostly on criticism by innuendo. In any case, the point is that investors who bought into it because they are, evidently, some of the most easily persuaded morons on the face of the earth. I would believe that, in general, if that was the point; but ultimately the argument is that these geniuses who we would normally be able to rely on to make the sharpest decisions on the planet; these ubermensch who we should trust to make all the value judgments for society at large are simply crippled by even the smallest kernel of government intervention--aka kryptonite. Mortgage brokers also get a pass, evidently because they, too were operating under the assumption that everything the government says is golden and it should be replicated over and over, regardless of rates of profit or rational judgment. Dishonest homeowners looking to flip their homes for a profit (rather than professional investors sinking money into real estate) eventually get the other side of the blame. Mortgage brokers weren't encouraged to push people towards sub-prime or ARM instruments because there were bigger spreads and fees; and evidence of the racial bias is not even mentioned: these were just honest dealers taken advantage of by the wiley lies of people under the influence of HGTV programs like "Flip this House." It is the most narrowly focused understanding of a global financial crisis one could possibly hope for and it seems to be the best the right can do when they actually have to examine evidence. Even the latter is pretty slim in the piece though, for the data head it does provide the illusion of empirical truth: it has lots and lots of graphs. Oh, and the other thing that he tiptoes around is the paper from the fed outlining the need for more credit for minorities that he supposedly disproved in the early 1990s. Doug Henwood has brief analysis of this in Wall Street, with exactly the opposite interpretation of events. I'd be interested in his take on this line of argument, particularly since I thought his piece in The Nation on the crisis was pretty spot on--particularly the context of inequality and stagnant wages. http://www.thenation.com/doc/20081013/henwood I guess I've mostly been schooled on this crisis by listening to Doug's show (he definitely predicted this crisis several years ago) so it shouldn't be surprising that I find his interpretation compelling. I'm very interested in investigating this line of CRA/Freddie Fannie argument and I gave it a try on my own blog yesterday after my uncle asked me whether Michelle Malkin's arguments on the subject (basically, that this can all be traced back to immigrants and blacks--xenophobic, racist bullshit). Here was my attempt: http://overlynuanced.blogspot.com/2008/10/cooling-hot-air-over-housingcredit.html My problem is that I can't get my head around what Freddie and Fannie are. The public/private split here is murky and it seems like there is something to the fact that they insured mortgages they didn't actually hold and that they bought a bundle of the securitized ones. On the other hand, they don't issue any, right? And they are separate from CRA. There is a game of three card monty here where CRA is impugned; Freddie and Fannie, which were both more and less than CRA in terms of actual government involvement had much more investor oriented pressure, like most of the rest of the finance industry. In this, I don't see any real difference between the market effect of these institutions and any other private credit rating agency except for the fact that there was some government involvement--and the Chinese and Russians were heavily invested as well. But on the latter count, the loans owned through GSEs are supposed to be government guaranteed. But what does that mean? Is it the same thing as FDIC? or is it more like a Federal version of Mortgage insurance? And how much heft do they really have. I've seen figures that say they own only a fraction of the loans, but they back up to 50% of the mortgages in the country. How is this related to all these other private mortgage brokers? To private mortgage insurers? In any case, this doesn't explain why companies were leveraged 30:1 or why securities became so popular or why the credit-default swaps were so widespread. except if they simply thought, once again, that banking on the fed would make them too big to fail. Maybe I'm devoting too much attention to the agenda set by someone else, but these seem like very mysterious institutions the more I look at them. And it seems endlessly possible to project all sorts of scenarios onto their role in the crisis since their agency can be inflected in all sorts of directions. But I'm hoping there is one that is more correct than others. s _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
