David B. Shemano wrote:
Max Sawicky writes:
"it seems to me that at bottom the crisis is not in the mortgages but in
the pyramid of bets based on mortgages."
I confess I don't see a material distinction.
One relevant distinction is the volume of bad mortgages v. the volume of
crap based on the mortgages.
I don't know the answer. My impression is that the latter is a) much
the larger, and b) at the root of
the freeze in non-mortgage related lending. I'm happy to be corrected
on the facts.
A second is the distinction between somebody speculating, house by
house, within the rules,
and financial services lizards concealing the condition of their balance
sheets, passing along
paper they know is bad, leveraging to a fare-thee-well, screwing their
shareholders, and
feathering their own nests. There is petty thievery and grand larceny.
It seems to me a
difference in terms of morality, scale, and policy relevance.
AT the very least, to reduce the problem, as some commentators have done
to CRA and black folks,
present company excepted, is odious.
The "crisis" is that
everybody, from Joe Six-Pack homebuyer, to investment banks on Wall
Street, to banks in Iceland, acted as if a 2500 sq ft. house on a 6000
sq ft lot in Riverside California actually was worth $600,000, and now
discover that the house is only worth $250,000. Ooops. Somebody is
going to lose a lot of money and it is going to take us another year to
do the accounting of the losses. The transition to reality is our
present crises. Call it the mortgage, call it the bet on the mortgage,
I don't see the difference.
"And attributing any blame to home buyers, no matter how misguided they
were, is utterly beside the point, not to mention odious."
Again, you are so judgmental. Why "blame" anybody? Why shouldn't
somebody sign a nonrecourse mortgage with no money down, which is
exactly what the rules of the game encouraged? It's risk free -- you
either flip the house when it appreciates or you mail the keys to the
lender if it doesn't. At the same time, I am not sure why it would be
"odious" to argue that somebody shouldn't have speculated, but that is
not my argument.
David Shemano
----- Original Message -----
From: David B. Shemano
Sent: 10/08/08 05:40 pm
To: Progressive Economics
Subject: RE: Re: [Pen-l] Community Reinvestment Act at fault -- NOT
Raghu writes:
>> Excellent. So lets stop blaming the CRA then for subprime mortgages
>> then. At worst, the CRA was ineffective. At best, it helped reduce
>> discrimination in availability of credit for minorities.
You go too far. The CRA is an example of how the rules of the game
were changed to expand homeownership to people who could not obtain
loans under traditional standards (like the ability ot make a 20%
downpayment, a solid credit history, sufficient income, etc.). So
while I agree nobody forced anybody to make a subprime loan, there was
certainly a lot of political and economic pressure to relax standards,
as exemplified by the CRA. As the unfairly maligned Mr. Liebowitz
points outs, companies like Countrywide that played the new game the
best enjoyed the most applause.
>> A good case can be made that predatory lending practices were
>> borderline coercive.
>> http://www.hud.gov/offices/hsg/sfh/pred/predlend.cfm
>>
>> In general, poor people are easier to coerce and intimidate than
rich people.
I would point out the irony of arguing that poor peope don't have the
capacity to understand the mortgage process, but believing the exact
same people are fully capable of owning a home and performing all of
the responsibilities that entails.
David Shemano
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