My Leftie commentator Dark Avenger comments this about red lining. That the post about our financial mess and how we got there wasn’t about redlining but rather the unintended consequences of the “fix” totally escapes him. In his words.
This is what redlining is about:My response:
The most devastating form of redlining, and the most common use of the term, refers to mortgage discrimination, in which middle-income black and Hispanic residents are denied loans that are made available to lower-income whites. The term "redlining" was coined in the late 1960s by community activists in Chicago. It describes the practice of marking a red line on a map to delineate the area where banks would not invest; later the term was applied to discrimination against a particular group of people (usually by race or sex), no matter the geography. During the heyday of redlining these areas were most frequently black inner city neighborhoods. Later, through at least the 1990s, this discrimination involved lending to lower-income whites, but not to middle- or upper-income blacks. (ref: Immergluck, Dedman.)
and
Dan Immergluck writes that in 2002 small businesses in black neighborhoods still received fewer loans, even after accounting for business density, business size, industrial mix, neighborhood income, and the credit quality of local businesses.[15] Gregory D. Squires wrote in 2003 that it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.[16] Workers living in American inner cities have a harder time finding jobs than suburban workers.[17] Redlining has helped preserve segregated living patterns for blacks and whites in the United States, because discrimination motivated by prejudice is often contingent on the racial composition of neighborhoods where the loan is sought and the race of the applicant. Lending institutions have been shown to treat black mortgage applicants differently when they are buying homes in white neighborhoods than when buying homes in black neighborhoods.[18]
Yep, nothing wrong with redlining, it's an all-American practice..........
I note your claims are mostly made by Community Organizers (aka Left Wing Demos) and have heard them before. Whether they are true or not, and I find them mostly not true, the "solution" had a side effect that the Democratic Congress refused to treat. See Barney Frank's comments re Bush's 2003 bill.That is the issue. The failure of Congress to act despite the leadership of Bush and McCain, not whether or not red lining existed.
Please explain why Barney Frank said this in 2001:
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
Obviously Barney and Melvin weren’t paying attention… or playing politics. Or maybe in both.... or maybe they had a problem with "the vision thing." ;-)
Link
"It's the hit dog that barks."
ReplyDeleteIn the early 90's there was a real push for banks and other financial institutions to serve the inner city... mostly minority....market and to stop using the practice of "red lining," which was simply drawing a red line around areas that they would not make loans in.
As you can see from the wikipedia entry, it's not that simple:
In the United States, the Fair Housing Act of 1968 was passed to fight the practice. It prohibited redlining when the criteria for redlining are based on race, religion, gender, familial status, disability, or ethnic origin. The Community Reinvestment Act of 1977 further required banks to apply the same lending criteria in all communities.[11] Although open redlining was made illegal in the 70s through community reinvestment legislation, the practice continued in less overt ways.[7]
I messed up the link the first time, but there is enough in the entry to demonstrate that your basic point about redlining was dead wrong.
But the gov pushed and Freddie and Fannie promised to pay and new ways of financing came into play and "flipping" became the rage and everyone was happy..... except a few old malcontents... as evidenced by Bush in '03 and McCain in '05...
That doesn't explain how Fannie Mae was responsible for lenders lending irresponsibly, which you seem to want to ignore.
Fannie Mae had nothing to do with this:
Borrowing Under a Securitization Structure
Securitization is a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment.[54] There are many parties involved. Due to securitization, investor appetite for mortgage-backed securities (MBS), and the tendency of rating agencies to assign investment-grade ratings to MBS, loans with a high risk of default could be originated, packaged and the risk readily transferred to others. Asset securitization began with the structured financing of mortgage pools in the 1970s.[55] The securitized share of subprime mortgages (i.e., those passed to third-party investors) increased from 54% in 2001, to 75% in 2006.[47] Alan Greenspan stated that the securitization of home loans for people with poor credit — not the loans themselves — was to blame for the current global credit crisis.[56]
and of course, what these folks did wasn't because of any action on Fannie Maes' part:
Role of financial
institutions
A variety of factors have caused lenders to offer an increasing array of higher-risk loans to higher-risk borrowers. The share of subprime mortgages to total originations was 5% ($35 billion) in 1994 [44] , 9% in 1996 [45], 13% ($160 billion) in 1999 [44] , and 20% ($600 billion) in 2006.[45][46] A study by the Federal Reserve indicated that the average difference in mortgage interest rates between subprime and prime mortgages (the "subprime markup" or "risk premium") declined from 2.8 percentage points (280 basis points) in 2001, to 1.3 percentage points in 2007. In other words, the risk premium required by lenders to offer a subprime loan declined. This occurred even though subprime borrower and loan characteristics declined overall during the 2001–2006 period, which should have had the opposite effect. The combination is common to classic boom and bust credit cycles.[47]
In addition to considering higher-risk borrowers, lenders have offered increasingly high-risk loan options and incentives. These high risk loans included the "No Income, No Job and no Assets" loans, sometimes referred to as Ninja loans. Another example is the interest-only adjustable-rate mortgage (ARM), which allows the homeowner to pay just the interest (not principal) during an initial period. Still another is a "payment option" loan, in which the homeowner can pay a variable amount, but any interest not paid is added to the principal. Further, an estimated one-third of ARM originated between 2004 and 2006 had "teaser" rates below 4%, which then increased significantly after some initial period, as much as doubling the monthly payment.[48]
Some believe that mortgage standards became lax because of a moral hazard, where each link in the mortgage chain collected profits while believing it was passing on risk.[49]
The Center for Responsible Lending, in its report on IndyMac, related testimony that the bank actually made efforts to avoid having income information about some borrowers [50]. The Associated Press has reported that a federal grand jury is investigating subprime lenders Countrywide Financial Corp., New Century Financial Corp. and IndyMac Bancorp Inc. and reports also that the FBI is investigating IndyMac for possible fraud. [51]. The question, then, is whether banks and other private mortgage originators of subprime and other "nonprime" loans might deliberately have profited or attempted to profit - in moneys, economic benefit or even fraudulent gain - through reducing the amount of information they collected from borrowers.
Judge Leslie Tchaikovsky of the U.S. Bankruptcy Court for the Northern District of California, found on 25 May 2008 that even though a pair of borrowers had, indeed, misrepresented their incomes on a "stated income" home equity loan, National City Bank's "reliance" on these statements of income "was not reasonable based on an objective standard"[52].
Investment banks are not subject to the same capital reserve regulations as depository banks. Some of the larger investment banks were highly leveraged (i.e., a high ratio of debt to capital reserves). As a result, they were not as capable of absorbing MBS losses. In addition, they were also counterparties to complex credit derivative transactions insuring various types of debt instruments. The combination of MBS losses and leverage rendered their ability to perform their counterparty role less certain. This in turn represented a broader risk to the financial system, resulting in their outright or "arranged" takeovers.[53]
This chart is useful.
I see the hit dog is hollering...
ReplyDeleteThe issue isn't how we got here or what caused it... That is of no consquence.
The issue is that the Demos fought regulation and over sight. See what Barney Frank said.
Yes, the fact that you chose to comment through a new entry and not a response tells me where the barking is coming from.
ReplyDeleteThe issue isn't how we got here or what caused it... That is of no consquence.
But then you write.
The issue is that the Demos fought regulation and over sight.
So you don't want to spread blame, unless it's the Democrats and Barney Frank.
BTW, Barney Frank said that he didn't vote for the bill in 05 because of other provisions which the Administration refused to take out of the final bill, but you are only interested in beating up on Democrats, instead of getting the facts straight.
Glad to see that some things never change.
Why don't you change your titles and puerile posts to "Demos bad!"?
You'd save a lot of typing, and you wouldn't have to pretend that you know something about what ever the issue at hand happens to be.
Here's what someone who makes a living, an investment banker who, unlike you, had a front-row seat to all this, had to say about the situation:
Us: I know it’s early for this … what’s big lessons learned — for small fry and CEOs alike?
Davidson: There will be many lessons and the most valuable and pertinent have yet to surface. Hopefully education, awareness and personal responsibility will gain renewed respect. One thing that is clear: Gordon Gekko was wrong: greed is not good. Greed contributed to the breakdown of internal controls across the entire financial system, including security origination, packaging, securitizing, risk profiling and regulatory oversight. The buck stopped nowhere. The issues involved and the associated responsibilities are massively complex. The primary solutions being offered this point are primarily regulatory. The longer-term question will be whether these actions — and their associated billions of dollars in costs — did the right job at the right time and for the right causes.
Thanks for demonstrating what the Sage of Baltimore wrote over a century ago:
For every problem, there is a solution that is simple, neat, and wrong.
H. L. Mencken
What BS....
ReplyDeleteIt makes no difference how it got there. The fact is that it did. So we had a problem.
In 2003 the Demos opposed reform.
In 2005 the Demos opposed reform.
Now you want to play the "everybody's fault game."
That's Hussein's strategy and you are parroting it well. But it doesn't work.
Your comment is deleted because you want to talk about McCain when the issue is the fact that Democraps blocked the reform bill.
ReplyDeleteNo matter who had done what that would have avoided what we are currently in.
Not really:
ReplyDeleteA study of CRA loans shows:
* CRA loans constituted only 23% of all loans and 9.2% of high-cost loans.
* CRA loans were twice as likely to be retained in the originating bank’s portfolio than loans made by other institutions.
* CRA loans were less likely to be foreclosed upon than other loans.
You have no idea as to what the impact of the regulation would have done, so quit pretending.
ReplyDeleteThe fact that the Demos blocked new regulations remains.... a fact.