AIG SPENT YOUR TAX BAILOUT MONEY ON A SPA,GOLFING, AND BANQUET RETREAT FOR EXECUTIVES

 

Talk about an "entitlement mentality".

 

Are you talking about the executives or my choice of a headline? We're entitled to our tax money going towards a good cause! Not executives getting spa treatments! lol

If the Internet is a 24/7 job necessity, the employer (via direct bill with the ISP or expense report) will most likely pay for it.

 

Absolutely wrong MTS.  I have had 3 different computer programming jobs now, and all 3 have required me to be able to answer a call or email at any hour (I have been called after midnight on a weekend a few times) and be able to log into my machine at work instantly to help diagnose he problem.  This obviously would not be possible without an Internet connection, especially since at all 3 of my jobs the building would be secured at these times and no entry would be allowed.  And the company would laugh in your face if you asked them to pay for your Internet connection.  It is expected that you had one if you work with computers for a living.

 

I'm Absolutely wrong?!

 

You've had 3 jobs or worked for three different company's.  You're sure you can speak in absolute terms?  You can't possibly speak for all company's, now can you? :wink:

 

I work for a media company and I have to have Internet access, phone, email, fax  24/7.  I have a special line that comes directly from the cable box directly into my house.  And I don't pay for it.

 

I know many, many people who have company owned blackberry's, PC's and the company pays for their Internet access, media plan, as well as the device itself.

 

Yes, I am saying you were wrong.  I wasn't saying that no exployers pay for internet access.  I was saying you were wrong for saying that "most likely" the employer will.  All 3 programming jobs I have had and every person I have worked with (which when you take in their previous employers, includes a lot of employers) has NEVER had internet access paid for.  Some have Blackberries, but only those in management.  So in my experience, "most likely" is simply false.

 

And I think it sucks a company is willing to pay for home internet for their higher-ups when many of them (as you have admitted that you don't) won't use it for business at home.  I am often REQUIRED to do work at home and they won't pay for my internet access.

 

They also have my cell phone number...and use it at times.  And they won't pay for that either.

 

But I guess I shouldn't complain, it seems as if we should all feel lucky just to have a job in these economic times.

Yes, I am saying you were wrong.  I wasn't saying that no exployers pay for internet access.  I was saying you were wrong for saying that "most likely" the employer will.  All 3 programming jobs I have had and every person I have worked with (which when you take in their previous employers, includes a lot of employers) has NEVER had internet access paid for.  Some have Blackberries, but only those in management.  So in my experience, "most likely" is simply false.

 

And I think it sucks a company is willing to pay for home internet for their higher-ups when many of them (as you have admitted that you don't) won't use it for business at home.  I am often REQUIRED to do work at home and they won't pay for my internet access.

 

They also have my cell phone number...and use it at times.  And they won't pay for that either.

 

But I guess I shouldn't complain, it seems as if we should all feel lucky just to have a job in these economic times.

 

Then why don't you say the company's that youv'e worked for, the policy is that employee's pay for their own internet access.  As you can see others know of or work at company's that pay.

 

Me using my company is a bad example, since we own cable, internet, TV and other media company's.  All employees get free internet and about 20% of the US based employees get free cable service.  Those that have to pay for Cable, get it at a discount or get a monthly credit in their check.

 

Almost all the IT employees across the divisions, have paid PDA's and media plans.  And for those who don't get free cellphones and service, we have really good corporate rates/plans.

Then why don't you say the company's that youv'e worked for, the policy is that employee's pay for their own internet access.  As you can see others know of or work at company's that pay.

 

Me using my company is a bad example, since we own cable, internet, TV and other media company's

 

...

 

Almost all the IT employees across the divisions, have paid PDA's and media plans.  And for those who don't get free cellphones and service, we have really good corporate rates/plans.

 

I was refuting your claim of "most likely", so it was really you that should have said "at my company, employees likely receive free internet at home".

 

Anyways, I feel like this is becoming rather childish and the thread needs to move on.

http://www.kunstler.com/

 

October 6, 2008

All Fall Down

 

    God knows what manner of deals went down this past weekend in the Hamptons wine cellars and below-decks among the Chesapeake Bay sailboat fleet. All these hidey-holes must have been dank and fetid with the sweat of mortal fear. Will the US Government declare itself a subsidiary of General Electric? Will Vlad Putin be roped in to save Goldman Sachs? Meanwhile, the whole noisome rat maze of international counter-party deals was taking on sewer water and rodents of every nationality were seen leaping for daylight all over the fusty old motherlands of Europe. A cascading collapse of international finance is underway. While many fixers may jump heroically into the tumbling wreckage hoping to rescue this-and-that, the outcome by Friday is liable to be an unrecognizable smoldering landscape of the G-7's hopes and dreams.

    Some big questions for the week: will the Euro survive as a currency? Will the rush into the US dollar continue even as the US financial system dematerializes in a Fibonacci fever of accelerating de-leveraged infinitude? Will the remaining Big Boyz, Goldman Sachs and JP Morgan succumb to the counter-party hemorrhagic fever? Will great rows of lesser banking dominoes now start clacking onto their faces? Will all fifty states follow the leads of California and Massachusetts and line up at the US Treasury's hand-out window. Will the entity that calls itself the civilized world be left at week's end with anything resembling money?

    Your guess is as good as mine. We've entered the realm of phase change, where everything is slipping and nothing has settled. The final result, when the dust settles -- and that may not be for weeks to come -- will certainly be a poorer western world. Will it be so poor that it can no longer afford to import anything? Including oil from the land of the date palm? If so, we are really in for a rough ride, poised as we are at the edge of the heating season here in the temperate regions. Notice, by the way, that the $700 billion just approved by congress to bail out Wall Street is exactly the same sum of money that we send to the oil exporting nations this year.

    Will millions stop receiving paychecks due to the turmoil in banking? It's certainly possible, starting with the poor drones in Mr. Schwarzenegger's motor vehicle bureau and eventually ranging to every payroll office in the land. Will Sarah Palin's fellow Six-packers line up around the parking lagoons of the suburban banks trying desperately to withdraw the last seventy bucks in their checking accounts? (And will their thoughts in the event be: this economy is fundamentally sound....) Will the supermarket shelves of chipoltle-flavored crunchy snacks and power drinks go empty as truckers refuse to deliver their loads without up-front payment? And how long does it take a hungry public to turn mean?

    We could see a parallel problem in the motor fuel supply sector. So far, gasoline shortages have only appeared in parts of the Southeast USA, due to interruptions caused by two hurricanes. If the oil tankers quit offloading now for lack of credible payment, then the whole nation will get an interesting lesson in the shortcomings of the suburban development pattern.

      The candidates' debate Tuesday night should be interesting. I don't expect too much give-and-take on the subject of East Ossetia this time around.

    Even at this point, the current crack-up in world finance makes the 1929 crash and the events of the 1930s look in comparison like an orderly small town auction of somebody's grandmother's effects. Back in that sepia day, America had plenty of everything except ready cash. We had, especially, plenty of our own oil, and -- you're not going to believe this but it's true -- the stuff was selling for as little as ten cents a barrel, it was so abundant. And yet still, America in the 1930s plunged into a dark depression of inactivity, loss of confidence, and impoverishment.

    This time around, things could get more disorderly. Personally, I think we may be beyond the reach even of fascist authoritarianism, because unlike the programmed industrial masses of the 1930s, we are unused to regimentation, to lining up at the factory gates and the movie theaters. Back then, society was so regimented that everybody wore uniforms in-and-out of the military. Look at movies from the 1930s. Every man-jack wore either a necktie and hat or overalls. The industrial masses behaved like termites. Once unemployment hit, they were waiting to be told what to do, to line up for something. It worked fabulously for Hitler, who took every advantage of this mentality. Luckily, the US went for Roosevelt (both FDR and Hitler entered office the same winter of 1933, by the way). FDR was more like everybody's kindly Uncle Frank, and his reassuring persona enabled Americans to suck up their bad luck and altered circumstances. Many of them retreated to the family farm (which still existed then) and waited things out -- and, anyway, the melodrama of the Great Depression soon resolved in the Second World War when Hitler's love of regimentation led him into military misadventure. He shouldn't have picked a fight with someone who had so much petroleum -- end-of-story.

    Okay, what happens here and now? To this point (9:am Monday October 6, 2008) events have been proceeding under a veneer of still-just-barely-credible authority. We (as represented by congress) have allowed Mr. Paulson to advance and activate his remedies. As things unspool further, he will be out of credibility, perhaps in a few days, and it's unlikely that his successor will have any either. Mr. Bernanke has simply gone AWOL. Notice, he has vanished from the media landscape. We may soon be hearing the declaration of various "emergency" measures involving the allocation of food and the rationing of oil products. The Big Bailout of last week may be partially rescinded as it becomes obvious that it has had no effect -- I believe about half the $700 billion has already been allocated, which is to say: lost. I realize these things sound pretty extreme. But forces have been set in motion and momentum rules. One thing for sure: the American public is about to undergo a severe mood adjustment. There will be fewer American Idol fans and worshippers of Donald Trump by the close of business on Friday.

Then why don't you say the company's that youv'e worked for, the policy is that employee's pay for their own internet access.  As you can see others know of or work at company's that pay.

 

Me using my company is a bad example, since we own cable, internet, TV and other media company's

 

...

 

Almost all the IT employees across the divisions, have paid PDA's and media plans.  And for those who don't get free cellphones and service, we have really good corporate rates/plans.

 

I was refuting your claim of "most likely", so it was really you that should have said "at my company, employees likely receive free internet at home".

 

Anyways, I feel like this is becoming rather childish and the thread needs to move on.

 

Well we'll have to disagree on the internet issue as it appears we both have different experiences.  Fair?

Then why don't you say the company's that youv'e worked for, the policy is that employee's pay for their own internet access.  As you can see others know of or work at company's that pay.

 

Me using my company is a bad example, since we own cable, internet, TV and other media company's

 

...

 

Almost all the IT employees across the divisions, have paid PDA's and media plans.  And for those who don't get free cellphones and service, we have really good corporate rates/plans.

 

I was refuting your claim of "most likely", so it was really you that should have said "at my company, employees likely receive free internet at home".

 

Anyways, I feel like this is becoming rather childish and the thread needs to move on.

 

Well we'll have to disagree on the internet issue as it appears we both have different experiences.  Fair?

 

Fair enough.  And I will agree with you that I should have probably said something like "I have a different opinion (or experiences)." than "Absolutely wrong." :)  A long, bad day at work can affect your diction like that.

Fair enough.  And I will agree with you that I should have probably said something like "I have a different opinion (or experiences)." than "Absolutely wrong." :)  A long, bad day at work can affect your diction like that.

 

Cool.  I've had those kinds of days myself.  So.....

"HUSH!"

"HUSH!"

"HUSH!"

 

Re KJP's post of Kunstler's commentary, I suppose Kunstler is taking some grim satisfaction in that his predictions in "The Long Emergency" may be coming true.

 

Re elective expenses, the only two that I have from that list are my cell phone and internet connection. No cable, no TiVo, no mortgage, no car payment, no netflix, no satellite radio, credit card paid off every month, etc.

 

I have the most basic cell phone service; no data, etc. I need to be reachable wherever I am in case of family emergency. My mom is 97 and in a nursing home. She's seemed like she's been teetering at death's door for the past four years, though, so maybe "emergency" isn't the exact word.

 

I have internet service because without it I'd be downtown in Freimann Square, standing on a bench and holding a Bible high in the air and railing about how the bankers' greed has brought God's wrath upon America and how it's all catching up with them and they're taking the rest of us hard-working folks who tried to save for a decent retirement right along with them, and how they're going to burn in Hell for all eternity for it.

 

Hmm. Maybe if the bankers knew that, they'd pay for my FIOS.

AIG SPENT YOUR TAX BAILOUT MONEY ON A SPA,GOLFING, AND BANQUET RETREAT FOR EXECUTIVES

 

Talk about an "entitlement mentality".

 

Are you talking about the executives or my choice of a headline? We're entitled to our tax money going towards a good cause! Not executives getting spa treatments! lol

 

Yeah, the executives.

^^^THANK YOU!!!  I'm glad someone else is noting the absurdity of saying that the current economic situation is "unprecedented."  I've been ranting about how the houses in sprawling suburbs were inevitably going be America's future ghettos since I was in Middle School. 

That's also why I don't see this housing crises as that much of a crises...yes people are getting screwed, but just because new home construction numbers have gone down dramatically does not necessarily mean that no news homes are being created.  Inner city rehabs are still going strong (in many places) and property values in former slums are skyrocketing across the nation. 

I view this crises as a necessary purging process required to resolve the unlivable environment we've been building in America for 60 years. 

 

 

...I am so tired of stupidity, shortsightedness, and mistakes being rewarded in this country.

I'm kind of disappointed in Obama's energy policy. I feel like we could do more than that in ten years. Even if his goal is met, we'll only be using 10% renewable energy. Nothing would ensure our global dominance like supplying renewable energy globally. Imagine being a global supplier of renewable energy and electric cars with safe, energy-dense batteries. If we invented the internal combustion engine and the computer, we could definitely do that.

^^^THANK YOU!!! I'm glad someone else is noting the absurdity of saying that the current economic situation is "unprecedented." I've been ranting about how the houses in sprawling suburbs were inevitably going be America's future ghettos since I was in Middle School.

That's also why I don't see this housing crises as that much of a crises...yes people are getting screwed, but just because new home construction numbers have gone down dramatically does not necessarily mean that no news homes are being created. Inner city rehabs are still going strong (in many places) and property values in former slums are skyrocketing across the nation.

I view this crises as a necessary purging process required to resolve the unlivable environment we've been building in America for 60 years.

 

 

...I am so tired of stupidity, shortsightedness, and mistakes being rewarded in this country.

 

Exactly! Too bad for those lame suburbs who don't have the kind of tax base cities have, which make those rehabs and new construction possible.

I view this crises as a necessary purging process required to resolve the unlivable environment we've been building in America for 60 years.

 

I'd argue that the real problem started within the last 30 to 40 years.  The inner ring suburbs of the 1940s and 50s would be just fine if they weren't surrounded by decades of further sprawl.  I'm a city dweller myself, but I can see what made the original suburbs were appealing.  The homes were solidly built with more yard than you'd get in the city, while still being just a few minutes drive from downtown.  I have no clue why someone would want to live in the farthest flung suburbs with the crappy building standards we have today, though.  Other than that, I agree with you 100%.

There is nothing wrong with expansion/growth, but roughly speaking the number of new homes should equal the combination of the number of homes dropping off the market (buildingcincy's blog is especially evocative) and the number of new household's being created. That would produce a basic equilibrium. Unfortunately, easy credit divorced these basic market forces and kerbluwey.

five who knew, five who say they didn't know:

 

 

Why did Mort Zuckerman predict the housing market collapse—while Alan Greenspan missed it? View our gallery of winners and losers.

 

No one’s predicted every turn of the downward spiral in the credit crisis, but here are five who saw enough of the trouble coming to get out or switch strategies. Then there are those who badly misjudged the housing-to-mortgage defaults-to Wall Street implosion. Perhaps they were trapped or blindly hopeful, but for what ever reason, they’re now on the losing side.

 

Click below to view the Good and Bad Bets on Housing gallery.

 

Five Who Knew

 

Mortimer Zuckerman

The head of Boston Properties says he began to realize the housing market wasn’t sustainable at the beginning of 2007. “The same thing was true in commercial real estate, so we sold more than $4.25 billion of properties at the end of 2006 and 2007, realizing that prices were extraordinary, and unsustainable.” And they bought the $2.8 billion trophy Midtown GM building. He is keeping his money in cash for now. “I have been an optimist all of my life, and I hate to be a bear, but this is going to be a very serious recession.”

 

John Paulson of Paulson & Co.

In 2005, a hedge fund manager from Queens became suspicious of undue optimism when his bets that certain bonds would lose value weren’t paying off, even though some of the companies were in bankruptcy. John Paulson, or J.P. as he is known, urged his traders to buy up credit default swaps, or insurance instruments that would pay out if mortgages began to sour. At first, they lost money, but in January 2006, Ameriquest Mortgage Co. paid $325 million for improper lending practices. Paulson doubled down. Last year, his two funds dedicated to betting against the housing sector rose 590% and 350%, respectively.

 

Brooksley Born

In a speech in 1998, the former chair of the Commodity Futures Trading Commission warned that the $60 trillion derivatives market “may pose grave dangers to our economy.” But she was up against formidable opponents in Alan Greenspan and Robert Rubin. Some months later, she admitted defeat and left her post when Congress imposed a six-month freeze over her regulatory authority. In 1999, almost exactly a year after she made the speech, Greenspan and Rubin recommended Congress permanently rescind the CFTC’s role regulating derivates.

 

Charles Munger

A constant companion of Warren Buffet, Munger has long warned about derivatives. His take on the accounting methods for derivatives in 2002 is a classic: “It is a sewer, and if I’m right, there will be hell to pay in due course.” Munger “made the observation that derivatives make risk relatively unimportant, that the risks become so widespread that if the worst happens, there is little harm being incurred by any one party, but the system as a whole collapses,” said John Slain, a professor of law emeritus at New York Law School. “He’s been warning of this day for ten years.”

 

Jonathan Miller

Three years ago, Miller, president of appraisal firm Miller Samuel, became frustrated with the appraisal industry, concerned that some of his colleagues were complicit in creating a housing bubble by purposefully inflating home values. “Most mortgage brokers and lenders we dealt with were interested in only making ‘the number’,” Miller said of the stress to appraise a home for the same value as the purchase price. “If you couldn’t make them happy, they would find someone who would.” He added, “there seemed to be no oversight on a federal level, and entities like ratings agencies had their hand in the cookie jar as well.”

 

And Five Who Missed the Cues on the Housing Market Slide.

 

Ken Thompson and a Dishonorable Mention for Ken Lewis

Last May, then-CEO of Wachovia, Ken Thompson, was feeling confident that his $24 billion acquisition of mortgage lender Golden West Financial Corp.—negotiated over a single weekend a year earlier—would result in "Credit quality is not an issue," said, adding the deal would "hit the ball out of the park." Instead, 18 months later Thompson and Wachovia are gone. As for Bank of America Chief Executive Ken Lewis, while he has managed to steer his bank out of danger, he also spent $4 billion to buy notorious mortgage lender Countrywide. The deal led to a settlement estimated over $8.6 billion.

 

William Donaldson

In April 2004, the SEC under then-Chairman Donaldson instituted a voluntary program to manage the risk of the five largest broker dealers. The so-called Consolidated Supervised Entities program allowed the banks to blow past the limits for debt-to-net capital ratio "The SEC modification in 2004 is the primary reason for all of the losses that have occurred," said Lee Pickard, a former director of the SEC's trading and marketing division. "They constructed a mechanism that simply didn't work. The proof is in the pudding." Three of the five largest broker dealers are now gone.

 

Harry Macklowe

When 71-year-old Harry Macklowe took 10 days in February 2007 to snatch up a $7 billion portfolio of prime Midtown Manhattan office buildings, entirely paid for with bank loans save for $50 million of his own money, it was touted as a sign of the real estate market frenzy. Weeks later, the heightened pace of deal-making came to a screeching halt. Macklowe couldn't afford to pay the interest on the short-term loans he took out to finance the purchase, and was forced earlier this year to give one of his chief lenders, Deutsche Bank, control of seven properties.

 

Alan Greenspan

The former Fed chairman kept interest rates at historic lows—bringing the key interest rate to 1% for much of 2003—creating cheap debt and spurring the housing bubble. Saying he was "in a state of shocked disbelief," Greenspan testified to Congress last week, admitting to some misjudgments. But to many, it is too late. "Greenspan was wrong on three fronts: he gave the green light to President Bush's tax cuts, he kept rates too low, and he refused to intervene in regulating mortgage lending," Mort Zuckerman said. "He was at the heart of the problem."

 

Robert Toll

As the largest luxury American homebuilder, Toll Brothers has been whipsawed by the housing meltdown as much as any one in construction. Despite the fact the company's revenue declined 34% so far this year as home sales slid to a 10-year low, Toll, the chief executive, remains optimistic. "People's natural desires have always put them in a place where they want big, better homes and I think we'll see it again," he told CNBC earlier this month.

 

http://www.thedailybeast.com/blogs-and-stories/2008-10-28/5-big-shot-investors-who-predicted-the-crash/

 

 

^I'm starting to think Alan Greenspan is probably the worst economic advisor we've ever had. All he did was encourage, grow and foster market bubbles.The housing market created a bubble but this 'economic' crisis isn't a result of the housing bubble bursting. It has a lot to do with Lehman Bros. (the least respected bank in the U.S.) going bankrupt without gov't intervention. The whole investment banking model went under siege.

 

Investment banks have no deposits so the only way to make money is to borrow it. In order to short a stock, a company has to post collateral. When those MBS lost value, Lehman had to post more collateral which meant credit spreads increased. It became more expensive for Lehman to borrow money as they continued to borrow to feed simple collateral requirements. The more money they had locked away for collateral, the less the company could use to trade.

 

Normally, the market could handle something like a Lehman failure but lenders were scared sh!tless and investment banking became stigmatized. No investment banks could borrow short term commercial paper to use as collateral and run daily operations and their assets weren't always liquid. Their only choice was to pair up with a regular bank that held deposits.

 

Essentially, banks refused to lend to each other despite them being credit worthy. This is a situation where human behavior played a major role as opposed to economic theory and fundamentals.

 

I still disagree with those in the Real Estate downturn = recession doomsday thread. The U.S. will emerge stronger and we're doing much better than most countries. Russia has lost 75% of its stock market value! Iceland is basically bankrupt, surviving off of an International Monetary Fund loan that is 1000% of its GDP. Japan and Europe are experiencing much bigger losses than we are. Australia and Canada are doing well, but their time will come when prices of commodities plummet.

just because other countries are doing worse, that is no excuse for what bush/chenney have let the banks do.

 

Thank God Dick's rein is almost over.

They put Alan Greenspan in there and he created artificial wealth to increase his own book sales! That bastard  :shoot:

Redirected from Whitopia thread:

 

The CRA updates in 1995 specifically:

 

•  Allowed CRA governed institutions to hold only 2.5% of their capital to back investments as opposed to 10% for non-CRA institutions.

•  Provided CRA institutions extraordinary leverage, allowing them to borrow at lower rates than banks.

•  Performance standards were clarified, establishing specific metrics to be measured against, including “percentage of subprime securities held”.

•  Office of the Comptroller of the Currency allowed lenders subject to the CRA to claim community development loan credits for loans made to help finance the environmental cleanup or redevelopment of sites when it was part of an effort to revitalize a low or moderate income community.

 

The CRA point blank incented financial institutions to lend money to people who otherwise would not have been lent money.  There are mountains of eveidence directly linking the CRA to the change in lending proactices.

 

No "unregulated" mortage originator is going to be making these loans if there isn't anyone (RE:  Fannie Mae) buying these loans on the secondary market.  And since financial institutions (re: Fannie Mae) were not only incented to buy these sub-prime loans, but also punished if they didn't explicitly in the CRA, what did you expect to happen?

 

And minorities were "targeted" over whites not having anything to do with income or race; there were clauses specifically in the CRA targeting urban areas.  So lending to all the poor white people in Appalachia did not get the same credit rating bump you would get if you lent to a poor black person in the inner city.  It was part of Clinton's National Homeownership Strategy...but Clionton knew the Republican Congress wouldn't go for it, so he had the Department of Housing and Urban Affairs make the regulatory changes instead of Congress...thus Fannie and Freddie became directly involved with Subprime mortgages (and why the biggest buyers of COuntrywide's subprime mortgage securities was Fannie Mae).

 

 

Some of this is sort of right-ish, but should be directed towards the GSE affordability targets, not the CRA.  Yes, independent mortgage banks would not have originated subprime loans if there weren't a secondary market to buy them, and that secondary market included Fannie and Freddie.  Why people think that implicates the CRA is a mystery to me.  Fannie and Freddie are not banks.  They aren't regulated by the CRA in any relevant way.  The CRA did not cause Fannie and Freddie to buy loans from mortgage banks (like Countrywide).  And more significantly, the CRA certainly has nothing to do with private label securitization of subprime loans originated by non-depository institutions, which was more prevalent than GSE investments in subprime. 

 

Incidentally, there is a lot of evidence that GSEs jumped into subprime for the same reasons private investors did- because it was incredibly lucrative (until everything fell apart), not because of any government mandates.  Saying that the affordability targets (which again, are not part of the CRA) forced the GSEs to get involved with subprime loans seems to me like saying people drive fast on highways because there's a minimum speed limit.

 

For the most comprehensive research on the CRA, I recommend this series put together by the SF Fed: http://www.frbsf.org/publications/community/cra/index.html

 

 

We need to look one step past the CRA.  Why was it passed in the first place?  Why was it that suddenly the typical worker (or family) could no longer afford housing that was essentially built to house them?  CRA was a tiny bandage on a gushing amputation.  The issue-- the only issue-- is exploding inequality in incomes and wealth.  Real estate values, and prices generally, have failed to account for how drastically income has fallen throughout the consumer market. 

 

So... to an extent, CRA bashers may have a point.  There's no sense in having people borrow for houses they can't possibly afford.  But CRA bashers rarely proceed to the next analysis:  how did it come to this stage, and how can this situation be anything but chaos in the making?  Well, nobody can afford to live anywhere, sucks to be them... wrong!  This is a problem for everyone, unless your perimeter defenses rival those of C. Montgomery Burns.

We need to look one step past the CRA. Why was it passed in the first place? Why was it that suddenly the typical worker (or family) could no longer afford housing that was essentially built to house them? CRA was a tiny bandage on a gushing amputation. The issue-- the only issue-- is exploding inequality in incomes and wealth. Real estate values, and prices generally, have failed to account for how drastically income has fallen throughout the consumer market.

 

So... to an extent, CRA bashers may have a point. There's no sense in having people borrow for houses they can't possibly afford. But CRA bashers rarely proceed to the next analysis: how did it come to this stage, and how can this situation be anything but chaos in the making? Well, nobody can afford to live anywhere, sucks to be them... wrong! This is a problem for everyone, unless your perimeter defenses rival those of C. Montgomery Burns.

 

N.A.F.T.A.

Redirected from Whitopia thread:

 

The CRA updates in 1995 specifically:

 

•  Allowed CRA governed institutions to hold only 2.5% of their capital to back investments as opposed to 10% for non-CRA institutions.

•  Provided CRA institutions extraordinary leverage, allowing them to borrow at lower rates than banks.

•  Performance standards were clarified, establishing specific metrics to be measured against, including “percentage of subprime securities held”.

•  Office of the Comptroller of the Currency allowed lenders subject to the CRA to claim community development loan credits for loans made to help finance the environmental cleanup or redevelopment of sites when it was part of an effort to revitalize a low or moderate income community.

 

The CRA point blank incented financial institutions to lend money to people who otherwise would not have been lent money.  There are mountains of eveidence directly linking the CRA to the change in lending proactices.

 

No "unregulated" mortage originator is going to be making these loans if there isn't anyone (RE:  Fannie Mae) buying these loans on the secondary market.  And since financial institutions (re: Fannie Mae) were not only incented to buy these sub-prime loans, but also punished if they didn't explicitly in the CRA, what did you expect to happen?

 

And minorities were "targeted" over whites not having anything to do with income or race; there were clauses specifically in the CRA targeting urban areas.  So lending to all the poor white people in Appalachia did not get the same credit rating bump you would get if you lent to a poor black person in the inner city.  It was part of Clinton's National Homeownership Strategy...but Clionton knew the Republican Congress wouldn't go for it, so he had the Department of Housing and Urban Affairs make the regulatory changes instead of Congress...thus Fannie and Freddie became directly involved with Subprime mortgages (and why the biggest buyers of COuntrywide's subprime mortgage securities was Fannie Mae).

 

 

Some of this is sort of right-ish, but should be directed towards the GSE affordability targets, not the CRA.  Yes, independent mortgage banks would not have originated subprime loans if there weren't a secondary market to buy them, and that secondary market included Fannie and Freddie.  Why people think that implicates the CRA is a mystery to me.  Fannie and Freddie are not banks.  They aren't regulated by the CRA in any relevant way.  The CRA did not cause Fannie and Freddie to buy loans from mortgage banks (like Countrywide).  And more significantly, the CRA certainly has nothing to do with private label securitization of subprime loans originated by non-depository institutions, which was more prevalent than GSE investments in subprime. 

 

Incidentally, there is a lot of evidence that GSEs jumped into subprime for the same reasons private investors did- because it was incredibly lucrative (until everything fell apart), not because of any government mandates.  Saying that the affordability targets (which again, are not part of the CRA) forced the GSEs to get involved with subprime loans seems to me like saying people drive fast on highways because there's a minimum speed limit.

 

For the most comprehensive research on the CRA, I recommend this series put together by the SF Fed: http://www.frbsf.org/publications/community/cra/index.html

 

I read the first few articles in this reasearch...it doesn't change my opinion.

 

I've been saying all along the CRA incented lending to low income people and punished you didn't.  Even the author of the 3rd article uses this in his opening sequence laying out the back ground:

 

The CRA encourages financial institutions not only to extend mortgage, small business, and other types of credit to lower-income neighborhoods and households, but also to provide investments and services to lower-income areas and people as part of an overall effort to build the capacity necessary for these places to thrive.

 

Fannie and Freddie not being covered by the CRA is true, but there needs to be some context. 

 

The CRA did not cause Fannie and Freddie to buy these loans, no.  But who do you think was running Fannie and Freddie at the time these loans were being bought?  Franklin Raines and Jamie Garelick, formerly of the Clinton Administration.  So yeah, the GSE's are to blame b/c they bought the loans...but the loans were created by companies who were incented to make them due to the CRA, the CRA was created (enhanced) by the Clinton Administration, then the Clinton Administration appointed their own people to run the GSE's to make sure the legislation they wrote "worked".

 

The quthor writing the opening preface of that FED reasearch states "There is no empirical evidence to support the claim that the CRA is responsible for the crisis" and goes on to site that it didn't change traditional safe and sound lending practices and other "unrelated" factors that shield the blame from the CRA.  I mean, you have to be kidding me.  It seems rather obvious to me that the CRA created a culture that attempted to change lending practices and then influential people were strategically placed throughout the financial industry to ensure the intent behind the CRA was carried out.

 

Raines and Garelick received like $75 million each in bonuses for having the goals of the CRA met.  From 1999-2007, the top 4 recepients of Fannie political contirbutions were Christopher Dodd, Chairman of Banking, Housing, and Urban Affairs.  Barack Obama, Federal Financial Management Committee.  Chuck Schumer, Chairman of Finance Committee.  Barney Frank, Chairman House Financial Services Committee.

 

So the CRA didn't cover the GSE's...but the heads of the GSE's were given bonuses if the goals of the CRA were met...so how is it they aren't linked?  The 1992 Federal Housing Enterprise Financial Safety and Soundness Act require Freddie and Fannie to devote portions of underwriting to support affordable housing...then along comes the CRA and WOW!  Amazing!  It incents people to lend to low income areas just after Fannie and Freddie were required to underwrite "affordable housing"! 

 

But the CRA doesn't cover Fannie and Freddie so they aren't realted....right...

 

And then of course everyone blames Bush since he was President.

 

Which is weird since he wasn't really involved in any of it.

 

BTW, people started to see signs of this problem coming.  In 2003, a Federal Housing Enterprise Regulatory Reform Act was presented, sponsored by Charles Hagel.  It was designed specifically to regulate the secondary mortgage market where these sub-prime loans were being bought/sold...basically where all the money was being made.

 

What happened to that legislation that might have prevented all of this?  It was shot down in Committee review.  What committee?  Committee on Banking, Housing, and Urban Affairs, Christopher Dodd, Chairman.  WEIRD!

 

So yeah, it's not as simple as "the CRA ruined everything".  It's pretty complex.  But once you start getting into it, it becomes pretty obvious what was going on.  A group of politicians all got together and had a vision of what they wanted to have happen.  Then they executed it - with the CRA being a critical piece of legislation - and made sure they were all in places where they could influence it along...and oh by the way, make a boat load of money from it in the process.

 

And once sh!t really started hitting the fan, the AIG, Lehman Brother's and the like started getting crushed by the media and the public.  Meanwhile, Raines and other executives at Fannie/Freddie got to keep their bonuses, pay some civil fines, and somehow more or less avoid media criticism.

 

So I guess blaming it exclusively on the CRA is not accurrate.  There was legislation leading up to that, other things going on (changes in accounting rules from WorldCom, Enron, etc)...but in the end it was the CRA that pushed it all over the top, and then having the people who put together the CRA distributed around the financial/political landscape to ensure it stayed on target.

I'm not sure we'll ever even agree on the "facts" let alone how to interpret them (for example, it's news to me that Fannie and Freddie execs got bonuses if "the goals of CRA were met".)  We may also disagree on what it means to cause something. 

 

What's inescapable is that the CRA could have been a motivating factor for only a tiny portion of all subprime loans issued during the subprime boom (the fed estimated about 6%).  And the best empirical work that tracked these loans shows they performed better, or at least no worse than loans that could not have been motivated by the CRA (those issued by independent mortgage companies or to high income tracts).  What's left is some kind of mushy argument about how the CRA created the idea for subprime loans, so somehow it's responsible for all the subprime crap that came after.  It's like blaming Candid Camera for all the reality crap on TV today, never mind all the people who actually created the later crap.

 

A good summary of the exculpatory research by the fed is here:

 

http://www.frbsf.org/publications/community/cra/cra_recent_mortgage_crisis.pdf

 

It's pretty hard to paint the author (an economist who was in and out of the Bush administration, is on the U Chicago faculty and has been a scholar at the American Enterprise Institute) as some kind of pinko government apologist.

 

I've yet to see a single empirical analysis by a reputable economist that's implicated the CRA.  Not one.  Just a bunch of punditry or partisan slinging and conflation of the CRA with the corruption at the GSEs as if the CRA and the GSEs were interchangeable.  The culpability of the GSEs is infinitely more complex, and there's a lot there- I think you capture the corruption well in your posts.  Though even there I think it was more the same kind of forces that tanked AIG than it was liberal pressure.

five who knew, five who say they didn't know:

 

A lot of academics saw it coming. They've been warning the fat cat executives and policy-makers for years in DAVOS but most of them weren't try'na hear it. They probably were more concerned about when their next smoke break was coming.