Dear Idiots: Poor people did not cause this financial crisis
October 9, 2008 by William K. Wolfrum
Unable to self-reflect, hateful, traitorous morons like Charles Krauthammer have desperately been trying to pin the world’s current financial meltdown on poor people in the United States.
Here’s how Krauthammer – who, without even a whiff of hyperbole, is a true American fascist – puts it:
“For decades, starting with Jimmy Carter’s Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity.”
Krauthammer is either blatantly lying, or, well, never mind, there is no “or.” He’s just lying.
Let me take this valuable bit from Barry Ritholz, an economist not burdened with making his opinions fit into the small box of radical ideology:
Making the rounds amongst a certain subset of wingnuts on CNBC, at IBD and other selfconfoozled folks has been the meme that the entire housing and credit crisis traces to the the Community Reinvestment Act (CRA) of 1977. An alternative zombie myth is the credit crisis is due to Fannie Mae and Freddie Mac. A 1999 article from the New York Times about the GSE’s role in subprime mortgages has been circulating as if its the rosetta stone of the credit crisis.
These memes have become a rallying cry — cognitive dissonance writ large — of those folks who have been pushing for greater and greater deregulation, and are now attempting to disown the results of their handiwork.
I feel compelled to set the record straight about this pseudo-intellectual detritus. As we have painstakingly discussed over the past few years, there were many direct and indirect causes of the current financial mess.
Let’s clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:
• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?
• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?
• What about “No Money Down” Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?
• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?
• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?
• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?
• How exactly did legislation force Moody’s, S&Ps and Fitch to rate junk paper as Triple AAA?
• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment — at the same time?
• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn’t have been: Titled How to Get an “Iffy” loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)
Caseshillerpricedeclines_2
• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?
• Did the GSEs require banks to not check credit scores? Assets? Income?
• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood
• What was it in the Act that forced banks to make “interest only” loans? Were “Neg Am loans” also part of the legislative requirements also?
• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages — was that a CRA requirement too, or just a grab for more market share, and bad banking?
The answer to all of the above questions is no, none, and nothing at all.
The CRA is not remotely one of the proximate causes of the current credit crunch, Housing collapse,and mortgage debacle. As I detailed in Barron’s, there is plenty of things to be angry at D.C. about — but this ain’t one of them.
Read Daniel Gross’s report on this ludicrous “It was the poor and liberals who did it!” nonsense that’s being pushed only by ideologues.
This really isn’t that difficult to see through. If ever the term “follow the money” applied, it’s with this neo-con, fascist meme. And you’ll be hearing it more and more, I’m sure. It’s an obvious lie, but learn the facts so that when the argument is brought up, you can shove it right back at whoever is foolish and bitter enough to blame this financial crisis on the poor.
–WKW
I laugh every time I hear one of these clowns mention Fannie Mae or Freddie Mac.
1. IT’S THE WHOLE FREAKING INDUSTRY TAKING THE HIT, NOT JUST THESE TWO.
2. MOST OF THESE LOANS THAT ARE FAILING HAVE BEEN MADE IN THE LAST FEW YEARS, NOT IN THE CARTER ADMINISTRATION, and somehow skip Reagan and the first Bush, AND NOT IN THE CLINTON ADMINISTRATION.
How do people sleep without a shred of intellectual honesty?
I also find it humorous how everyone has simply forgotten that Freddie Mac basically took billions of dollars in bad mortgages away from banks and mortgage companies no less than 6 months ago.
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/17/AR2008041703772.html
I would love to hear more about the “L-curve” representing wealth and income. It seems like the economic cycles over time tend to reflect a build up of wealth in the middle and upper classs, that is “deflated” by channeling this wealth, real or imaginary, to the mega-rich, as represented by the vertical slender thread of wealth extending upward ad infinitum.
I picture it almost like a boa swallowing a large meal – a one-way steel trap that swallows wealth creation and then channels it up a narrow, slender channel towards the heaven. At miles high, it is no wonder the tower comes crashing down periodically.
Another way to look at it is like waves cycling up on the beach over time, but as waves of wealth instead of water, it is captured and stored up a slender pipe that rises vertically for miles.
How wonderfull to see that McCains “solution” is to pump more wealth upwards!!
Thank you for this. Well done.
1. Don’t call him a liar when you just lied about what he said. you quoting him as saying it was a BI-PARTISIAN EFFORT.
2. Your right that it was not the poor except for places seriously ecconmicly impacted like detroit.
3. It was primarily California then Florida. IF YOU ARE SO KNOWLEDGABLE LOOK AT THE HISTORY OF THE HOME AFFORTABILITY INDEX FOR CALIFORNIA GOING BACK TO 1988. It shows the 3 major property corrections.
4. SOME IN THE CALIFORNIA PRESS WERE WRITING ABOUT THIS, HOWEVER , local, state, and national politians ignored it.
5. THE BANKS HAD TO KEEP CREATING PROGRAMS TO KEEP MTG’S AFFORDABLE. SO THEY DID NOT KNOW. Their bonus’s were based on yearly performance. They had to come up with interest only loans, and then Pay option arms / neg amortization / 1% payment, JUST TO KEEP THE BALL ROLLING.
6. THE BROKERS USE THE PROGRAMS THE BANKS DESIGNED. THE BROKERS USED THE PROGRAMS THE BANKS USED THEMSELVES.
7. Washington Mutual settled a lawsuite based on there own Appraisal Company pushing up Appraisals.
8. There Automated appraisals used to score the accuracy of appraisals. It would give a value range. IT WAS THE BANKS THAT WOULD USE THE 75% LEVEL OF THE MAX VALUE OF THE AREA. THE USED THESE TO APPROVE HELOC SECONDS.
9. JP MORGAN CHASE – CONFORMING AND SUBPRIME ALLOWED FOR PEOPLE ON SOCIAL SECURITY TO DO STATED LOANS. They allowed for loan officers to state $ 2200/month in income because that was the max amount some one could get. avg SSI CHECK IS UNDER $1000.
10. CHASE SUBPRIME WOULD ALSO ALLOW LOAN OFFICERS TO PUT THESE BORROWERS ON 2 YR ARMS WITH A 3 YR PREPAY. THEYS ALSO WOULD GIVE BROKERS PERFORMANCE TIERS.
11. THE MORTGAGE DIVISIONS WERE BY FAR THE MOST PROFITABLE DIVISION IN THE BANKS. THEY KNEW IT WAS COMING, THEY DID NOT CARE. THEY WANTED THEIR BONUS CHECKS.
12 THERE NEEDS TO BE MASSIVE SHAREHOLDER LAWSUITES, HOWEVER CHUCK SHUMMER AND CUOMO ARE GOING TO PROTECT THE BANKS. THEY WILL GO BUST WITH OUT THE PROTECTION.
13. THE POLITIANS KNEW WHAT WAS HAPPENING, THEY WANTED THE GRAVEY TRAIN TO CONINUE ALSO.
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