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More on the CRA

August 6, 2013 - Harry Eagar
A long-running disagreement, both here at RtO and over at the Post-Judd Alliance where I comment a lot, has been over the role, if any, of the Community Reinvestment Act in the financial collapse of late 2008.

The argument goes that the government forced banks to reduce their requirements for mortgage borrowers, thus flooding the secondary market with bad paper that prudent bankers would never have written except under coercion.

RtO has given numerous examples why this cannot make sense, ranging from mortgage collapses in places where US law does not run, like Spain; to the fact (and it is a fact) that although the CRA is a national law, the distribution of bad paper was nowhere near uniform -- lots of lousy mortgages in Phoenix, very few in South Dakota.

As far as RtO is concerned, the disagreement is settled. But from time to time, a factoid comes along reinforcing the notion that whatever was going on, the CRA wasn't forcing it. Today's example, reported by Bloomberg News, concerns a lawsuit vs. Bank of America alleging (again) misrepresentation to secondary buyers, in this case, of $850 million in debt.

Bad stuff, if true, but down in the story is this graf:

"The company failed to disclose that more than 22 percent of the mortgages in the pool were made to borrowers who were self-employed and that its own standards weren’t followed to verify their income and assets, the department said in its complaint. "More than 40 percent of the 1,191 mortgages in the pool didn’t 'substantially comply' with the bank’s underwriting standards, the Justice Department claimed. Employees who worked on the origination of the mortgages admitted that the bank 'emphasized quantity over quality' and that they were instructed by supervisors that it wasn’t their job to discover mortgage fraud, according to the Justice Department’s complaint."

Since Bloomberg didn't do the math, RtO will do it for you: Those mortgages averaged about $775,000. Even at California prices, hardly entry-level housing for immigrants from Guatemala.

UPDATE: Saturday

Bloomberg has a followup story, which repeats a statement from the first one, one I should have pinpointed in the original post, since it nails down the fact that the bankers did not regard these loans as CRA garbage:

"Federal Home Loan Bank of San Francisco bought about $600 million of the pool while Wachovia Bank purchased about $235 million, according to the complaint."

Little as I regard the smarts of bankers, I think even the dumb ones would know enough to stay away from loans they regarded as legal setups imposed by the Democrats. That they were trading these as good paper just proves that the rightwing narrative about the CRA is hooey.

 
 

Article Comments

(29)

OneAikea

Aug-10-13 5:57 PM

This blog is not yours to own, johngault. In your face too, johngault. Best you watch your tone of voice. Best you watch your rhetorics. You may be educated but your thinking is in the box and you don't know Jack. Best you learn and not only think right. You will end up going in a circle.

johngault

Aug-10-13 2:16 PM

Hey Harry Dude, I totally agree with you,and with that said I will gladly let my sparring partner try to have the last word.

Party on Dude.

OneAikea

Aug-10-13 2:09 PM

Discussion is not in your face. If in person and one did that I would put a period on its face. Seems johngault does not catch my meaning. Only way johngault can rebuttal is with its butt. Talking out his posterior. If johngault cannot understand my comment then it is the fool and not me.

Discussions to me are not made online. johngault is a conservative on Fox News.

HarryEagar

Aug-10-13 1:27 PM

You guys do what you want, but I prefer substantive comments to taunting.

johngault

Aug-10-13 12:44 PM

Supreme Doppess- you are confusing your nouns and verbs, which again illustrates you do not know what you are talking about. Blood letting or sucking in the days of old, and even in some places today is done by leeches and not a leach. You need to quit sniffing whatever it is that has left you dazed,confused, and over emotional.

Party on Doppess, but stick to tea or milk for a change.

OneAikea

Aug-09-13 11:31 PM

leach: To remove soluble or other constituents from by the action of a percolating liquid.

Tsk on shtuss, johngault.

johngault

Aug-09-13 9:07 PM

It's "LEECH".

Tsk on shtuss.

OneAikea

Aug-09-13 8:17 PM

"Hey dude, where did you pick up this little gnat? The tsker needs his barber to bleed him: a simple solution for a simpleton. It will be interesting to see his reply. Party on Harry dude." johngault

You feel irritated, johngault? Why use a barber? Use a leach.

johngault

Aug-09-13 5:43 PM

Hey dude, where did you pick up this little gnat? The tsker needs his barber to bleed him: a simple solution for a simpleton. It will be interesting to see his reply. Party on Harry dude.

OneAikea

Aug-09-13 5:34 PM

Seems johngault is one who wants to confront but without ammo backs down. Making assumptions and approximations is done repeatedly and with the same results. Mistakes are not learned by past history.

If Columbus had a zepplin he would have crashed and discovered another land. Actually he would have landed in Ohio and call it Columbus.

Quit inhaling helium and the brain works better. johngault seems to be in your face with comments. I stand my ground.

HarryEagar

Aug-09-13 2:25 PM

That's why we do multiple regression analyses, to see which elements are necessary to change an outcome.

It isn't true that we always have busts. Unregulated markets fail, but under New Deal regulations, we had all booms.

That's what I prefer.

johngault

Aug-09-13 9:51 AM

Dude, it may be preferred, and it would surely simplify life, but it still does not answer questions that would teach us how to avoid the same old economic calamities. One would fiqure that after 7 centuries that this philosophy would have saved economies and nations century after century. There will always be booms and busts which is a simple forecast, but the hows and whys are always more complicated than most will ever understand or agree.

Just think if Columbus had a Zepplin the Americas would have been discovered so much earlier .You make an interesting argument, but I do not agree that simplicity is the end all to this debate. Party on dude.

HarryEagar

Aug-09-13 12:38 AM

A philosophical barber. His 'Razor' says, never multiply categories without necessity.

The least complicated explanation is preferred.

OneAikea

Aug-08-13 9:11 PM

Tsk on doppess johngault. Frankly, you should give it up. Still on CRAC, johngault?

Dr. Ockham can cure. Frankly I should stay and entertain myself with your CRAC comments.

johngault

Aug-08-13 8:57 PM

Tsk on doppess. Frankly, you should give it up.

OneAikea

Aug-08-13 8:53 PM

Seems, johngualt you consider me illiterate and uneducated so I don't feel bad making two cent comments. What's your excuse? Your comment educated or not, is still two cents.

I find this entertaining and facts are irrelvent to an event that already happened. Unless you were there which I doubt, your assumptions and approximations are still two cents. You think in the box and that is why you don't know Jack. Bring it dude.

OneAikea

Aug-08-13 8:37 PM

"You just cannot help yourself OneAikea.

Go continue to hide behind Harry. While I do not agree with much of his conclusions, at least he is well read and can write .

In your case, well there is nothing that can be said other than you are an over emotional and under developed lightweight" johngault.

I am not hiding. You are. For a person who is 58 years old, it seems you are not an idiot but a genious. Emotional? I just find one who is without breath, entertaining. Seems you comment on one but you should read the others. Are you a paid bot?

johngault

Aug-08-13 7:27 PM

You just cannot help yourself OneAikea.

Go continue to hide behind Harry. While I do not agree with much of his conclusions, at least he is well read and can write .

In your case, well there is nothing that can be said other than you are an over emotional and under developed lightweight.

OneAikea

Aug-08-13 7:04 PM

johngault go to the library and read about Dr. Ockham.

"Hey tsker,rhetorical discussion with you is like dueling with an unarmed mind. By the way are you ex Army? You do a masterful job of digging a ditch.

Dig on dude." johngault.

johngault, it seems you were not in any military but it seems you will eventually dig your own grave. I will be there to watch. Dueling online is a chickens way of dueling. Dig on dude. johngault, for you hiding in your closet, still to avoiding serving. You told and they didn't ask.

johngault

Aug-08-13 5:31 PM

Hey dude, please tell us more about Dr. Ockham .

Thanks.

HarryEagar

Aug-08-13 3:29 PM

Be polite.

I have challenged everybody who thinks CRA did it to explain how the same thing happened where there ws no CRA. No one has even tried.

I'll stick with Dr. Ockham. I can explain the whole thing without ever needing CRA.

johngault

Aug-08-13 8:44 AM

Hey tsker,rhetorical discussion with you is like dueling with an unarmed mind. By the way are you ex Army? You do a masterful job of digging a ditch.

Dig on dude.

OneAikea

Aug-07-13 11:51 PM

"Hey doppess, you just do not know when you are over your head. Ignorant you may be, but a wit no way." johngault

You never answered my questions. Seems you cannot. Avoiding the question shows your ignorance and a wit no way. I find taunting your existance, entertaining.

By the wit's way, johngault, you are yourself a doppess. Try coming back with an answer and not a put down. The weather in Kona is fine.

johngault

Aug-07-13 9:21 PM

Hey doppess, you just do not know when you are over your head. Ignorant you may be, but a wit no way.

OneAikea

Aug-07-13 8:29 PM

johngault, how's the weather in Kona?

 
 

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