Can the Govt really fix the economy?

billw wrote:Who's Hitler?

Exactly!

mikeandgerry wrote:The mechanism for disaster was that the CRA (Community Reinvestment Act) indirectly "incentivized" banks to lend to people in "targeted" areas that were believed to be discriminated against because of their race and locale. The incentive was that, in order for banks to expand, they had to have positive CRA numbers in profiled lending.

Well said, but there's a big difference between "forced" and "incentvized". No one held a gun to their head to make bad loans.

If banks only qualified people on the basis of their credit and ability to repay a loan instead of their geographical area the CRA wouldn't have been needed in the first place. They brought it on themselves, and thru political manipulation on both sides of the aisle, turned it to their advantage.

Some community action groups put pressure on the banks. Some politicians loosed the regs. Both are wrong, but the banks share the blame for not properly qualifying applicants and/or collaterializing loans.

I think you are a little wrong djackman. The CRA was enacted to force banks into areas that they hadn't been before. Previously, they wouldn't even open a branch in certain neighborhoods like the Bronx for example. There can weren't enough people who could qualify for a loan. It didn't make sense for the bank to spend the money. Congress forced them into those neighborhoods under the "community reinvestment" claim. It was government intervention pure and simple. Not the "free market" as Devil likes to claim. If the market were truly free, most of those banks wouldn't have existed.

It's not about opening branches, it's about refusing to lend in certain geographical areas.

A borrower's ability to repay a loan has nothing to do with the area in which they live. That banks failed in their duties to properly qualify applicants is not the fault of the govm't. When they were given a incentive to services those areas they looked and found that it could be profitable as "good" areas, but eventually went for the low-hanging fruit of questionable loans they could easily repackage and resell.

And yet none of what happened is illegal. Funny how that works. The banks gave the politicians exactly what they asked for. Happy home owners don't try to overturn the status quo. Left alone, the free market generally tries to stay away from things which have a high probability of their own demise. And if this were truly a free market, all these banks and mortgage companies would go down in flames. Not get bailed out. It took both sides to get us here. And since the governments job is to over see all this, I blame them more rhan Big Business.

jpete wrote:And since the governments job is to over see all this, I blame them more rhan Big Business.

Not sure I understand who you are mad at. Government is composed of real people....Who specifically do you blame? (name names)

djackman wrote:

mikeandgerry wrote:The mechanism for disaster was that the CRA (Community Reinvestment Act) indirectly "incentivized" banks to lend to people in "targeted" areas that were believed to be discriminated against because of their race and locale. The incentive was that, in order for banks to expand, they had to have positive CRA numbers in profiled lending.

Well said, but there's a big difference between "forced" and "incentvized". No one held a gun to their head to make bad loans.

If banks only qualified people on the basis of their credit and ability to repay a loan instead of their geographical area the CRA wouldn't have been needed in the first place. They brought it on themselves, and thru political manipulation on both sides of the aisle, turned it to their advantage.

Some community action groups put pressure on the banks. Some politicians loosed the regs. Both are wrong, but the banks share the blame for not properly qualifying applicants and/or collaterializing loans.

"Incentives" (in quotes) was intended to be sarcasm. There was a gun to their heads. Banks could not expand their business into other neighborhoods (because of banking regulations and free market-breaking rules) without making more loans in the neighborhoods that the community activists wanted. In other words, too much regulation caused the banks to make risky loans against their will.

Of course the banks balked at that early on. So, to appease, the FED and the government through an action that broke free market rules loosened the money supply more than it should have been loosened. The banks were free to lend in all areas which placated them.

Then the government destroyed a perfectly good regulation that separated the interests of financial entities (the Glass-Steagall Act) and put them in bed with one another. One of the good regulations in the US are anti-trust rules. Glass Steagall prevented conflicts of interest. But, the government violated that principle of regulated free markets. That mistake started the ball rolling in the financial marketplace leading to abuses at much higher levels.

Please understand that raw capitalism is as hideous as totalitarianism. But for those who think we have had raw capitalism you are clearly not educated in US economic history. We have had a regulated economy for over one hundred years. I am not an advocate of unbridled capitalism. The role of government is to avoid the economic extremes. Thus, both regulation and the failure to regulate are the responsibility of government. In recent years we have had both too much and too little regulation in certain areas leading to abuses.

djackman wrote:A borrower's ability to repay a loan has nothing to do with the area in which they live.

Not true in mortgage lending.

Recall the first rule of real estate: LOCATION, LOCATION, LOCATION.

Secondly, those in poor communities are, more likely than not, poor. Why should a bank waste its time where there is no income?

I don't know the answer but I am going to guess that prior to CRA (the first one) there probably wasn't any trouble getting a car loan in those areas. Why? They had sufficient income and sufficient collateral. Why would someone in those communities have trouble getting a home loan? They would have sufficient collateral, yes, but likely not sufficient income or down payment.

Laws were already in place for equal opportunity lending after the first CRA. As in equal opportunity employment, those violated could sue. Community activist groups should have been focusing on that with their money and legal influence, not beating the banks into submission.

Equal opportunity applies to race, creed, gender, and sexual orientation (things you cannot easily change about yourself). It is not about equalizing the opportunities of various income levels. If you think people of color are disproportionately poor, then the proper laws to address are equal opportunity in the workforce laws, not the banking laws.

Devil505 wrote:

jpete wrote:And since the governments job is to over see all this, I blame them more rhan Big Business.

Not sure I understand who you are mad at. Government is composed of real people....Who specifically do you blame? (name names)

I already have. Several times. You just don't like the ones I'm naming. But we'll start with Gramm, Leach and Bliley. The move to Clinton. GWB, Chris Cox, Henry Paulson, Alan Greenspan and Ben Bernanke right off the top of my head. How about Dodd, Frank and Reed who I've already mentioned. A comprehensive list would crash this server. Also on my list is 99% of the "Gang of 535" down in D.C. And for good measure I'll expand my list to Obama and Geithner. Happy now Devil?

billw wrote:Marxist economists? This was a market that had NO regulation, absolutely no government interference. Isn't this a free marketer's dream? They were able to say and do just about anything to their prospective clients, including encouraging them to lie on their loan applications, without fear of reprisal. The brightest CEO's in investment banking all came to the same conclusion, housing prices will never go down so they leveraged themselves out to something like 38:1 when a prudent bank wouldn't go much above 12:1.

The government has a duty to regulate banking and commerce to avoid abuses that affect everyone. We have a regulated capitalist system. Both capitalism and totalitarianism at its extremes are the antithesis of freedom. Efforts at removing anti-trust regulation and imposing anti-free market market control are at the core of the arguments here. The removal of Glass-Stegall was an act of unbridled capitalism. The CRA was an act of unbridled marxism.

"The road to hell is paved with good intentions"

At least in part, perhaps a major cause of our current mess, was the good intention of making home ownership possible for more Americans. A laudable intention. So what happened?

By making mortgages easy to get the number of buyers was enormously increased. Owing to increased demand prices went up making houses harder to afford despite the low rates, leading to foreclosure.

This all could have been avoided if the social engineers had left things alone, or at least been aware of where their policies would lead. In 1980 a mortgage was 15%, but the house was one fourth or less the price in 2007. Much more affordable in 1980.

By government policy stimulating demand home ownership is now even further away than it would have been had government kept its hands off. The Savings and Loan scandal was soon forgotten as well as the 500 billion it cost.

Any misgivings those in Congress might have felt over the manipulation of financial instruments was soon soothed by the contribution of 5 billion dollars to members of Congress by banks and investment houses.

So here we are, the victims of well meaning, but naive and ignorant government officials and outright crooks.

Richard

"It is noble to do good. It is even nobler to tell others to do good. And a hell of a lot easier"

jpete wrote:And for good measure I'll expand my list to Obama and Geithner. Happy now Devil?

How do you blame Obama & Geithner for government's failure to provide oversight (that led up to the economic crisis).....before they were even in power???

(Do you blame them for Pearl Harbor & the first Great Depression too?)

(Do you blame them for Pearl Harbor & the first Great Depression too?)

Those were the fault of Clinton and Carter.

Devil505 wrote:

jpete wrote:And for good measure I'll expand my list to Obama and Geithner. Happy now Devil?

How do you blame Obama & Geithner for government's failure to provide oversight (that led up to the economic crisis).....before they were even in power???

(Do you blame them for Pearl Harbor & the first Great Depression too?)

They are in charge NOW aren't they? As I've been told many times, my "side lost". Right?

What have they done? Spent more of your children's and grand children's money and did nothing to fix the root cause. Glass-Steagal worked pretty well until Gramm-Leach-Bliley. Wouldn't a reasonable first step be to repeal GLB?

Until and unless he does that, he's not serious about fixing the problem.

mikeandgerry wrote:In other words, too much regulation caused the banks to make risky loans against their will.

CRA, minimal/excessive regulation aside, they made risky/bad loans under their own free will. Banks have an army of lawyers at their disposal to protect their interests, but their financial interests were better served originating and repackaging any loan they could close. The fact that it got them CRA credits was just an added bonus.

mikeandgerry wrote:

djackman wrote:A borrower's ability to repay a loan has nothing to do with the area in which they live.

Not true in mortgage lending.
Recall the first rule of real estate: LOCATION, LOCATION, LOCATION.

So redlining is ok in your book? Statistically you can show area A has a higher rate of default than area B, but that has nothing to do with an individual in area A's ability to repay a loan.

Hope you can explain how my living in the lower-rent part of town makes me more unable to repay my mortage than someone in the million dollar neighborhood or my friends in the same situation as me? And any RE agent can tell you the "first rule" has nothing to do lending practices.

mikeandgerry wrote:Secondly, those in poor communities are, more likely than not, poor. Why should a bank waste its time where there is no income?

"there's no income" was proven wrong.

mikeandgerry wrote:Equal opportunity applies to race, creed, gender, and sexual orientation (things you cannot easily change about yourself). It is not about equalizing the opportunities of various income levels. If you think people of color are disproportionately poor, then the proper laws to address are equal opportunity in the workforce laws, not the banking laws.

You're somehow twisting "equal opportunity lending" into "equalizing income" which is not what this is about. All the banks had to do was deny anyone who couldn't qualify - if they couldn't find enough good borrowers, they should have gone back and explained. But there was no reason for them to do that when they could rake in large profits regardless of the quality of the loan.