Need an assist from DU research types...

[damonm]

Currently in a running debate on FB w/ RW types who are still proclaiming FannieMae, FreddieMac, and the CRA were the sole cause of the financial crisis. Is there any definitive smackdown of this meme anywhere?

[Ramulux]

1. Simply ask them to

explain "WHY" the CRA had anything to do with anything. They will come up with nothing. The program barely exists anymore and something like 5% of all the banks involved with the crash are even apart of the program anymore. The whole Community Reinvestment Act scare tactic is super weak and they only use it because most people have never heard of it and its easy to stump people when you bring it up.

[RandomThoughts]

2. History channel episode about MIT students raiding the casino

by learning to beat the game of black jack by card counting.

That show matches wall street pretty well.


I figure it was AIG mostly, from news articles, which don't mean much on the topic, seems they were fronting for a few organizations.

Then there was the pay outs to overseas banks, so it was not a USA operation, but a global elite one if it was planned.

:shrug: just some guesses.

[SanchoPanza]

3. The bulk of subprime loans were made by lenders not covered by the CRA.

1) Traiger & Hinckley, a law firm that specializes in CRA compliance, published a study of high cost loans in January of 2008. They found that close to 85% of all high cost loans originated from non-CRA banks.

Link to the study here: http://www.traigerlaw.com/publications/addendum_to_traiger_hinckley_llp_cra_foreclosure_study_1-14-08.pdf#page=2

2) As Fannie and Freddie are CRA-compliant, they had little effect on the mortgage securities crisis. They did relax their lending standards and did act irresponsibly, primarily out of a necessity to compete with private lenders who were not subject to the same rules, but they were no where near the heart of the problem in terms of the volume of mortgage securities being bought and sold.

There are other problems with the argument as well, but if you're talking to people who have no background knowledge on how securitized loans work, you'd most likely be talking over their head. The bottom line is that the low volume of high risk loans being traded by Fannie and Freddie, when compared to the private sector, doesn't give the argument any credence.

[Sherman A1]

4. My understanding

is that this tracks back to the Fed (Greenspan) trying to work the economy out of the Tech Bubble bursting, by increasing the money supply. With more (cheaper) money in the system (which is like water, it had to go somewhere), the housing bubble was created as anyone with a heartbeat could qualify for a loan. There were also the new and "exciting" financial tools (read to mean schemes) developed to make the banker rich.

People were encouraged to re-fi, buy over their heads and eventually this version of the Ponzi Scheme came to a shattering halt with what we saw in 2007 through today.

So really we should perhaps blame Greenspan for this mess...