Blue Collar Muse

Just got this in from Leslie Carbone. The House voted 205-228 to defeat the $700 billion bailout plan. A big Tennessee thank you to 228 courageous members of the US House!

But get your helmet and armor. There’s sure to be return fire on this one.

Blue

Popularity: 29% [?]

Following up on my post featuring an excellent video background for America’s current financial woes, I thought to dig deeper into The Community Reinvestment Act of 1977 (CRA). A lot of scrutiny is going to be directed toward it, and rightly so. Well intentioned at the outset, CRA was hijacked by the political Left and driven to this place and time by the unscrupulous with no regard for the consequences.

Signed by Jimmy Carter, CRA purposed to increase credit availablity in Lower and Middle Income areas (LMI). Such areas were often largely inhabited by the poor or minorities. Thus, if banks were lending less in LMI areas, it could mean they were discriminating. There was even a term coined, “redlining”, for the alleged bank practice of outlining areas on maps in which they would not do business, with a red pen. When the Housing and Mortgage Disclosure Act (HMDA) of 1976 did show low levels of lending in LMI areas, discrimination was assumed and CRA passed the following year.

Realistic alternative meanings for HMDA data were proposed and evaluated, but it was too late. Howard Husock reports

A September 1999 study by Freddie Mac, for instance, confirmed what previous Federal Reserve and Federal Deposit Insurance Corporation studies had found: that African-Americans have disproportionate levels of credit problems, which explains why they have a harder time qualifying for mortgage money. As Freddie Mac found, blacks with incomes of $65,000 to $75,000 a year have on average worse credit records than whites making under $25,000.

That assessment was over 20 years too late to stop CRA. By then it had already infected the banking industry and a catalyst had been found to accelerate the process.

In 1977 banking was heavily regulated. CRA required banks to report compliance. This information was used by regulators to approve mergers, to OK opening new branches and closing old ones. Doing business required good CRA compliance. During the 70s and 80s “Regulators asked banks to demonstrate that they were trying to reach their entire “assessment area” by advertising in minority-oriented newspapers or by sending their executives to serve on the boards of local community groups.” These softer compliance reporting requirements drastically changed in 1995 under Bill Clinton’s administration. CRA was amended, adding 2 features which began and drove the Housing Bubble.

First, compliance would now be measured only by one criteria: actual loans made. Husock writes

The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count.

It was no longer acceptable to prove you were looking for the smaller number of good loan candidates in a larger pool of bad candidates. CRA compliance would only be granted if you actually found someone to loan to. True to Leftist ideology, banks were no longer good community citizens if they provided equal access to loans. They were only good if they provided equal outcomes to borrowers. Responsible lending be damned!

As bad as the first change was, the second would prove even worse, especially seen from 2008’s perspective. Once again, Howard Husock says it best.

Crucially, the new CRA regulations also instructed bank examiners to take into account how well banks responded to complaints. The old CRA evaluation process had allowed advocacy groups a chance to express their views on individual banks, and publicly available data on the lending patterns of individual banks allowed activist groups to target institutions considered vulnerable to protest. But for advocacy groups that were in the complaint business, the Clinton administration regulations offered a formal invitation. The National Community Reinvestment Coalition—a foundation-funded umbrella group for community activist groups that profit from the CRA—issued a clarion call to its members in a leaflet entitled “The New CRA Regulations: How Community Groups Can Get Involved.” “Timely comments,” the NCRC observed with a certain understatement, “can have a strong influence on a bank’s CRA rating.”

This led to all manner of abuse. Deregulation massively changed the environment which existed in 1977 when CRA was first passed. Those changes were not taken into account by the 1995 changes to CRA, they were merely exploited by activists with agendas having nothing to do with lending. Deregulation meant more bank mergers, which in turn were dependent upon good CRA scores. But scores could be depressed, meaning expensive delays in business development, simply by formal complaints directed against a bank. It mattered not if the complaints were legitimate. The process was the costly component, not the outcome. Leftist groups like ACORN and others used this to their financial advantage. In vintage Jesse Jackson style shakedowns, they received real windfall profits as banks paid them not to follow up on threats of costly, frivolous complaints.

Even more disturbing, lending decisions were removed from bankers and handed over to activists as the activists were given a powerful seat at the table. ACORN in part, not banks alone, now controlled who got CRA mandated loans. Banks got the risk, while ACORN and others just got rich! In light of this, it is realistic to say it was not just Government Democrats who brought America’s current financial woes down on us, Democratic activists also played key roles!

It makes more sense that activists with no incentive to pay attention to risk would make bad loans than would bankers who understand the lending process. Why should ACORN care if the loans they hand out, but for which banks are responsible, are defaulted on? As we have learned in the last few months, ACORN should have cared. The numbers are staggering and the impact cannot be overestimated! Husock reports in 2000,

By intervening—even just threatening to intervene—in the CRA review process, left-wing nonprofit groups have been able to gain control over eye-popping pools of bank capital, which they in turn parcel out to individual low-income mortgage seekers. A radical group called ACORN Housing has a $760 million commitment from the Bank of New York; the Boston-based Neighborhood Assistance Corporation of America has a $3-billion agreement with the Bank of America; a coalition of groups headed by New Jersey Citizen Action has a five-year, $13-billion agreement with First Union Corporation. Similar deals operate in almost every major U.S. city. Observes Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, which has $220 million in bank mortgage money to parcel out, “CRA is the backbone of everything we do.”

Even worse, ACORN gets to double- and even triple-dip. Again from Husock, “In addition to providing the nonprofits with mortgage money to disburse, CRA allows those organizations to collect a fee from the banks for their services in marketing the loans. The Senate Banking Committee has estimated that, as a result of CRA, $9.5 billion so far has gone to pay for services and salaries of the nonprofit groups involved.” Activist organizations such as ACORN get shakedown payments, community influence and stature from being a reliable source for loan money and get what amount to “broker’s commissions” for doing so.

This is made even more relevant when one considers that the demon in the Housing market crisis is “greedy lenders” who engaged in “predatory lending practices” giving “huge loans to borrowers who couldn’t afford them”. I, personally, have wondered about the the numerous claims from borrowers that lenders didn’t fully explain their loan terms. I’ve often wondered why banks would engage in such suicidal practices. But if “lenders”, with literally NO liability or expertise yet armed with an agenda, controlled vast sums of loan funds, it becomes easier to understand. While many types of mortgages are currently in default, including loans to speculators who borrowed just to “flip” houses and not to live in them, it would be interesting to know how many bad loans came from banks and how many from ACORN’s “mortgage lenders”. “Greedy lenders making bad loans”, indeed!

The issue jumps from politics to politician when one considers the “Community Organizer” role Barack Obama is so proud of. It is no secret Obama worked for ACORN in Chicago where part of his work was suing financial institutions to force CRA compliance. It is no secret he continues to support the goals and strategies of ACORN. This would put Obama neck deep in creating the problem he is now asking America to send him to Washington to fix.

I’m reminded of the old saying about putting the fox in charge of the henhouse. Obama’s association with ACORN and specifically with lawsuits involving CRA compliance in Chicago taint him sufficiently in my mind to disqualify him as a candidate to lead this nation. If his idea of proper tactics and procedures is embodied in this sort of activity, if this is organization he sees as beneficial for a community, he should not be trusted with an even larger community to organize.

There will be more investigation into this matter in the days ahead. Stay tuned. And stay engaged. It may mean the difference between electing a man and a party that believes this sort of outrage is good for the American people and a man who believes in service to country over to service to self.

Blue Collar Muse

Popularity: 47% [?]

UPDATE: The video is back with a fantastic non Warner Music Group soundtrack. 267,000 views since posting on 9/30. The new one is embedded below.

UPDATE: As I speculated elsewhere, the video has indeed been pulled for copyright infringement.  A note at the video site reads, “This video is no longer available due to a copyright claim by Warner Music Group”.  Hopefully the vlogger will release an edited version quickly.

UPDATE: Last I saw the video below had over 1 Million views in just a few days.  Now it is no longer available.  I’m trying to find out why but don’t expect much information from YouTube.  More as it develops.

EDITOR’s NOTE: Welcome to visitors from Silence Isn’t Golden.  This video is going VIRAL!!  When I posted it about 3.5 hours ago, it had 15,000 views.  Now it has 100,000!!  Less than 24 hours and it’s at 300,000.

I’ve been nearing a medical crisis of my own involving High Blood Pressure as I’ve read account after account of Democrats doing their best to lay the blame for the current financial crisis at the feet of Free Marketers. Reality based insight into the Governmental basis for the meltdown and solutions for the problem are simply ignored in an orgy of blame the Market and the GOP so we can extend Government control over yet another vast segment of the Economy.

Unfortunately for Leftists whose only hope lies in the “Pay no attention to the man behind the curtain!” strategy, the truth is starting to emerge. Every day that passes without a bailout gives us more opportunity to get the Truth out. That Truth is that any bailout plan arising from Congress will simply be asking the same people who screwed the thing up in the first place to come in and fix it.

I found the video below following a Tweet from Buzz Brockway who tips the hat to Moe Lane over at RedState. For those of you interested in understanding exactly what caused the housing bubble; why it resulted in the mess we’re in; and, who NOT to trust to fix it, play the video below. It will be the best use of the next 10 minutes of your life. Then call your Representatives and Senators.

(Note: Video embed removed after YouTube banned it due to copyright infringement. See ‘Dems Create Housing Bubble 2′ in my VodPod widget in the left sidebar for the replacement video)

Then I flipped over to my email and found this gem from a friend.

The following quotes are from the New York Times five years ago. Republicans proposed increased oversight and regulation of Fannie and Freddie, but Democrats fought it.

“The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago. Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.” Democrats pushed back. “Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing”.

“These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis”, said Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed. “I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Given the above, the following would be great questions for Barack Obama either tonight or in the Economic Issues debate at Belmont University next month.

1. Why did you stand silent in 2005 and vote with the other Democrats to block very financial reforms which would have prevented the current crisis in the financial markets?

2. One of the primary reasons so many bad mortgage loans were made in the first place is that “community organizers” like ACORN, for which Obama worked, spent decades pressuring banks and bank regulators to do more to make mortgages available to people without much in the way of income, assets, or credit. These campaigns often were couched in racially inflammatory terms. Does Obama still think that banks should have made these loans?

3. Why did you not favor punishment for the former CEO of the bankrupt Fannie Mae, Franklin Raines, a man who personally made $90 million over a few years while cooking the books Enron-style at Fannie Mae? And why did you have Jim Johnson, former Fannie Mae Chairman, helping you pick you VP before the pure embarrassment made him resign?

4. How can you blame John McCain and the Republicans for this mess when you yourself supported the easy credit policies and refused the needed reforms for these programs?

5. How can you blame John McCain and the Republicans for this mess when you yourself supported the easy credit policies and refused the needed reforms for these programs?

Blue Collar Muse

ADDITIONAL READING:

CRA, ACORN, Democrats, Obama and the Housing Market Crisis by Blue Collar Muse @ Blue Collar Muse

Your Pain in Words and Pictures by Steve Kruiser @ America Needs Me

Popularity: 41% [?]

Normally, I don’t mind someone making themselves look silly. The entertainment value is high and I’m on a budget so I find my entertainment where I can.

But when someone both looks silly and tries to drag me into the entertainment by association, if I have the time I’m generally disposed to comment. Which brings me to Russ McBee’s post ‘Slapped by the Invisible Hand’ wherein he blames Libertarians for the SubPrime crisis and the resultant problems. While not a Libertarian, I am a Free Market guy.  From my perspective, Russ doesn’t understand how we got into the mess in the first place nor has he a clue as to how we’re getting out. As a result, like most Liberals, he is incapable of preventing it from happening again.

Per McBee, the subprime housing crisis is entirely the fault of Alan Greenspan, Ayn Rand and anyone else tarred with a Libertarian brush, even lightly. Ditto the failure of Bear Stearns, Lehman Brothers, Merrill Lynch and Countrywide. It would appear McBee believes adherence to Free Market Economics automatically results in the worst possible human behavior from others. People don’t choose their behavior.  The mere proximity of a Libertarian means bad economic choices.

But Libertarians and Free Marketers are brutally Darwinian economically.  They believe businesses behave in their own best interest and won’t willingly destroy geese laying big, golden eggs. For instance, they will take less profit over 50 years and remain viable as opposed to going for huge profits for 5 years to then collapse. Such was the case with the vast majority of businesses which did not speculate in subprime paper, or, if they did, did so in a properly balanced portfolio. Libertarians and Free Marketers look to self interest to regulate the market.

That’s not ignorant or unrealistic as Russ surmises.  Free Marketers understand all too well that despite the warnings, the data and historical precedent which counsel otherwise, some businesses think they can ignore proven Market wisdom and get away with it. They can even point to the odd exception proving the rule.  They abandon self interest for self destruction. They abandon sound fiscal rules and practices; it catches up with them; they pay the price. Well, they did until recently. More on that in a moment.

Free Market, Libertarian self interest is simple. Don’t spit into the wind! Bad things will happen if you do. It should be obvious to McBee, but isn’t, that that is exactly what happened to Countrywide and others. The market self policed and self corrected.  In a serious manner.  Total destruction would seem a fairly high price to pay, but pay it they did.  I’d say the Market did an excellent job of teaching, training, warning and finally policing itself. And I’d be correct.

Except the Market hasn’t been allowed to work it’s magic for years. It won’t correct the bad behavior everyone, McBee and me included, doesn’t like because when business screws up, Government rides in like a White Knight to save the day. Such White Knights used to be other businesses who played by the rules and now snapped up the competition at bargain prices. Today Government bureaucrats sweep in to position cushy, white pillows so a fall from grace is as soft and painless as possible.

McBee evidently sees this as a good thing. He says

How telling it is that the abject failure of the bankrupt and corrupt libertarian mindset requires what amounts to socialism to bail it out when its superficial, simplistic, and naive world view inevitably collapses.

Excuse me? The Market is working exactly as the “libertarian mindset” wants it to. It does not desire or require Socialism to bail it out. In fact, Libertarian thought isn’t being bailed out at all, it is being proven correct. The only “superficial, simplistic and naive world view” is the one saying you can remove consequences from bad behavior and trust you won’t get more bad behavior! When the Market punishes it’s economic apostates, the next guy thinks twice. He sees the smoldering wreckage of CountryWide and Lehman Brothers and pauses to consider a different course of action. The system, if allowed to, will work just like Libertarians and Free Marketers say it will.

Socialism is the option which needs bailing out. Championing a few people experiencing pain from a few business failures, Socialism practically guarantees far worse pain for far more people when their meddling causes an Economy to fail. There is a reason for the non-existence of even a single long-term Socialist success anywhere in the world. Government started bailing out a few failed businesses years ago.  Today, more and more failures need bailing out and at higher and higher costs.  You get more of what you pay for.  Yet another Economic reality Libertarians and Free Marketers understand that Socialists don’t.  Properly dealing with painful realities now prevents future pain of greater intensity and scope. McBee would have us abandon responsibility to chase the Socialist dragon, numbing ourselves with the opiate of Government largesse until the entire house of cards comes tumbling down.

Trading proven, Free Market, Libertarian wisdom and experience for Socialist, pie-in-the-sky, Kumbaya, hand holding is precisely the sort of change Russ McBee, Democrats and Barack Obama want for our country. My response is one gaining daily popularity with Americans:  “No thanks, Obama - Keep the Change!”

Blue Collar Muse

PS: By the way, I didn’t forget the examples of Fannie Mae, Freddie Mac or AIG. I ignored them as they’re irrelevant here.  I guess Russ doesn’t understand Fannie and Freddie are failed Government programs, not Private sector efforts. Libertarians and Free Marketers would never have allowed the Government into the Market like that. That’s what Socialists are for. AIG is an insurance company still sorting out the factors behind its failure. While the subprime market may have played a part, so did the insurance industry losses in the wake of 9/11, Katrina and other large disasters. Including these in efforts to pile on Libertarians is either ignorant or disingenuous. Either way Russ loses …

Popularity: 33% [?]

I’m traveling today so I’m taking the liberty of simply cutting and pasting the text of an email I got from my good friend Fred Thompson.  Actually, I’ve never met the man, it just sounds cool to say it like that since he emailed me personally and all.  FDT writes a regular column at TownHall and this was his from a day or so ago.

The Danger of Government Guarantees

I’ll bet it came as a surprise to most folks that the financial stability of the world as we know it depends upon the survival of a couple of outfits called Fannie Mae and Freddie Mac. Yet that’s what the so-called experts are telling us. Moreover, we taxpayers are now being asked to guarantee Fannie and Freddie’s tab, one that could make the $124 billion S&L bailout of the late 1980s look cheap.

So how did we get stuck with this bill? Well, Congress wanted to “do something” about what it saw as a “housing problem.” To them that meant that they should create an even bigger problem.

So Congress passed laws that made it easier for hopeful home-buyers to buy houses … even when they couldn’t afford them. Then the Fed and other regulators helped, in the form of easy money and loose credit standards for mortgages.

Not surprisingly demand for houses grew, home prices rose, lenders financed additional questionable mortgages, fueling even higher prices and so on. You get the picture. This is called a bubble.

Then an amazing thing happened – apparently impossible to foresee. Home prices did not continue to rise forever! Home prices came down and easy money dried up, causing the above mentioned cycle to reverse. In other words, the bubble burst.

So you’d think the in-over-their-heads homebuyers and the mortgage bankers would take the hit, and the market would right itself. No reason for an international meltdown here, right?

Not so fast my friends. Years earlier Congress established Fannie and Freddie as purchasers of these mortgages, which they could bundle up, repackage and sell to investors, freeing up more mortgage money. As government creations tend to do, the two companies grew until they either owned or guaranteed about half the nation’s $12 trillion dollars in mortgages.

Fannie and Fred were “government sponsored enterprises” which means heads they win, tails you lose. If they make money stockholders, creditors and Fannie and Freddie employees – some making millions annually – get the benefit. But now that mortgages have hit the skids, with mounting losses, the taxpayers potentially face trillions in exposure. This is because there is an “implicit” (read “actual”) government guarantee of Fannie and Freddie’s obligations and both are now too big to be allowed to fail. This is called the “bailout phase,” which will probably lead to a bigger bubble in the future.

Lost in this immense, complex mess is the root problem most people are missing: the government is gradually becoming the guarantor of seemingly every important aspect of American secular life, creating incentives and bureaucracies that cause failure and invite fraud.

In Fan and Fred’s case, it was in no one’s interest to turn off the bubble machine. Just the opposite. The system induced borrowers to take on financial obligations they could not afford and lenders to lower lending standards. Fannie and Freddie went along because their managers’ compensation depended on the firms’ short term financial performance. And investors continued to buy complex security packages they didn’t understand, because the securities were viewed as government-backed.

Heavy campaign contributions by those benefiting from this scheme induced Members of Congress to avert their gaze from the ugly mess that was unfolding.

You’d think we’d have learned by now: when the backstop of the federal treasury makes it easier for politicians, lenders, borrowers, welfare recipients, government contractors, or anyone else, to serve their own self interest at the expense of the taxpayer, many will do just that.

That is why we continue to see self-dealing, moral lapses, outright fraud and lack of management and oversight in a wide array of programs and government-sponsored entities, from housing to Medicare, education and the Small Business Administration, all costing taxpayers billions, even trillions of dollars.

Our Founding Fathers knew more than a little bit about human nature. It is one reason why in the Constitution, the federal government was given certain delineated powers and no others. I hate to burst another bubble, but our government simply doesn’t have the authority or the capability to be the guarantor or insurer of our every need or desire. Isn’t it time we started sending that message loud and clear to the big enablers in Washington?

Blue Collar Muse

Popularity: 34% [?]